EU Commission rules that Czech Prime Minister Andrej Babis has conflict of interest

EU Commission rules that Czech Prime Minister Andrej Babis has conflict of interest
Prime Minister Andrej Babis made his wife Monika one of the trustees, in a merely token attempt to comply with conflict of interest legislation.
By Robert Anderson in Prague April 26, 2021

The European Commission has definitively ruled that Czech Prime Minister Andrej Babis has a conflict of interest because the populist billionaire can make decisions as premier that benefit his agro-chemical conglomerate Agrofert.

The publication of the Commission’s final audit on April 23 means that any investment subsidies Agrofert has received since 2017 must be repaid and that it cannot apply for future subsidies until the prime minister cuts ties with the conglomerate.

The Czech state could take action to recover this money from the prime minister’s company –  which may lead to problems with its creditors – though his government is not expected to make any move to do so. Any action on this front will likely await the outcome of the general election in October. Regardless of the result of that election, however, the EU will now investigate taking further action against the Czech Republic.

"The European Commission will examine whether the case of Andrej Babis and Agrofert is an individual case or whether there is a systemic failure in the Czech Republic in relation to conflicts of interest," Czech EU Commissioner Vera Jourova announced on April 26. This could mean that the Czech Republic loses money under the rule of law mechanism in the new budgetary period.

As well as being an international embarrassment, the Commission audit adds to the febrile political mood in the country, with opposition political parties anticipated to announce on April 27 that they will call a vote of no-confidence in Babis’ minority government.

The news could get even worse for the billionaire when the Commission completes a related investigation into his conflict of interest on agricultural subsidies later this year. When both structural funds and agricultural subsidies are included, Agrofert is by far the biggest private recipient of EU funds in the country. Repaying all this aid could bankrupt the company.

The Commission investigation into Babis’ conflict of interest was launched in 2018 as a result of an initiative from the Czech chapter of the anti-corruption organisation, Transparency International.

Transparency also launched legal action that helped re-open an investigation into whether Babis allegedly made a fraudulent application for EU subsidies for his Storks Nest conference centre, because the grants were designed for small and medium-sized enterprises (SMEs). The police investigation is ongoing, though its outcome could well be delayed until after the election.

The conflict of interest case turned on whether Babis still had control over Agrofert after putting it into a trust in 2017 to meet new requirements under amendments that February to the Czech Conflict of Interest Act.

The Commission ruled that as Babis appointed and could dismiss the trustees – his wife and two lawyers – he still exercised effective control over the conglomerate, which has a powerful position in the Czech farming, food production, chemicals and bioenergy sectors, and has moved into the media to give flattering coverage of its boss. As the ultimate beneficiary, he also had a direct economic interest in Agrofert’s success. "Therefore Mr. Babiš controls both trust funds and, through these trust funds, also controls the Agrofert group," the report states.

This put him in violation of both the 2017 Czech law and a tougher 2018 Commission regulation on conflicts of interest.

The Commission has said that the Czech state has not so far applied for reimbursement of the aid given to Agrofert.  The Czech government has not released information on what aid it has given Agrofert during this period.  It is not even clear whether the ministries have already halted giving Agrofert subsidies, even though preliminary versions of the EU report had confirmed the risk that they would have to be repaid.

Playing the victim

Babis has denied still controlling Agrofert and his government’s ministries – particularly those run by his ANO party – have fought the Commission's investigation every step of the way until the publication of the final report. Even now, Babis is threatening to use the state to challenge the audit decision at the European Court of Justice.

David Ondracka, the former Czech head of Transparency International who launched the action, ridiculed the way Babis is proving he has a conflict of interest in the way he is defending himself against those claims. “The whole administration is doing such dances for one company, one recipient,” he told bne IntelliNews. “They would not do it for another company.”

He said the Ministry of Finance should now sue Agrofert to repay the funds, though this will probably have to wait until after the October election, when Babis is no longer to be able to use his (conflicted) power to block the process.

“We need now to take steps to reclaim the money,” he said. “This will be a very difficult process. We need political will to do so. After the election there will be more political will,” he added. He estimates the illegal investment subsidies could total CZK8bn (€310mn).

Babis, the country’s sixth-richest man, has successfully tried to play the victim, depicting the Commission as the tool of his domestic political enemies, and turning the conflict into one between Brussels and Czechia, rather than between the law and his private business. So far the tactic seems to have worked, as after huge demonstrations in 2019 now the public seems bored of the saga, especially while the COVID-19 pandemic and the diplomatic crisis with Russia are dominating the headlines.

Babiš told Czech news agency ČTK that this is a "purposeful and manipulated audit artificially caused by professional informants from the ranks of the Pirates [party]". He said that it was unacceptable for "some officials" to interpret Czech laws, and that the Czech Republic will not return anything and must defend itself.

"Nothing will be returned, it is a manipulated matter and the Czech state must defend itself and defend the way it provides the subsidies," he said.

Nevertheless, the fact that Babis’ private company is refusing to repay the subsidies to the state should give opposition parties powerful ammunition before October’s general election.

“For three years now, we have been making every effort to draw attention to the violation of the law on conflicts of interest by Prime Minister Babiš, who is tunnelling European citizens' money," Pirates chairman Ivan Bartoš wrote to the daily Deník N.

According to the Pirates, who have pushed hardest on this issue, if domestic subsidies and public procurement are also included, Agrofert has illegally received an estimated CZK20bn since 2018.

Petr Fiala, chairman of the rightwing ODS, has also demanded that the government recover the damages caused by the Agrofert Group. "It is not possible for the prime minister's subsidy business to be paid by Czech taxpayers. And this huge conflict of interest, which harms the Czech Republic and Czech citizens, must finally be stopped," he said on Twitter.

Even ANO’s coalition partner, the Social Democrats, which pushed through the 2017 amendment on conflicts of interest that has tripped up Babis, have demanded he repays the money. “We say that if any subsidies were paid out unjustifiably here, Agrofert should return them so that there is no risk that the Czech taxpayer will pay for it,” said Deputy Prime Minister and Social Democrat Chairman Jan Hamáček.

However, the Social Democrats say they do not want to leave the government, given that there is only five months before the parliamentary elections and the government is still wrestling with the coronavirus (COVID-19) pandemic and the crisis with Russia.

 

 

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