"Pro-corruption coalition" sinks Czech bill on anonymous shares

By bne IntelliNews February 18, 2013

Tim Gosling in Prague -

Czech Prime Minister Petr Necas pledged on February 17 to support draft legislation to outlaw anonymous shareholdings against attempts to scupper it from inside his own party. A real test of will for politicians of all stripes in the fight against corruption is now set as the bill heads back to parliament on February 19.

A major anti-corruption initiative that has been discussed for years, the legislation to prevent the use of bearer shares was stalled in the lower house by a group of MPs from the Civic Democrats (ODS) - the senior coalition party - on February 13. The proposed bill has been on the cards for some time, but progress has been extremely slow. The cabinet approved the draft on May 30 and it was then sent to parliament in November, since when little has been heard of it until now.

When the bill did finally make it into parliament, it was quickly blocked. Influential ODS MP Pavel Suchanek tacked on an amendment proposing that the law should apply only to newly issued shares - allowing existing anonymous owners to remain nameless and out of reach of the law, reports Radio Praha. The original draft legislation would require beneficial owners to register their shares with the stock exchange or financial offices, thus revealing their identity.

Clearly, such an amendment would make the legislation practically redundant in a country in which over half of joint-stock companies use the shady practice. Suchanek's personal financial affairs have come under some scrutiny in the past.

The parliament promptly postponed further debate. The official reason given was the absence of Justice Minister Pavel Blazek, who took over the role of pushing the bill when he assumed the post from Jiri Pospisil, also of the ODS (although former junior coalition partner VV is generally seen to have initiated the move). According to Radio Praha, a more likely explanation is that some in Suchanek's own party were outraged by what seemed like an overt attempt to jeopardize the bill.

However, that doesn't do much to explain why Blazek was absent during the vote if the government is serious about finally putting an end to the use of bearer shares. Blazek's claim that the "main goal of the law is to have full knowledge of where every single crown or euro from public funds is going and who is accountable for it," would appear weighty enough to make sure he at least turned up to help push it through.

Tomb of the unknown shareholder

Despite years of apparent efforts to push through legislation to make company ownership more transparent, the practice continues unabated. The Czech Republic is one of just three countries in the world that still allows companies to issue anonymous shares. The issue is obviously linked with money laundering and graft in public procurement contracts - a source of much of the corruption in the country, with estimates putting the amount the state loses at CZK60bn annually, or 10% of the overall public procurement budget.

Some suggest that it's almost impossible to push through such legislation in a parliament filled with MPs who benefit from non-transparent public contracts.

However, a series of financial scandals at companies with bearer shares which were awarded major public tenders (eg. Prague's overpriced and largely useless electronic ticketing system OpenCard, or the failed project of electronic patient cards IZIP), did see a coalition of anti-corruption deputies manage to push through amendments to the law on public procurement in September 2010. Since then, joint-stock companies with bearer shares cannot participate in public tenders.

Yet despite the growing pressure, the use of bearer shares has been growing in recent years. According to a report by Ceska kapitalova informacni agentura (CEKIA) in December, 55% of the country's registered joint-stock companies still used bearer shares, a rise of around 3 percentage points through 2012.

Martin Fadrny from Environmental Law Service suggests to Radio Praha that he wouldn't be surprised to see a coalition formed to prevent the legislation making it through parliament. "We will see whether a big pro-corruption coalition will form now. We have seen this situation happen before in other deliberations, when left and right-wing MPs found reasons not to support anti-corruption legislation."

It appears there may be hope, however, that a coalition of the willing is forming ahead of the reintroduction of the bill to the lower house on February 19. With the ODS to debate its stance at a meeting ahead of the parliamentary sitting, Prime Minister Necas made his position clear, saying during a discussion programme on Czech Television over the weekend that Suchanek's proposal is not "politically far-sighted," reports CTK.

On the other hand, other senior ODS officials are more circumspect. Marek Benda, head of the party's parliamentary group, would only say that the party would support the government bill if no other agreement is reached at the debate.

Meanwhile, the main opposition Social Democrats (CSSD) insisted it would lend its weight to the cause. Chairman Bohuslav Sobotka said the CSSD would vote for all bills aimed at making company ownership as transparent as possible. He called the bill to regulate bearer shares "a change for the better."

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