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Financials

UPDATE 4-Slovenia investigates central bank chief, rebuffs ECB

* ECB threatens legal action

* Probe relates to 2013 bank rescue

* Prosecutors say can’t act on ECB request (Updates with investigation of governor, prosecutor)

LJUBLJANA/FRANKFURT, July 7 (Reuters) - Slovenian prosecutors put central bank chief Bostjan Jazbec under investigation for possible “criminal abuse of office” in a 2013 bank overhaul and rebuffed calls to return seized documents in a rare, escalating fight with the European Central Bank.

Police confiscated documents in a raid at the Bank of Slovenia, part of the ECB’s network of euro zone central banks, taking files from Jazbec, some staff members and a former deputy governor in a pre-criminal investigation.

ECB President Mario Draghi immediately condemned the move, asking European Commission President Jean-Claude Juncker to intervene and threatening legal action for an infringement of the ECB’s legal privileges and immunities.

“Seized equipment contains ECB information, and such information is protected under directly applicable primary EU law,” Draghi said in a letter to the Slovenian State Prosecutor General Zvonko Fiser. “The ECB will also explore possible appropriate legal remedies under Slovenian law.”

Responding on Thursday, Fiser said he could not act on the ECB’s request because the raid was legal and was ordered by an investigative judge so he could not interfere.

Harij Furlan, head of the Special State Prosecution, added that the central bank had previously refused several requests by prosecutors to hand over the documents.

Police also rejected Draghi’s call, arguing that the central bank’s employees did not enjoy privileges which would exempt them from investigation in pre-criminal procedures and the people in question were not acting on behalf of the EU.

The police said in a statement on Wednesday, regarding the raid on the central bank: “Activities focused on gathering information and evidence regarding a suspicion of criminal abuse of office or official duties by four individuals.”

The Bank of Slovenia confirmed on Thursday that Jazbec, a member of the ECB’s rate-setting Governing Council, was one of the four under investigation, and it rejected allegations of wrongdoing.

Jazbec, who will continue to serve on the Governing Council regardless of the probe, could not be reached for comment.

The EU Commission said that it was awaiting the results of the investigation and that it was too early to comment further.

Although such a raid is rare, it is not unprecedented. Cypriot authorities took computers from the central bank as part of an investigation last year. The computers were later returned after a protest from the ECB.

The Slovenian probe relates to an assessment of a bank rescued by the state in 2013, which resulted in wiping out holders of subordinated bonds and subordinated debt to the value of 257 million euros, police said.

In 2013 the government had to pour more than 3 billion euros ($3.33 billion) into local banks to prevent them collapsing under a large amount of bad loans. The move helped the country narrowly avoid an international bailout.

As part of the bank overhaul about 600 million euros of subordinated bonds were scrapped at five banks.

In 2014, the Slovenian Association of Small Shareholders filed several court cases against the Bank of Slovenia and local banks, claiming the subordinated bonds and shareholders’ capital in rescued banks should not have been erased. None of the cases have yet been finished. ($1 = 0.9011 euros) (Additional reporting by Francesco Guarascio in Brussels; Editing by Ralph Boulton and Hugh Lawson)

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