Czech law was potentially broken when securing €1.67m grant for complex owned by Andrej Babiš, anti-fraud unit says

This article is more than 2 years old

This article is more than 2 years old

Pressure on Andrej Babiš, the Czech Republic’s embattled prime minister, has intensified after an EU report concluded that numerous laws were broken to obtain European subsidies for a hotel and conference centre he owns.

The union’s anti-fraud unit, Olaf, said violations that potentially broke Czech law on subsidy fraud were committed in winning a €1.67m (£1.49m) grant for the Čapí Hnízdo (Stork’s Nest) complex south of Prague.



The 63-year-old is the Czech Republic’s second richest man, worth an estimated $4.1 bn (£3bn). He was sworn in as PM last month after running on a populist, Trump-style anti-immigration platform. He has been charged with fraud over the affair, which threatens to upend the country’s normally staid politics.

Babiš appeared to have won an emphatic victory when his Action of Dissatisfied Citizens (ANO) party gained nearly 30% of the vote in the parliamentary election last October, making it easily the largest grouping.

But his minority government has failed to find coalition partners after nearly all Czech parties except extremist groupings ruled out serving with ANO because of the allegations surrounding him.

The revelations could also affect the outcome of a parliamentary committee currently in session to discuss a police request to have his immunity lifted, allowing him to face charges. He is almost certain to lose a confidence vote on his government next Tuesday.



Facebook Twitter Pinterest Andrej Babiš was elected PM on an anti-immigration platform. Photograph: Bloomberg via Getty Images

Meanwhile, the Czech Republic faces a presidential election this weekend, pitting Babiš’s ally Miloš Zeman against candidates including Jiří Drahoš, who has accused Zeman of promoting a climate of “vulgarity, incompetence and corruption”.

Olaf’s concerns were laid bare by the Prague financial newspaper Hospodářské Noviny, which published a Czech translation of the full 48-page report and its recommendations, after obtaining a leaked copy. The Guardian has seen an English version of the report.



The leak came after the Czech finance ministry issued a brief summary of the report last week revealing Olaf had found “irregularities”.

But the full document – which the ministry withheld, to the fury of opposition politicians, on the grounds it could prejudice the police fraud inquiry – goes much further by alleging that multiple Czech and European laws were broken in ways that amounted to “damaging the financial interests of the European Union”.

It says what appeared to have been a fake transfer of Čapí Hnízdo’s ownership by Babiš’s Agrofert conglomerate to a company with anonymous shareholders was staged in December 2007 for the purpose of applying for a small business grant, which it would not have qualified for as part of the bigger group.

Shortly afterwards, the new management of the complex applied for a European Regional Development Fund grant meant for small- and medium-sized businesses.

The application was successful but Olaf’s report said the firm’s representatives had provided false information and concealed important information to obscure the identity of its shareholders, actions which contravened EU rules on financial transparency.



After an Olaf investigation launched in response to an anonymous tipoff in November 2015, the shareholders turned out to have been Babiš’s adult son and daughter, his then partner and now wife, Monika, and her brother, now his brother-in-law. Babis bought the shares for his children and his partner as a gift, according to the report.



The family links precluded Čapí Hnízdo and Agrofert – a huge holding concern encompassing businesses that included food, chemical and energy companies as well as two of the Czech Republic’s biggest newspapers – “being independent of one another”, the report stated.



Information was concealed to hide the fact that Čapí Hnízdo “did not suffer from the handicaps typical of a [small- and medium-sized enterprise]”, the report alleged.



Meanwhile, the report continued, the two signed a cooperation agreement committing Agrofert companies to use Čapí Hnízdo’s corporate facilities, the centrepiece of which is a circular conference hall designed to resemble a stork’s nest and which also includes a golf course. Its main customers during 2009-10 were companies owned by Agrofert.

Agrofert has since retaken ownership of the centre, where an EU emblem flies alongside a Czech flag outside the front gate, and which also has an upmarket restaurant and a nature trail.

Babiš – who entered politics on an anti-corruption platform – has denied all the allegations, dismissing them as politically motivated and fabricated.



Drahoš, the main challenger in this weekend’s presidential election, has said that if he wins he will not allow Babiś to remain as prime minister because of the criminal charges against him.