Polancec is accused of abuse of office for having commissioned from co-defendant Miletic a study that the economy ministry never used and on which the attorney from Vukovar made considerable gain.

The punishment envisaged for such a crime ranges from one to 10 years' imprisonment.

Polancec's attorney Anto Nobilo said his client pleaded not guilty, as he had acted in the state's and not in Miletic's interest.

Nobilo said he would prove that Polancec had not known Miletic from before and had no reason to give him money.

The case occurred when it was necessary to solve "the big political problem" of the Borovo company's Serb workers who, unlike Croatian workers, were not receiving salaries and severance pays, said Nobilo.

The international community and the Independent Democratic Serb Party (SDSS), a coalition partner of the ruling Croatian Democratic Union (HDZ), informed the then Prime Minister Ivo Sanader about the problem and he asked Polancec to solve it without spending too much money, Nobilo said.

Polancec found a solution and convinced the mainly elderly Serb workers to enter their years of service into their employment books and thus qualify for pensions, he added.

"Everybody was happy, as a big problem was solved, and only lawyers were losing, as they had lost the high compensations they would have received had the disputes been brought to court. Polancec offered the lawyers HRK 2.3 million and told them to agree on how to divide the money," said Nobilo.

Since no agreement was reached within the set deadline, Miletic, who received HRK 1.3 million in the first allocation of the money, filed lawsuits regarding the execution of the agreement. Since there were more than 2,000 lawsuits, Polancec promised the lawyer another HRK 500,000 if he dropped them, and requested a study which he never received.

"We accept that the study was the basis for the payment of the attorney fee, but Polancec never saw it, as he certainly would have requested that it be amended, so as to make it more useful," said Nobilo.

Miletic's attorney presented similar arguments, but prosecutor Tamara Laptos said Polancec had acted strictly in a private interest.

Laptos said she would prove that Polancec, as a senior state official, had enabled Miletic to make illegal gain, thus inflicting damage to the state budget.

She said a number of witnesses had said during pre-trial proceedings that the commissioned study was never used.

"The study certainly didn't require 550 hours of work, as stated by Miletic in a letter of intent, considering that it was part of a 19-page work, including an introduction and a bibliography," said Laptos.

Both defendants pleaded not guilty before Judge Ivan Turudic, as they had done during pre-trial proceedings.

This is Polancec's first trial. The Office for the Suppression of Corruption and Organised Crime has filed three indictments against him.

He is charged with unlawfully spending HRK 230,000 on lighting on a soccer field in his home town, as well as with embezzling HRK 400 million from the food company Podravka.

Polancec is also under investigation in a case involving the state-owned power supplier HEP. He, former HEP director Ivan Mravak and the former manager of the light metal factory TLM, Ivan Kostan, are suspected of inflicting damage to HEP worth HRK 600 million.