120,000 people on Wenceslaus Square in Prague on 4 June 2019. They are demanding the resignation of Prime Minister Babiš. It was the biggest demonstration since the Velvet Revolution of 1989. © Jakub Plíhal

A confidential report by the European Commission, which MO* received, found that billionaire Andrej Babiš, during several years, received millions of euros in European subsidies illegally. He is in a conflict of interests: he is both prime minister distributing the subsidies and manager of the country’s largest agro-industrial company, the largest recipient of the subsidies.

The Commission is now demanding that Babiš’s Agrofert company pay back 17 million euros to the EU budget – European subsidies designed to stimulate employment in poorer regions of the EU and to reduce economic and social disparities between different regions in the EU.

Babiš refuses to pay back any money. In yet another subsidy fraud case, he fired the Justice minister to evade criminal prosecution after he was under police investigation.

Update 5 June 2019

On 4 June, 120,000 people protested in Prague for the resignation of the Prime Minister, the biggest protest since the Velvet Revolution of 1989. 371.445 Czechs signed an online petition for the dismissal of Babiš. Also on 4 June, the detailed 71-page audit report of the European Commission was at the top of the agenda of the Czech Parliament. Five opposition parties tried to increase the pressure to enforce a vote of no confidence against the government.

‘If a prime minister had been in Babiš’s situation ten years ago, he would not have lasted 24 hours longer,’ said the leader of the largest opposition party, ODS. ‘We do not want citizens to be forced to pay for the Prime Minister’s illegal activities and citizens to feed the subsidy giant’, said the leader of the Pirate Party, the second largest opposition party.

Then Prime Minister Babiš took the floor. He used the parliamentary debate to wildly proclaim: ‘The European Commission’s report is an attack on the Czech Republic, intended to destabilise our country. It may be a fake. The opposition cannot beat us in the elections, so they are trying to damage us. Transparency International is a corrupt organisation, funded by George Soros.’ He also attacked the ‘opposition media’, a word he borrowed from US President Trump.

Babiš’s social democratic government partners still support him, even though they won zero seats in the recent European elections. Several ministers took the floor. They defended the subsidies to Babiš’s private company remarkably fiercely. At the very least, this gave the impression that the government of the Czech Republic was taken over by lobbyists. After all, businessman Babiš went into politics in 2011 to protect his business interests.

While tens of thousands of people began to flock to Wenceslas Square in Prague, the motion for a resolution by the five opposition parties was voted down. What was striking, was the ultra-nationalists’ and the communists’ support for the government from the opposition. Citizens’ organisation Milion Chvilek pro Demokratii is now planning an even bigger protest on 23 June in Letna Park in Prague, the place of the demonstration that marked the end of the communist regime in 1989. Half a million people can stand on that square.

The crisis began after a source within the Czech government leaked the audit report to the Czech media on Friday. Following a complaint fromin September 2018, the European Commission carried out a financial audit of all administrations managing, distributing and controlling European subsidies in Czechia early this year.

Only a few days ago, the European Commission denied to MO* that they had sent the report to the Czech government, but it was effectively sent to the Ministry of Finance on 29 May. MO* obtained the report via the Czech media.

The audit report is of great importance. It is the first case in which a Head of Government has to repay so much money to the EU budget since the European Union adopted a new regulation on conflicts of interest a year ago.

Main findings of the report

Agrofert, Prime Minister Babiš’s company, has been receiving European subsidies for years while Babiš was in a conflict of interest. When the subsidies were paid out, Babiš exercised influence through the government over the distribution of European subsidies and had a direct, decisive influence over the company Agrofert. The impartial performance of his duties was compromised.

The Commission notes that in June 2015 there was a peak in the subsidies granted to Agrofert. At that time, Babiš was Minister of Finance.

The control systems of the Ministry of Finance and the Ministry of Regional Development were unable to prevent this. It is not clear what controls they carry out to see whether Czech law has been respected.

The Czech authorities were actually obliged to avoid such conflicts of interest, but they did not take any action. All subsidies granted since 9 February 2017 have been paid out in violation of the law. The Commission is demanding that his company pay back 17 million euros to the EU budget.

This is the first time that a Head of Government has had to repay so much money since the EU adopted new rules on conflicts of interest last year.

The new Financial Regulation is clear: one cannot be both politically responsible for the distribution of European subsidies and be the owner of a company that receives them.

Agrofert is one of the largest companies in Czechia. The Commission also notes that Babiš owns the biggest newspapers and television and radio stations.

These findings also have wider implications than for Czechia alone.

The Commission considers that all stages of the distribution of subsidies in Czechia are insufficiently documented. There was a lack of supporting documentation for the award of some grants. This complicates audit missions, perhaps deliberately.

A conclusion that many politicians and businessmen with political ambitions will read with interest is the Commission’s decision that it is not enough to put your company in a trust to avoid conflicts of interest. Since becoming Finance Minister in February 2017, Babiš has placed his company in two trusts to govern Agrofert and protect his interests. Babiš was Agrofert’s sole shareholder while he was Finance Minister. He also exercised control over the management of the company. The Commission finds it incomprehensible that the administration distributing the subsidies does not control the ownership structure of large companies. The administration should oblige the subsidy applicant to provide details about this, including who is the final beneficiary of companies placed in trusts.

Czech Prime Minister and businessman Andrej Babiš with his wife Monika Babišova, who is also involved in fraud involving European subsidies. David Sedlecký (CC BY-SA 4.0)

This report is still “confidential” because the Czech government has two months to respond to it.

MO* requested a response from the European Commission. ‘The Commission never comments on on-going audit procedures. And certainly not on leaked reports’, says a Commission spokesman.

Political crisis

That does not alter the fact that the report was leaked to Czech media. Most independent media outlets in Czechia have covered the scandal extensively. On Friday, the public broadcaster held a minute-by-minute live blog and made several additional news broadcasts about the political crisis that immediately erupted.

On Friday morning, the Czech Pirate Party, which was the first to bring the case to light in August 2018, called all opposition parties for a crisis meeting. Afterwards, the opposition demanded the immediate official publication of the audit report.

Prime Minister Babiš: ‘This is yet another case of anti-Babiš hysteria. The Pirate Party does not have its own programme. And Transparency International is a corrupt organization.’

Prime Minister Babiš briefly appeared in parliament and said formally he would not pay back any money. ‘I haven’t seen the report yet,’ he said. ‘We have two months to respond. Until then, this report is neither official nor public. Czechia will not reimburse any subsidies, there is no reason for it, I have not broken any laws. This is yet another case of anti-Babiš hysteria.’

Also in the direction of Transparency International, Babiš was throwing insults, much like Hungarian Prime Minister Orbán: ‘Transparency International is a corrupt organisation’.

‘The Prime Minister has been attacking us all along and calling us corrupt liars,’ says David Ondráčka, Director of Transparency International Czechia. ‘But now it turns out that the European Commission agrees with us. The Prime Minister’s greed has brought unprecedented international shame to our country. The audit report is good news for all citizens and taxpayers in Czechia and Europe. The Czech and European budgets are not a cash cow for Agrofert.’

David Ondráčka, Director of Transparency International Czechia © Xander Stockmans

What is worrying for Babiš is that the Social Democrats, his government partner, also support the opposition’s demands. The Minister of Foreign Affairs, of the Social Democrats, said that the money ‘should be paid back to the EU budget when the European Commission formally establishes a conflict of interest’.

The Social Democrats, together with the opposition, are now asking that the European Commission should no longer communicatie with ministers who are members of ANO, the party of Babiš. According to them, there is a risk that these ministers do not represent the interests of Czechia, but those of Babiš and Agrofert.

Without the Social Democrats, the Czech Government would fall. There will be a discussion in Parliament tomorrow.

Largest demonstration since 1989?

That same evening, members of parliament and ministers will also hear the call of the people. The largest demonstration since 1989 is expected.

For more than a month, tens of thousands of people have been on the streets against Babiš’s attempts to subjugate the judiciary in order to evade criminal prosecution in another case of fraud involving European subsidies, the so-called “Stork’s Nest” case.

Last week, almost 100 000 people demonstrated. A peak. The leaked audit report of the European Commission only ads fuel to the fire.

‘Our Head of Government is collecting millions of subsidies and will now probably pay them back to the EU out of the pockets of Czech citizens.’

Behind the mass demonstrations is the citizens’ movement Milion Chvilek pro Democratii — one million moments for democracy. They fear that Babiš’s company Agrofert will draw the money (the money they have to pay back to the EU budget) from the public funds of the Czech State, that is to say, from the tax money of Czech citizens. ‘It is unacceptable that our Head of Government is collecting hundreds of millions of subsidies and will, probably, pay them back to the EU out of the pockets of Czech citizens’, the citizens’ movement says.

‘If you’ve had enough, come to Wenceslas Square for the biggest demonstration since 1989. We are demanding not only the resignation of the new Justice Minister, but also the resignation of Babiš. We’ve had enough!’

On 29 April 2019, the first demonstration in favour of the dismissal of Babiš already mobilised tens of thousands of people. Milion chvilek pro demokracii

Stork’s nest

The immediate reason for the wave of demonstrations was the appointment of Marie Benešová as Minister of Justice on 30 April 2019. Many saw this appointment as an attempt by Babiš to evade criminal prosecution in the Stork’s Nest case.

With one of Agrofert’s smaller companies, Babiš requested and received €15 million in European subsidies to build a farm with a recreational area, called “Stork’s Nest”. These subsidies are intended for small and medium-sized enterprises active in tourism in poorer regions.

Then, in 2014, he returned the company to Agrofert, the largest agricultural consortium in the Czech Republic, not a small or medium-sized enterprise. Babiš was then Minister of Finance. The European Anti-Fraud Office (OLAF) investigated the case.

‘OLAF investigators then called the Ministry of Finance to obtain information,’ says investigative journalist Jaroslav Kmenta. ‘Babiš, who was then Minister of Finance himself, tried to influence the investigation by asking officials in the ministry to withhold information.’

The police recommend criminal prosecution of Prime Minister Babiš. Babiš appointed a new Minister of Justice. The prosecutor has still not launched a prosecution.

‘The Director-General of the Ministry later told OLAF not to trust these officials, his own colleagues, and not to communicate with them. Two other officials resigned because they did not agree with the fact that an oligarch uses the state to promote his own interests. They came to me as whistle-blowers.’

Finally, OLAF advised the Czech police to start a criminal investigation. A few weeks ago, the police completed the investigation. They decided that Babiš and six other people, including his wife, should be prosecuted. It is up to the prosecutor to sue Babiš officially.

That has still not happened, because Babiš again started to use the state institutions to protect himself. On 30 April, he dismissed the Minister for Justice and replaced him with Marie Benešová, herself an former prosecutor and a confidante of President Zeman, with whom Babiš also has good relations. In this way, Babiš would be able to strengthen his control over the Public Prosecutor’s Office.

Benešová responded to the audit report and to the demonstrations against her appointment: ‘I have no reason not to believe Babiš. And I think the demonstrations are an exaggerated reaction from that part of the population that cannot accept the results of the elections.’

What will the Liberals do?

‘This audit report of the European Commission is valuable, because the EU is not a cash machine for the rich and powerful’, says Member of the European Parliament Bart Staes (Greens), who put the Babiš case high on the agenda in the European Parliament. ‘This should not be tolerated, especially now that the EU budget for the period 2021 to 2027 is being negotiated.’

Staes does, however, criticise the fact that the Commission did not start the investigation earlier. The audit report could have been made public before the European elections. In these elections, Babiš’s ANO party again became the largest with 21% of the votes.

Member of the European Parliament Bart Staes, one of the longest-serving MEPs, will bid farewell to the European Parliament in 2019 with the culmination of the European Commission’s audit report on the fraud of Prime Minister Babiš. He has long fought for transparency in this matter. (CC BY 2.0)

ANO belongs to the liberal group in the European Parliament. For the time being, it has no plans to exclude ANO’s six MEPs.

‘We are closely monitoring the situation with the group’, liberal group leader Guy Verhofstadt says to MO*. ‘We already said that we expect Babis to fully comply with the requirements of the European Commission, but we are now waiting for the entire audit procedure to be completed.’

Two weeks ago, Verhofstadt confirmed to MO*: ‘If Andrej Babiš wants to continue to be part of the new group that we are forming with French President Emmanuel Macron, he will have to comply fully with the European Commission’s assessment. Let us wait for the assessment of the European Commission.’

That assessment has now been made public, but a final decision on whether or not to expel ANO from the liberal group in the European Parliament will therefore not come in the next two months.

We did not receive an answer about what Guy Verhofstadt thinks of Babiš’s attacks on anticorruption ngo’s and the press, and the firing of the Justice minister to evade criminal prosecution.

‘Verhofstadt may well criticise other party families. Now he has to bring order to his own ranks,’ says Staes.

The Pirate Party also did well in the European elections. Immediately after the elections, the three elected Czech Pirates went to Brussels to negotiate with the Greens and the new liberal group of Guy Verhofstadt and Emmanuel Macron.

On Thursday, they announced that they would join the Greens in the European Parliament.

‘Verhofstadt loses real allies for reforms and stays behind with the authoritarian corrupt oligarchs who only want to reform the EU according to their private interests.’

‘We regard ourselves as a liberal party and we would like to work with other liberal parties’, says Mikuláš Peksa, elected MEP for the Pirate Party, to MO*. ‘But we could not explain to our voters being in the same group with Babiš. We had hoped that the Liberals would have expelled Babiš immediately after the elections, but that did not happen.’

‘Guy Verhofstadt loses real allies for reforms and stays behind with the authoritarian corrupt oligarchs who only want to reform the EU according to their private interests’, says Peksa.

‘Babiš uses the Czech government to lobby for a reform of the EU in line with his self-interest: less power for Europe, less control over who uses the subsidies. Verhofstadt, on the other hand, wants more control over the use of European funds, I presume.’

‘Representatives of Macron’s En Marche came to the Czech Republic and they also spoke to us’, says Pirate President Ivan Bartoš. ‘We have 22 members in the Czech parliament and we could have given our seats in the European Parliament to the Liberal Group.’

‘But if a prime minister steals the money that belongs to all Europeans and that is destined for all Czechs, then we are counting on political supporters to protect us from that theft.’

‘Babiš always says that we have to run the country like a business. Well, then the citizens are shareholders of the country. They are entitled to transparency over how their money is spent.’