The former Croatian prime minister has been sentenced to 10 years in prison for taking bribes from two foreign companies, becoming the highest state official to be convicted of corruption in the future European Union member state.
A Zagreb county court on Tuesday found Ivo Sanader, 59, guilty of agreeing in 2008 to accept a payment from Hungary's energy group MOL of five million euros in exchange for granting it full management rights over Croatia's oil concern INA.
Croatia is due to join the EU in July 2013 and Sanader's conviction is likely to be seen as evidence it is cracking down on corruption. Its efforts to fight crime and graft are being carefully monitored before it formally joins the bloc.
Hungarian oil and gas giant MOL "rejected categorically" bribing Sanader.
"A crime did not happen, MOL did not give any kind of payment to politicians or decision-makers," the company said in a statement.
MOL said it considers the case to be "less about MOL and INA and more as a Croatian political matter."
The ruling, against which Sanader is likely to appeal, sent MOL shares in Budapest down 3.7 per cent by the close of business on Tuesday, compared with 1.5 per cent fall in the main index.
Judge Ivan Turudic said Sanader had taken a fee from Austrian Hypo Alpe Adria Bank in 1995, when he was deputy foreign minister, that prosecutors had described as "war profiteering". Croatia's war of independence from Serbian-led federal Yugoslavia was winding down at the time.
Sanader has strongly denied wrongdoing and dismissed the trial as politically motivated. He will be detained until the appeal.
"You have damaged Croatia's reputation. Because you were a top state official, this verdict is a message to those engaged in politics that crime does not pay," Turudic said.
"This verdict will certainly be welcomed in the EU, and it sets a benchmark for all EU candidate countries," said Drazen Rajkovic, author of the book "How Sanader Stole Croatia".
As prime minister between 2004 and 2009, Sanader was the most powerful man in Croatia, known for smart suits and expensive watches, and his fall from grace coincides with Croatia's campaign to root out corruption.
Sanader resigned in July 2009, unexpectedly and without explanation.
Jadranka Kosor, his hand-picked successor, then launched an anti-graft drive that helped Zagreb complete European Union entry talks in June 2011.