Politics

Bank accounts of Bucharest Municipality frozen by a businessman

The bank accounts of the Bucharest Municipality are frozen because the city fails to pay financial compensations to a businessman. It’s not a first in this dispute that started twenty years ago.

Bucharest city hall
Bucharest city hall | Adobe stock

The mayor of Bucharest Nicuşor Dan announced on May 4 that the municipality bank accounts are frozen by Romania’s judiciary.

As such, the administration is only able to pay operating expenses like salaries and subsidies but Bucharest is not able to fund any investment and will need to pause construction and renovation works.

The freeze of Romania’s capital city bank accounts has been requested by Costică Constanda. Bucharest fails to pay him the 120 million euros (US$127 million) of compensation he won in a long-standing real estate development dispute.

Our intention is to pay because it’s a legal obligation. But we cannot pay 120 million euros at once,” said Nicuşor Dan who has been negotiation staggered payments. The debt is approximately 10% of the budget of the city for 2022 (5.7 billion lei; $1.2 billion). But it didn’t provision much for paying the lawsuit – only 156 million lei ($33 million) provisioned in civil damages – according to HotNews. About 670 million lei ($143 million) were provisioned in investment expenses.

And it’s not the first time Bucharest’s bank accounts are frozen over the issue.

A litigation of 20 years between Bucharest and Costică Constanda

The situation started at the dawn of the years 2000s with a litigation on the ownership of 3 hectares (7 acres) of land, worth hundreds of thousands of euros at the time, near the Herastrau Park, one of the largest parks of the capital known as King Michael I Park today. Eugen Lincaru and Dumitru Tudor were eventually recognized the rightful owners of the areas, whose rights – somehow – were later transferred to Costică Constanda.

But the city had already built luxury properties in the 1990s in this area called Satul Francez, the French quarter. The 7 ha (14 ac) of the French quarter is a high-end residential area of Bucharest with some of the most expensive rents, originally dedicated to expatriates, officials and international businesses.

Traian Băsescu, who served as the mayor of Bucharest between 2000 and 2004 before serving as the president of Romania for ten years, proposed to get back the parcel of the French quarter by trading it with a nearby lot of equivalent size and value: the Bordei Park.

The park was public property and became private in 2003 so that Constanda could own it. Constanda intended to build a real estate complex around the park. But the General Council of Bucharest was opposed to the construction of buildings in this green space and never approved the proposed urban plan.

The real estate developer then brought the case to court. He won the case and was to receive almost 30 million euros ($31.7 million at current exchange rate) in compensation, a decision upheld by the Bucharest Appeal Court.

Constanda then in 2007 agreed with mayor Adrian Videanu to get back the lot in the French quarter where he would be able to raise 5-storey buildings instead of receiving the financial compensation.

But again, the Council of Bucharest in 2009, under a new mayor Sorin Oprescu, didn’t approve the real estate project, or at least not before a new judicial procedure started. Constanda had sold part of the lot to a construction company but the contract fell off because the urban planning was not approved on time. Moreover, in 2008, Bordei Park became public property again, leaving another swap off the table.

From hundreds of thousands to millions of euros

In July 2011, the Court of Bucharest ruled in favor of the real estate developer stating that the city should compensate him with about 165 million euros ($174 million). The city appealed the decision in 2013 which ruled again in favor of Constanda but reduced the compensation to approximately 115 million euros.

Seized by the municipality, the High Court of Cassation and Justice, Romania’s Supreme Court, then ordered a retry, which Constanda won again in 2018. The High Court eventually rejected Bucharest’s appeal and ruled that it needed to compensate Constanda with 75 million euros for the damage plus penalty fees, for a total of about 115 million euros, or 120 million euros according to the current mayor after new calculations of late penalties. The High Court decision was final and could not be contested.

In August 2020, Costică Constanda already requested to freeze the accounts of Bucharest, a situation that lasted until May 2021. He had agreed that the city would give him 11,000 square meters in the French quarter, with ownership of the buildings, valued at about 35 million euros.

Mayor Gabriela Fiera said the city already paid 17 million euros and would reduce its debt to Constanda by 40% with the solution. But the General Council repeatedly rejected the solution. Nicuşor Dan was then part of the opposition who refused to approve it, and a declared candidate to becoming mayor of the city few months later.

But since the city hall refused to give up any land, Constanda asked the accounts to be frozen. And now, as negotiations haven’t gone well again, he has asked to freeze accounts of the city again.

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