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European Commission delays transparency over millions-fraud by Czech Prime Minister Babiš
‘In the morning of May 16, the European Commission sent a potentially explosive audit report on fraud by Czech Prime Minister Andrej Babiš to the government in Prague. This was confirmed to me’, says European parliament member Bart Staes (Greens), who has been following this case like a pit-bull.
The report would conclude that Czech Prime Minister and businessman Andrej Babiš is abusing his political power to obtain more European subsidies for his company. Tens of millions of euros could have already been paid out in violation of the new Financial Regulation of the European Union on conflicts of interest.
The Commission had previously promised to clarify this matter before the European elections, but it will not do so. The stakes are high: Babiš would have to reimburse all unlawfully paid subsidies, and above all: he would have to choose between his position as prime minister and his position as businessman.
The European Commission responded to this article on May 27, 2019
‘The European Commission denies that the audit report was sent to the Czech government on 16 May 2019. We do confirm that the audit, carried out in the Czech Republic in January and February 2019, has been concluded. The Commission is analysing the material it has collected, with the aim of establishing all the facts and potential responsibilities. The Commission never committed itself to clarifying these matters before the European elections of 26 May 2019. The audit process is subject to regulatory deadlines, which are respected. There is no link between the European elections and the audit work. The Commission auditors work in full independence from any political processes.’
Transparency International Czechia, who sent the first official complaint to the European Commission, does confirm nevertheless that the Commission told them ‘results will be submitted by mid-April 2019’.
The Commission cannot confirm the exact amount of European subsidies paid to Agrofert in violation of the new Financial Regulation: ‘It all depends on the conclusions of the audit and the response of the Czech government. As a precautionary measure and in order to protect the EU budget, no payments from the budget to Agrofert under the European Structural and Investment Funds are being made or will be made until the facts have been clarified.’
MO* asked the European Commission if payments to Agrofert from other EU funds are currently still being made. The Commission confirms that agricultural subsidies were not stopped: ‘These are direct payments to farmers. There is no selection by the national authorities. Therefore, conflicts of interests can not affect the selection process.’ Nevertheless, it is national administrations distributing the agricultural subsidies.
The Commission does not deny that payments were made in violation of the new Financial Regulation. Also, payments made before the entry into force of the new Financial Regulation could have been made in a situation of conflict of interest, because Andrej Babis was Finance Minister since 2014 and Prime Minister since 2017.
Andrej Babiš is the second richest man in the Czech Republic and final owner of the largest Czech agro-industrial company Agrofert. As a prime minister he distributes the European subsidies for the Czech Republic, as a business owner he is the largest recipient of these subsidies. Since he joined the government in 2014, the subsidies for Agrofert increased from 23 million euro to 81 million euro.
The European Commission remains silent, even though millions of euro’s could have been unlawfully paid to Babiš’s company. The Pirate Party is taking the Commission to court.
The Czech Pirate Party, the Czech Republic’s second largest opposition party, brought this case to light on 2 August 2018 with a letter to the European Commission. Transparency International filed an official complaint early September 2018.
On 17 May 2019, on the telephone with the Pirate Party, a European Commission official said that he was aware that the Commission was violating the law by not responding to the formal complaint. This is unusual. That is why, on the same day, the Pirate Party brought legal action before the European Court of Justice, against the European Commission.
‘A very justified action by the Pirates’, says Bart Staes. ‘This is not only exceptional, but also a culpable negligence. The Commission had almost nine months to clarify the situation before the elections. That is more than enough time. But first they looked the other way, the European Parliament had to force them to act.’
‘Then they sent an audit mission to the Czech Republic. The audit report could have been ready in time to make it public before the elections. But Commissioner Günther Oettinger says that the audit report will only become public after two months.’
Ivan Bartoš, chairman of the Pirate Party, fears that the European Commission is using the audit report to delay matters in order not to have to respond to their complaint before the elections. ‘Everything points to the fact that the European Commission wants to delay a final decision on the Babiš case until after the European elections. They are protecting Andrej Babiš for unknown reasons’, says Bartoš.
‘Europeans have a right to know, before the elections, whether this Commission is covering up or cracking down on fraud with taxpayers’ money.’
Meanwhile, Babiš continues to earn millions of euros. During the first six months of 2018, he received an income of 3.5 million euro from Agrofert.
The European Commission responded to this article on May 27, 2019
The Commission denies they acted too slow: ‘The Transparency International complaint was registered on 25 October 2018. The Commission started looking into the issue immediately after that. On 12 December 2018, the Commission had already decided to launch a comprehensive audit. On the same day, Commissioner Oettinger confirmed that before the European Parliament. The Commission has up to one year to either close the file or send a letter of formal notice to the Member State concerned. Regarding the letter by three citizens who are also members of the Czech Pirate Party: we received the letter and we are in the process of replying, as we do with all correspondence. The Commission stands ready to take any appropriate measures to protect the EU budget once the facts are clarified and the audit reports are final.’
The official complaint by Transparency International was indeed registered on 25 October 2018, but dates back to early September 2018. ‘It took meetings of European Parliament committees and a parliament resolution of 12 December 2018 to make the Commission act’, says Bart Staes. ‘The audit mission was launched on 15 January 2019, so it took almost three months to act on the official complaint. After finalizing the audit mission in February, it took another three months to finalize the report knowing the Czech government would have another two months to comment on it.’
Petr Fojtík, who works for the Pirate Party, also responded: ‘The letter from the Czech Pirate Party of 2 August 2018 was not just sent by “three citizens”, but by members of the Czech Parliament.’
Legally clear, politically sensitive
The liberal group in the European Parliament, to which Babiš’s party belongs, has begun to withdraw its support.
‘If Andrej Babiš wants to remain in the new group that we are forming with French President Emmanuel Macron, he will have to abide fully by the European Commission’s assessment’, group leader Guy Verhofstadt confirms to MO*. ‘Let us first await this assessment.’
The opinion of the Legal Service of the European Commission has, however, been known since 19 November 2018. In it, Commission lawyers confirmed that Babiš, as prime minister, also remained the owner of Agrofert, and that this is a violation of the Financial Regulation.
Literally: the opinion of the Legal Service of the European Commission
‘Babiš is the sole beneficiary of two trusts, in which his shares in the company Agrofert were transferred. He has an interest in the economic success of Agrofert. If Babiš was a minister with a portfolio that is not linked to agriculture or finance, it would be less evident to argue. But as Prime Minister, Babiš also presides the Council for European Structural Investment Funds. It is hard to imagine how Babiš could lead the government meetings and, at the same time, not participate in the decision-making processes concerning the EU budget resources that could benefit Agrofert. He could sever all relations with the business entity, or the business entity could cease to receive funding from European Structural Investment Funds.’
‘If your own legal service clarified matters already six months ago, what are you waiting for to take action?’, Bart Staes asks.
However, the legal opinion is not public. Staes could easily get hold of it through a leak. He made the document public, after which the Czech Pirates leaked it to the media.
Now Staes has a much harder time getting hold of the Commission’s official audit report. Even Ingeborg Grässle, a German member of the European Parliament for the European People’s Party, could not get the report from the cabinet of her own party colleague Oettinger.
From this, Staes concludes that the stakes are high and that Martin Selmayr, the top official in charge of the European Commission, has strictly closed the ranks.
‘Commission officials know exactly what is going on’, says Staes. ‘Some told me in confidence that their bosses “do not realise that they are shooting themselves in the foot by not taking a firm stance against fraud involving European funds”.’
A ‘Europe that protects’ is Macron’s slogan. Does it protect ordinary citizens or millionaires?
‘It is precisely by covering up or minimising scandals that one feeds mistrust and Euroscepticism. Then we are not the “Europe that protects” Macron so often talks about.’ According to Staes, this is a textbook example of how the European Union could bring ordinary citizens closer by showing that it protects the financial interests of ordinary citizens, not those of millionaires and oligarchs.
Mikuláš Peksa, a Pirate Party candidate for the European Parliament, believes that Czech voters should be able to judge whether or not their government has handled European funds correctly. The Pirates are right behind Babiš in the polls for the European elections.
‘If a Prime Minister steals the money that comes from all Europeans and that belongs to all Czechs, then we are counting on the European institutions to protect us from that theft,’ says Peksa. ‘Andrej Babiš must comply with the law, just like the ordinary citizens of this country.’
‘Babiš calls us traitors because we talk about his crimes abroad. Firstly, Europe is not abroad. Secondly, I think we are doing a service to all Europeans.’
Is the European Commission protecting Andrej Babiš? And why?
1. ‘Because the assessment of the European Commission in the Babiš case will set the standard for what should happen in the future in the event of conflicts of interest,’ says Bart Staes. ‘This is the first serious test-case of the implementation of the new Financial Regulation. And already it concerns a head of government. Any politician who owns a company might not be able to get subsidies. That could have consequences in many countries.’
If the European Commission follows the judgment of its own legal service — even though the Commission stressed to MO* that they never stated that publicly — Babiš will have to sell Agrofert if he wants to remain Prime Minister. If he does not want to hand over control of Agrofert, he must leave politics.
‘That is exactly the choice we want to put him in front of’, says David Ondráčka, Director of Transparency International Czech Republic. ‘I think his company is more fundamental to him. If Agrofert would stop receiving subsidies, it would really hurt Babiš economically. And then he knows that his political position is more damaging than beneficial to his business empire. Then he will know that he has to leave politics. This could set an important precedent.’
2. Because the Commission wants to keep the Czech Government on board as an ally for EU reform. Babiš is not yet inciting people against the EU as such, as Viktor Orbán is doing, and the Commission wants to keep it that way. Also Guy Verhofstadt, who met Babiš at the end of last year and congratulated him on his ‘strong election victory’, also called Babiš an ‘ally for reform’.
But two weeks ago, Babiš showed that he puts his self-interest before the liberal reform plans. ‘Member States’ influence on the use of EU subsidies is the EU’s main strategic priority for the next five years’, he said at a meeting with European President Donald Tusk.
Babiš uses the Czech government to lobby for a reform of the EU in line with his self-interest: less power for Europe. But Verhofstadt wants more control over the use of European funds.
Influence of the Member States’ should be read as ‘influence of Babiš himself’, because this would mean that there would no longer be an annoying Commission checking who receives the subsidies.
Babiš is using the Czech government to lobby for a reform of the EU in line with his private interests. However, the European Commission, as well as Guy Verhofstadt, expects allies to support them in their plea for more, not less power for the European institutions. ‘Treating Babiš softly because you’re afraid that he would turn against the EU is a weak offer’, says Mikuláš Peksa. ‘Moreover, in this way you could even help him entrench his autocratic power.’
Peksa will probably be elected to the European Parliament for the Pirates. He points to the fact that Babiš’s ANO party is already defending the Hungarian Prime Minister Viktor Orbán: ‘In the Czech parliament, ANO-parliamentarians called their own colleagues in the European Parliament “traitors” for voting in favour of the condemnation of Hungary. They voted a resolution in which they declared their support for Orbán.’
‘The liberal group in the European Parliament has protected Babiš for too long. Czech citizens see how Babiš can present himself in Europe as a respected leader and a normal liberal. That helps him to hide his true face and to camouflage his plans to make the subsidy system work in his favour.’
3. Because, according to Pirate chair Ivan Bartoš, the final decision of the European Commission in the Babiš case could redraw the political landscape of the Czech Republic. ‘ANO has already spent 1.3 million euro on the European election campaign. We, the Pirates, 388,000 euro’, says Bartoš. ‘I have no evidence that Babiš is using Agrofert’s profits for his political campaign. But since he is the absolute leader of both organisations — ANO and Agrofert — we suspect that Agrofert is financing ANO.’ The research group Corporate Europe Observatory is confirming this.
‘Stopping the subsidies for the Agrofert company could mean an immediate weakening of the ANO political party. We suspect that Babiš is doing everything in his power to influence the Commission.’
What preceded this
The case started when Janusz Konieczny, an analist of the Czech Pirate Party, found the name of Andrej Babiš in the Slovak company register.
‘I typed “Agrofert” and was shocked when I saw the name of our Prime Minister, with his signature on one of the documents’, says Konieczny. ‘That was proof that Babiš, as Minister of Finance and Prime Minister, had always remained the owner of his company. He says that he had no influence since he placed Agrofert in two trusts in 2017. But he remained the so-called final beneficiary because with one signature he can cancel the trusts and take back the shares.’
The Pirate Party immediately contacted member of the European Parliament Bart Staes, who started to increase the pressure on the European Commission. ‘In October 2018, I put the complaint by the Pirates and Transparency International on the agenda in Parliament,’ says Staes. ‘Then several European commissioners went beating around the bush. I felt: there is shit on the marble. This file is in the highest levels of the Commission.’
A few weeks later, Staes spoke to the Director-General of the Commission’s Directorate-General for the Budget, the Dutchman Gert Jan Koopman. Koopman said that the response to the formal complaint by the Pirate Party and Transparency International should certainly be there in January. ‘It is not so complicated, there is a conflict of interests, but there are political consequences’, Koopman said to Staes.
A member of Koopman’s staff even gave a presentation to members of the European Parliament on the new conflict of interest rules.
The European Parliament: ‘We call on the European Commission to find no excuse for delays when protecting the financial interests of the European Union.’
Shortly afterwards, on 13 December 2018, the European Parliament voted a resolution. 434 Members of Parliament confirmed that they knew about the fraud involving European funds. They asked the Commission to investigate it.
‘The European Parliament deplores any kind of conflict of interest that could compromise the implementation of the EU budget and undermine the trust of EU citizens in the proper management of EU taxpayers’ money. We call on the European Commission to find no excuse for delays when protecting the financial interests of the Union’, the resolution stated clearly.
Then, during the plenary debate, Budget Commissioner Günther Oettinger said that he would have an audit carried out in the Czech Republic in January. He promised to report back in April 2019 to the last session of the European Parliament before the elections. April 2019 came and went without briefing.
Only in a meeting behind closed doors, Oettinger said: ‘We have discovered that Babiš is chairing the Council for European Structural Investment Funds. This council decides which projects to support with the subsidies. Babiš can influence decisions there. We asked him not to attend this council anymore, and he abided by that demand.’
Bart Staes was furious. ‘It is not because he is not present at a meeting that he does not influence the distribution of subsidies,’ says Staes. ‘Moreover, a prime minister should control the distribution of subsidies. That is not the problem. The problem is that he also owns the company that receives the most subsidies. That is literally stated in the legal opinion of the Legal Service of the Commission, and in the European Parliament resolution’.
David Ondráčka, Director of Transparency International Czech Republic, does not think that they will publish the audit report before the inauguration of the new European Commission in autumn: ‘Babiš is hoping for that. Because then, new commissioners will have to study the matter again, and who knows, they might take an even more lax approach.’
Who is Andrej Babiš?
‘It is our own fault that we are giving so much political power to the second richest man in the country, a man who gained his wealth through intimidation, mafia practices and shadowy political connections at the highest level, the largest recipient of European subsidies.’
Jaroslav Kmenta is one of the few investigative journalists documenting Babiš’s practices since the beginning. He wrote the book Boss Babiš. When Babiš founded his party, Kmenta knew immediately that he was no ordinary politician. He knew it was a seizure of power to protect his business interests.
In 1992, Babiš became the owner of a chemical company that later became Agrofert, a colossal holding of 250 companies. Nowadays he controls the entire agricultural chain.
Documents available to Kmenta reveal that Babiš financed the Social Democratic Party in 1998. A few years later, at the time of privatisation, he was able to buy the largest oil refinery Unipetrol. He had fed the police with information so that they would go after competing mafia figures. One of these was later shot dead, the other fled to the Seychelles.
Babiš also counted on contacts with the Minister of Interior in order to get hold of a large meat processing company. He had police investigations orchestrated to put pressure on the sellers to sell at a lower price.
Since the Czech Republic became a member of the European Union in 2004, the flow of European subsidies started. ‘Our countries were not yet equipped with strong anti-corruption institutions,’ says David Ondráčka of Transparency International Czech Republic. ‘Bridges over non-existent rivers. Super-rich people who used European subsidies to restore their homes under the guise of developing tourist attractions. You name it. As long as paperwork was in order, it was fine.’
From 2006 onwards, Babiš entered difficult waters. He didn’t have good connections with the new government led by the conservatives. As long as he could make deals behind the scenes, he did not have to go into politics himself. But now he had to prevent smaller oligarchs from working their way up through the new conservative government as he had worked his way up through the Social Democrats. In 2010, the conservatives won again. ‘That’s when Babiš thought: I have to do it myself’, says Jaroslav Kmenta. ‘In 2011 he founded the ANO party. Two years later, in 2013, he bought one of the best newspapers in the country, which he converted into a propaganda instrument.’
In 2014, after 25 years of domination by the four traditional parties, the widespread clientelism between these parties exploded into a major corruption scandal. The police arrested the Prime Minister, his mistress and members of parliament. The country was in shock. Babiš saw his chance in the early elections that year. The message of his party ANO (Czech for “Action of Dissatisfied Citizens”): ‘Babiš will clean up everything with technocrats, he is a businessman, he has no ideology, he is above the political games, he cares only about solutions’.
Out of nowhere, ANO got almost 20%. Babiš became Finance Minister. ‘The traditional parties owe that to themselves’, says Ondráčka. ‘They could have fired their own corrupt people a long time ago. But they felt untouchable, blinded by power.’