Prime Minister Andrej Babis launches ´pilot project´ to test EU rules on his conflict of interest

Prime Minister Andrej Babis launches ´pilot project´ to test EU rules on his conflict of interest
Andrej Babis' wife Monika was one of the trustees of his funds.
By bne IntelliNews May 19, 2021

Czech Prime Minister Andrej Babis is to challenge the judgement of the European Commission's auditors that he has a conflict of interest because of his continuing control of his agro-chemical empire. The billionaire plans to bring a test case before the European Court of Justice, even though this could mean that a swathe of EU subsidies to the country are halted.

The Czech government has paid a subsidy of CZK547,000 (€21,500) to the plastics company Fatra, which belongs to a trust fund in which the PM has put his assets, even though the EU's auditors have ruled that he still controls the trust funds and therefore cannot receive EU investment subsidies because of the conflict of interest. The Czech state will now ask Brussels to reimburse the money. If the Commission refuses, the government can then go to the European Court of Justice.

Since 2018 the Czech government has continued paying investment subsidies to Babis' empire but has typically not asked for reimbursement from Brussels. According to the sample examined by the auditors, his companies have received CZK155mn in investment grant money since the passing of the conflict of interest law in 2017. The Commission’s final audit 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.

Agrofert is also a huge recipient of EU farm subsidies. In 2019 Agrofert received €1.5 bn from EU funds altogether. The EU is also investigating whether the premier has a conflict of interest that affects these subsidies too.

It also benefits massively from national procurement contracts, even though its owner is prime minister of the government awarding those contracts.

By bringing the test case, Babis will try to claim that the EU auditor's verdict is not final and therefore he may be able to defuse the issue before the general election in October. However, the fact that Babis is forcing the government to take this risky step to maintain subsidies for his empire in itself could be argued to demonstrate the very conflict of interest he denies.

According to iRozhlas, the Minister of Industry and Trade Karel Havlicek (a nominee of the premier's ANO party) confirmed that the Czech authorities are using the subsidy to Fatra to test whether Brussels will reimburse the state and thus to obtain a clear decision about Brussels' refusal to reimburse the subsidies, to be followed by a legal action against the European Commission by Czechia.

Havlicek claims that the EU final audit report is not legally binding. The Fatra company is to be a "pilot project”, aiming at receiving a decision from Brussels that can be challenged before the European Court of Justice, and thus clarify the issue of conflict of interest before the court, the minister said.

He and the Minister for Regional Development Klara Dostalova (also an ANO nominee) who is in charge of EU funds, confirmed the "safety" of such a procedure with the European Commission. 

"It is not our intention to pose systemic risks to the European Structural and Investment Funds, such as the suspension of payments to operational programmes, so in addition to this 'pilot project', audit recommendations would be fully respected," both ministries added.

However, according to iRozhlas, the Head of the Directorate-General for Regional and Urban Policy Marc Lemaitre  said that "if other audit recommendations are not taken into account, a wider suspension of payments will be necessary".

According to the European Commissioner for Budget and Administration Johannes Hahn, the EC wants to introduce new measures to protect the EU budget from conflicts of interest, he said during a debate in the European Parliament on the results of the EU audit into Babis’ conflict of interest.

“The Czech authorities have implemented the majority of the audit recommendations contained in this report, improving the management and control system in preventing conflicts of interest. The follow-up procedure is ongoing for the remaining open issues and the next steps will depend on the progress the national authorities are making in addressing the remaining recommendations,” Hahn said. 

Hahn claimed that no expenditure was so far declared for any of the operations affected by the audit, and therefore the EU budget has been and remains fully protected.

In the debate MEPs called on the EU to take action over Babis' conflict of interest. The Commission has said it will investigate whether the EU conflict of interest rules have been regularly violated in Czechia. As with Hungary and Poland, the EC may apply a new mechanism attached to the disbursement of the EU seven-year budget and recovery fund, conditioning it on respect for the rule of law. If the investigation finds that the PM´s conflict is part of a larger systemic problem in the country, Czechia might lose access to all EU funds.