UPDATED: EU fraud office launches probe into Czech finance minister Babis

UPDATED: EU fraud office launches probe into Czech finance minister Babis
What's Czech Finance Minister Andrej Babis cooking?
By Tim Gosling in Prague March 2, 2016

The European Anti-Fraud Office (OLAF) has opened an official investigation into potential corruption and conflicts of interest on the part of Czech Finance Minister Andrej Babis' Agrofert conglomerate, local media reported on March 2.

The move by the European Commission agency throws some new light on the growing tensions within the Czech governing coalition that threatens to split the government.

OLAF confirmed the launch of the probe to Neovlivni.cz on March 2, the Czech news platform reported. It will presumably look either of the two issues it previously in January said it was looking into, which was how agricultural and chemicals group Agrofert tapped a CZK50mn (€1.8mn) EU grant for the construction of a luxury farm just outside Prague, or at accusations the company used "hidden lobbying" to have Czech rules for EU bio-fuels subsidies changed.

However, the EU fraud office did not stipulate for the Czech outlet on March 2 the exact nature of the investigation. "After a preliminary analysis, OLAF opened an inquiry concerning [a] project within the corporate group Agrofert," was all it would say.

Phones at the press office of the Brussels-based authority went unanswered as bne IntelliNews sought further confirmation. The European officials have been examining the issues since the start of the year.

The confirmation that an investigation has been launched offers fresh insight into the motivation of the Social Democrat Party (CSSD) – the senior party in the Czech coalition headed by Prime Minister Bohuslav Sobotka – for its recent announcement that it will support an opposition bill that seeks to ban cabinet ministers from owning a majority share in companies. The proposed legislation is a clear attack on Babis and Ano, the junior coaltion party headed by the billionaire, and has raised a real risk of a government collapse.

An OLAF spokesman told Neovlivni that investigations took an average of 21 months in 2014. The office has since improved that performance, he added. The next scheduled Czech election is in 19 months in October 2017.

However, it is now looking likely that the coalition will struggle to make it to the end of its term. In a bout of what looks like sheer opportunism, its appears the CSSD is counting on the OLAF probe to offer it leverage over Ano in a marriage of convenience that has proved stable but stormy over the past couple of years.

Stealing a march?

The party's plan to support the bill on conflicts of interest was startling. Should the proposed legislation pass, Babis would have to give up his control of Agrofert and media group Mafra if he wants to join the next government. The company would need to be sold, or transferred to a trust fund.

Unsurprisingly, Babis has reacted with fury. With his eye fixed firmly on his electorate, he claims the bill is an effort to break Ano's disruption of the Czech political elite. The new party shocked when it came second in elections in late 2013 on the same wave that has seen political outsiders and novices heading polls around Europe. The finance minister has yet to respond publicly to the news of the investigation.

While the coalition leader has long enjoyed prodding Ano's Achilles' heel, it has been careful not to make any actual move to attack the finance minister's obvious conflicts of interest. That's despite the myriad points of potential scandal. Agrofert was the biggest Czech corporate recipient of EU funds in the 2007-2013 programme period, receiving CZK4.9bn, according to a report published by weekly Dotyk in September.

The CSSD-Ano-Christian Democrat (KDU-CSL) coalition has proved remarkably stable since taking office in January 2014, despite almost constant low-level sniping between the two major parties. They recently clubbed together to push through a bill on electronic registration of sales that the opposition had blocked, insisting that it would hand Babis inside information on Agrofert's competitors.

However, much of the Czech political establishment remains highly wary of Babis. His personal wealth, ownership of key media like the newspapers Lidove Noviny and Mlada fronta Dnes, and extensive business holdings in the agricultural and chemical sectors saw Sobotka, among others, note that Babis’ power in the Czech Republic is “unprecedented since 1989” and that it represents “a permanent risk of a conflict of interest”.

Labelling the government inefficient and highlighting persistent internal political rivalries, the finance minister told bne IntelliNews in November: “I can’t manage my own time. I am sitting in parliament listening to stupidities of corrupt people.”

Still, the common view is that without a robust lead in opinion polls, CSSD and Ano have little choice but to continue the partnership. Ano has led the polls for the past couple of years, although ratings remain below 30%. Babis is consistently viewed as one of the most trusted politicians in a country rife with scepticsim over the political class. Meanwhile, the established right-wing opposition parties ODS and Top 09 remain at sea, with approval ratings in single digits.

That makes the CSSD's support for the draft bill curious. The finance minister's conflict of interest is a regular point of criticism raised by Sobotka and his party, but a direct attack risks all-out war within the coalition.

It appears the mild-mannered Sobotka senses the time is right to make a move, as he eyes the stakes rising inside the coalition. With Ano continuing to lead opinion polls, Babis has been throwing his weight around, attempting to engineer changes in the coalition agreement, while constantly complaining that, although he's not ready to bring it down, the government is corrupt and wasteful.

The finance minister also appears to be increasingly aligning his stance with that of President Milos Zeman. The controversial head of state, who has seen his approval ratings jump in recent months, is a bitter enemy of the PM, and has openly spoken of ejecting him from government, and even made tongue-in-cheek comments about shooting him.

With the pressure building, Sobotka may see the OLAF probe as his best chance to steal a march on Babis. Any finding against Agrofert would hit Ano hard, given that it's surprisingly successful campaign for the October 2013 election was based on an anti-corruption platform.

Babis is utterly dominant in Ano; one pundit has dubbed it 'Anofert'. Should he be prevented from leading the party, its ratings would likely plummet. Meanwhile, Sobotka may be thinking the CSSD could live with an even broader coalition should it join up with the likes of Top 09.