Effort to cut Serbs' oil supply failing, allies say

Ukraine reaping profits from shipping

cash flows from accounts in Cyprus


WASHINGTON -- As part of the campaign against President Slobodan Milosevic of Yugoslavia, the Clinton administration and NATO have tried to cut off his oil supply and bank accounts.

It is a campaign that has not gone well, U.S. and NATO officials say. Barges filled with oil in Ukrainian ports cross the Black Sea and chug up the Danube River through Bulgaria and Romania. To pay for it, Milosevic is using money secreted in banks in Cyprus during earlier sanctions against Yugoslavia, the officials said.

The Clinton administration and European governments have appealed to Ukraine to shut down the trade and have asked Cyprus to freeze Milosevic's bank accounts, U.S. and NATO officials say, but to no avail.

During his visit to Washington last week, Gen. Wesley K. Clark, NATO's military commander, raised alarms about the Danube oil shipments and said action must be taken to stop them. He said the route was increasingly being used because NATO had been somewhat successful in choking off the supply through Montenegro.

U.S. officials say they do not know how much oil Milosevic is getting through this route -- he is still getting some through Montenegrin ports -- but they say it is Russian oil. The deals are being arranged by middlemen who are making huge profits because of the risks, the officials say.

Asked how much oil Milosevic is getting, one administration official said: "All he needs." Another said that was an exaggeration, but conceded that the Serbian leader was getting enough to keep his military machine going. A third official replied, "Too much."

The Clinton administration and NATO have tried to deal with the matter quietly, fearing that making it a public issue could backfire.

When an oil embargo was last in effect against Yugoslavia, from 1992 until the signing of the Dayton peace accords in 1995, Bulgaria and Romania were major conduits for oil in violation of the sanctions. (Greek and Italian oil companies were major suppliers, with most of their oil moving through Albania, a route that has been largely shut down.)

But Washington and European capitals expect to have more success now. The governments in Bulgaria and Romania have become more stable and have better-trained law enforcement agencies; above all, they have moved from their Communist pasts, expressing a strong desire to join NATO and the European Union.

Still, Bulgaria and Romania have not been as cooperative as the administration would like.

The governments argue that they cannot interfere with traffic on the Danube because it is an international waterway covered by the Danube Convention of 1948, which calls for free movement of ships. But U.S. officials dismiss those assertions, noting that the convention was signed by the states along the Danube when they were part of the Soviet Union; West Germany was the one Danube state that did not sign.

U.S. and NATO officials say the major problem is Ukraine, which is the source of the oil transportation.

During meetings last week in Brussels, Belgium, Ukraine's foreign minister, Boris Tarasyuk, was told that his country must stop the barges from loading oil in Ukrainian ports, a NATO official said.

Tarasyuk countered with complaints about the economic damage Ukraine was suffering because of the war against Yugoslavia. He said it had cost his country $220 million in lost trade, that Ukrainian ports had lost $12 million, and that a Danube shipping company in Ukraine was losing $313,000 a day. Who was going to compensate Ukraine, he demanded of the NATO diplomats.

The Clinton administration and NATO are not confident that they will prevail upon the Ukrainian government. Nearly 90 percent of the Ukrainian population is against the NATO bombing, according to recent polls, a U.S. official said. It is for this reason that the administration does not feel that it can make a public issue out of Ukraine's lack of cooperation.

In Cyprus, too, the Clinton administration is worried about upsetting the government and has not said anything publicly, but it is not happy that the Cypriots have refused to close bank accounts belonging to Milosevic and the Yugoslav government.

With its secretive banking laws, Cyprus has become a major money-laundering center, especially for Russian organized criminal operations, U.S. and European law enforcement officials say. European law enforcement officials say many of the continent's cigarette-smuggling operations use Cyprus, including an operation in which one of Milosevic's sons is involved.

U.S. officials say they do not know how much Milosevic has in these accounts, in part because finding his assets had never been a priority of the CIA, officials said.

But the Cypriots argue that there is no basis for seizing the bank accounts because there are no United Nations sanctions against Yugoslavia. Most of the sanctions against Yugoslavia that were imposed in 1992 were lifted in 1995.

But Cyprus did not cooperate when the sanctions were in effect.

"They always found loopholes," a U.S. official said.

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