NICOSIA, Cyprus — On Dec. 27, 1998, a Yugoslav named Drakomir Stojkovic flew from Belgrade to Cyprus’s Larnaca airport on a private jet carrying bags stuffed with 35 million deutsche marks — worth roughly $17 million.

One might assume that such an eye-popping figure would catch the attention of border guards in this eastern Mediterranean island, which is scheduled to enter the European Union in 2004. But customs officers waved Stojkovic through. He was met by representatives of Cyprus Popular Bank, who deposited the money in the account of a company called Browncourt Enterprises Ltd.

This wasn’t the only time Stojkovic warmed the hearts of his bankers with a hefty haul of cash. From March 1998 to March 1999, he brought $223.6 million deutsche marks into the country, according to a report released this month by the U.N. International War Crimes Tribunal in The Hague. His efforts are said to have represented only a fraction of a multimillion-dollar scheme instigated by former Yugoslav President Slobodan Milosevic. to evade international sanctions. The aim was to funnel money abroad to purchase military equipment through front companies set up in Cyprus and Greece.

Beginning in July 1992, Yugoslavia stashed at least $658.5 million worth of deutsche marks, U.S. dollars, Swiss francs and Austrian schillings in the bank accounts of eight front companies in Cyprus alone, the June 6 report states, adding that Milosevic’s government also dealt in other currencies.

“In my career, I have never encountered or heard of an offshore finance structure this large and intricate,” wrote Morten Torkildsen, a Norwegian forensic financial investigator with the tribunal.

The tribunal’s office declined to discuss the report. Reached by phone, spokeswoman Florence Hartmann said, “We only collected the aspects that could relate to war crimes. The total amount could be more.”

Through Cypriot front companies, Milosevic’s companies bought everything from a used amphibious hovercraft in England to 20 military-style Hummer vehicles in the United States, the report states. The Yugoslav strongman’s brother — who was then Yugoslavia’s ambassador to Russia — apparently joined with a shady Russian arms dealer in buying two Mi-17 helicopters in the former Soviet republic of Ukraine.

The bulk of the purchases were from four Israeli companies that sell products ranging from armor plating to night-vision equipment.

The transactions came during a decade in which Milosevic, now fighting charges of war crimes before the tribunal in The Hague, was an international outcast because of allegations of genocide by Serbian forces in the Balkans. Yugoslavia was under a U.N. arms embargo from 1991 to 1995 and from March 1998 to September 2001. The classification of many purchases as dual use — for both civilian and military purposes — made the embargo harder to regulate.

Siemon Wezeman, an arms specialist with Stockholm International Peace Research Institute, said it doesn’t surprise him to see that most of the business listed is with Israeli arms manufacturers. “Israeli companies are rather in the forefront of dealing arms to basically anybody: countries that are at war, countries with human rights violations, countries with all kinds of problems,” he said.

The Israeli Defense Department dismissed such characterizations as “totally and unforgivably false.” The department checks up on exports of military products twice — when the request arrives and before the export occurs — so that it can freeze sales when the international climate changes, said department spokeswoman Rachel Naidek Ashkenazi.

“Each request is checked from various aspects: political and international commitments of the state of Israel, legal, security and technology aspects,” she said. “Israel adheres to international embargoes imposed by the U.N. and other international entities.”

Nevertheless, Milosevic’s front companies managed to do business with Israeli and other firms in the year before the 1999 Kosovo action, the report alleges. At least 16 transactions occurred in the year following the March 1998 imposition of sanctions against Yugoslavia; all but two of these involving Israeli firms.

A Cypriot aviation company received $795,000 for unspecified work, and the Dutch subsidiary of the Fort Worth, Texas, company Bell Helicopter Textron was paid $155,000 for maintenance work in May 1998 (a company spokesman did not return a reporter’s phone call). Between Jan. 1 and June 20, 1999, the scheme supplied Serbian military forces in Kosovo.

Milosevic, who was defeated at the polls in 2000 and jailed in April 2001, alluded to the scheme when interviewed by an investigating judge in Belgrade after his arrest, the report states. During the time the scheme operated, there was a blockade on the Drina River, and “extrabudgetary funds” were needed to preserve the country’s security, he said.

“Knowing the people who did this, who were patriots and professionals, I believe that these funds were appropriately used for the purposes mentioned,” he explained. “I do not believe that there was another way to purchase this necessary equipment, because delivery of such equipment to our country was strictly banned.”

The scheme drew its money from the Yugoslav Federal Customs Administration, a bureaucracy that seems to have been awash in cash. Quoting Yugoslav officials who were involved in the transactions, the report said the administration collected customs duties that provided more than one-third of the federal budget. In addition to the offshore activities, customs money paid the salaries of essential military-related services such as soldiers and armament workers. (The funds also covered part of the cost of Yugoslav elections held over 6 1/2 years.)

Once the money was collected, customs workers would fly the cash directly to Cyprus or deposit it in a vault at Belgrade’s Beogradska Banka to be transferred abroad. The Beogradska Banka Cyprus Offshore Banking Unit in Nicosia oversaw international operations, Torkildsen states.

While Cypriot officials have long sought to establish a reputation as a clean banking environment, it was a logical place to operate such a scheme. The internationally isolated north is occupied by Turkey, but the Greek south, where the scheme took place, boasts a European-style economy with strong banking services and connections to the Middle East. Cyprus is relaxed in its entry requirements for foreigners, and in the 1990s it was home to many Yugoslavs escaping their sanction-strapped homeland.

At times, ranking Yugoslav officials allegedly acted as cash couriers. Mihalj Kertes, general director of the Federal Customs Authority, said on one occasion he personally accompanied cash to Cyprus and banked the cash. When asked why money was taken to Cyprus, Kertes responded: “Probably [because] there, there was a passage to the world.”

Some of the front companies were registered in the names of people who claimed ignorance of the scheme, Torkildsen reported. Browncourt Enterprises listed a Radmilla Budisin as its owner when it was founded in 1995, but when she was interviewed in Yugoslavia, she said she knew nothing about the company or another firm called Antexol that was transferred to her. Budisin happened to be a distant relative of the late husband of Borka Vucic, chief of the Beogradska offshore unit that was at the center of the activity.

It is possible that people’s identities were stolen to secure false documents that were then used to register companies in Cyprus.

“It was easy to get a false passport in Yugoslavia,” said a Cypriot businessman who regularly traveled to Belgrade during the mid-1990s. “If a Serb was kicked out of Cyprus, he often would return to live here under an assumed name.”

The largest payment the report lists is $1.2 million from the Abridge account with Hellenic Bank. The amount was sent to AM General Corp. in South Bend, Indiana, to pay for 20 Hummer vehicles in 1997 during a lull in the sanctions. The company’s public relations office did not return a reporter’s calls.

Slingsby Amphibious Hovercraft Ltd., in Kirkbymoorside, England, sold Abridge a used amphibious hovercraft, general director Jeff Beven said in a phone interview. The $127,500 hovercraft — which can carry 22 people or 2.2 metric tons — is not a military vehicle.

“I don’t believe a hovercraft like this would make a major war contribution,” Beven said. “I haven’t heard of it being fitted with guns.”

Abridge made at least $3.2 million worth of purchases from Elop Electrooptic Industries Ltd., now owned by Elbit Systems Ltd., Tel Aviv, although the report doesn’t detail just what was bought. The company’s Web site states that its products include everything from armored vehicle upgrades to laser range-finders for weapons.

Elbit Corporate Secretary Arie Tal said his company didn’t own Elop at the time of the Yugoslav purchases and he couldn’t address specific questions about the Abridge purchases. “We follow the resolutions and regulations and are very strict about that,” he added.

In 1997, during the lull in sanctions, Abridge made $706,500 purchases from Elop with funds that originated with a Belgrade company called Yugoimport, the report states. Yugoimport’s Web site states that it is responsible for importing armaments and defense equipment, including infantry weapons, antitank weapons, mortars, antiaircraft weapons, optical devices and fire control systems.

The money scheme evidently involved Borislav Milosevic, brother of the Yugoslav leader and former ambassador to Russia. Borislav Milosevic was listed as owner of a front company called Neocom Trading Ltd., the report states.

In September 1998, the firm issued a series of letters of credit — bank letters authorizing a withdrawal of cash — to two Ukrainian export firms and to the front company Aviatrend Ltd., whose listed owner was a shadowy Russian citizen named Valeri Tchernyi (in the report’s transliteration). Tchernyi was also known to Interpol as Viktor Vassilievich Dudenkov, and a recent U.N. report alleged that Tchernyi was involved in international arms trafficking.

Torkildsen writes that “in my opinion, the Neocom payments described relate to the purchase of two helicopters, with the transaction being organized by Borislav Milosevic.” A spokeswoman for Ukrspetsexport refused to comment.

Some are asking why the Cypriot government turned a blind eye to frequent visits by Yugoslav officials carrying suitcases full of cash when the Balkan nation was under international sanctions. This was particularly curious in that Cyprus has been eager to appear as an EU team player, and the Balkans war was Europe’s greatest crisis of the decade.

But the reaction to the tribunal’s report has been muted here. After years of combating economic crimes and aligning Cyprus with European banking standards, Cypriot authorities bristle at the implication that the island is just another offshore money haven. Several years ago, the government set up a special committee in the Ministry of Justice to fight economic crimes.

They complain that by covering the tribunal’s report, the media is picking on the small nation. “We haven’t denied that these companies were set up in Cyprus,” said a Cypriot federal prosecutor’s office spokesperson who asked not to be identified. “But there were so many other jurisdictions named in the report, including Israel.”

The Cypriot sense of injury is heightened in that the money launderers have long made use of the Turkish-occupied side of the island, tarring the reputation of the rest of the island.

“If you ask my opinion whether there has been money laundering in Cyprus, yes there has been,” complained Marios Matsakis, an outspoken member of Parliament. “There’s no country in the world that doesn’t have money laundering, but Cyprus is probably the lowest on the list. … There is an overwhelming and exaggerated will to pursue this matter not in order to fight money laundering but to destroy this country.”

The issue has even touched Tassos Papadopoulos, a front-runner in next year’s presidential elections who found his name mentioned in the report. Papadopoulos’ law firm registered some of the front companies — but this is a commonplace legal practice that implies no connection with the firms, Papadopoulos and other lawyers insist. He is suing a newspaper and a television station that implied he was involved in the front companies.

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