Beneficial ownership explained: Why Babiš’s non-compliance could cost Czechia billions

The Pirates party has accused former Prime Minister Andrej Babis of "blackmail" saying the Czech Republic stands to lose CZK 179 billion subsidies from the National Recovery Plan, due to Babiš's conflict of interest.

The European Commission has conditioned the disbursement of the funds, intended to tackle the economic crisis related to the Covid-19 pandemic, on the rapid approval of the law on the registration of beneficial owners.

But the EU's move to exert pressure on the Czech Republic to pass the law on the registration of beneficial owners is being met with "strong opposition from the opposition," said Deputy Prime Minister and Interior Minister Vít Rakušan.

Rakušan said the ANO movement is blocking the adoption of the directive in the Chamber of Deputies, the lower house of the Czech parliament.

"179 billion from the European Union. That's exactly how much we will lose. You can thank Babiš for that when you meet him on a trip in the caravan," Rakušan wrote on Wednesday on Twitter.

In order for the country to comply with the EU law, it must commit to the transposition of the Czech Anti-Money Laundering Act (AML), which ensures that there is no recurrence of cases where politicians in conflict of interest influence the flow of subsidies to their companies while receiving profits from that company.

In legal speak, beneficial owners are defined as any individual who ultimately owns or controls a legal entity. Allowing such beneficiaries to remain anonymous has become an increasing concern worldwide as anonymity enables the concealment of considerable questionable financial activity, and many governments are demanding greater transparency about beneficial ownership.

As countries act to improve financial transparency, making disclosure of beneficial ownership as simple and inexpensive as possible will promote compliance and help achieve the ultimate aim of greater corporate accountability. Experts say anonymity allows illegal activities, such as tax evasion, corruption, money laundering, and financing of terrorism, to take place out of the view of law enforcement authorities.

As the final owner of a business empire, Andrej Babiš is in conflict of interest mainly under the Agrofert group of companies, that receive EU funding.

As one of the country’s largest employers in agriculture, Agrofest has received tens of millions of euros in direct farm payments, which have not been the subject of the EU probes, and also smaller amounts for development projects such as innovative technology under various programs.

The ANO movement wants the law to be amended so that the real owner of Agrofert is not considered to be the chairman of the party, Babiš.

The Pirates have gone so far as to accuse Babiš of blackmailing the government, saying that the ANO party is threatening obstruction if the former PM does not get his own way. ANO has rejected that interpretation.

"MPs Alena Schillerová, Radek Vondráček, and Babiš's lawyer Michaela Pobořilová attempted to blackmail the government through the threat of obstruction, taking Czech citizens hostage," the Pirates said in a statement

This is one of many reasons the government wants to initiate a change in the Rules of Procedure, which would prevent obstructions in the Chamber of Deputies. 

According to the head of the chamber, Markéta Pekarová Adamová, a special working group will be set up for this purpose.

European subsidies are directed to support cancer centers and early cancer treatment, 23 billion for new railways and repairs, 3 billion for social services houses, 3.5 billion for energy savings in public buildings and another billion crowns would go to new kindergartens and modern equipment, schools, new digital services for citizens, retraining of people with disabilities, flood defenses, or reforestation, write the Pirates.

The approval of the law on the registration of beneficial owners will place Czechia in line with the EU level standard of anti-money laundering legislation, which will mark an important step forward for the country’s transparency. It would democratize the political processes and promote the anti-corruption agenda necessary for maintaining citizens' trust in democratic institutions.

As for Babiš, the passing of the law could signify impending consequences and accountability, which could halt the course of his presidential campaign.