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A Streetcar Named Graft

There’s a beast lurking in the back rooms of many Czech town halls and public companies. And it’s getting hungry.

by Jiri Pehe 24 August 2012

In an expert analysis for the Prague public transit operator, DPP, lawyer Vaclav Laska made the finding that an “organized criminal structure” had been active inside the company between 2007 and 2011. These people supposedly prepared contracts that disadvantaged DPP, in addition to using a company in Cyprus to launder money from illegal activity.

 

If Laska’s analysis turns out to be true, it might look as though nothing worse happened than another band of speculators getting rich at the expense of the rest of us.

 

 

Under Czech conditions, where public contracts are routinely manipulated, that would hardly be exceptional. If we’re lucky, the police will take action and these people will get the punishment they deserve.

 

But to see that the matter is not so simple, consider the newly released annual report by the domestic intelligence agency, BIS. The agency warns that corruption at local and regional levels may seriously threaten national security, because foreign secret services – the Russians especially – are recording the various corrupt practices and murky dealings that hover around public contracts.

 

The BIS report describes and verifies an array of practices that are common fodder for the media. It claims that different interest groups intervene in the decisions of official bodies, even indirectly control those bodies. The police and other law enforcement organs have no appetite for launching real investigations of corruption connected with public contracts because they too are often closely tied to the same suspicious business people and politicians.

 

Judges deserve a chapter of their own in this black book. Some judges steer tenders toward business groups behind the scenes and, according to the agency, several regional courts have become arenas where closely linked groups manipulate the process of awarding tenders. In a change from past years, judges now play a much more important role in these groups, which may include insolvency administrators, other employees of judicial bodies, and sometimes even organized-crime figures.

 

The report goes on to detail the techniques used in the theft of public property, for instance, artificially high prices for contracts or manipulating tender competitions.

 

Up to this point the BIS report delivers no real surprises. These practices are discussed in the media, the government mentions them when it promises to fight corruption, many civil organizations draw attention to them.

 

Significantly, however, the report goes on to warn of the activities of foreign intelligence services, especially the Russians, who are well acquainted with conditions here and have strategic interests in our region. These spies are becoming more adept at navigating the thicket of Czech corruption and using it for their own interests.

 

The agency does not give a precise description of how this is happening. It merely warns that those who get entangled in graft at the local level, politicians for instance, will be open to manipulation once they rise higher in politics by those who possess compromising information about them.

 

Considering that a string of governments has contributed to a situation where opaque companies can operate in the Czech business environment, such as through the use of anonymous shares, and where companies whose real owners hide behind firms registered in tax havens or elsewhere abroad can play a major role in the Czech economy, it’s entirely logical that dubious foreign companies and individuals are attracted to this country.

 

No doubt many honorable Russians do business here, but at the same time the Czech business jungle and the well-oiled system of manipulating public contracts lure many Russian firms here. In the best case they merely milk the system for easy gains. In the worst case they act as commandos for the Russian secret services.

 

If pulling the strings of Czech politics from behind the scenes is really as extensive as the BIS describes, the situation offers a whole range of opportunities to foreign intelligence services to influence politics from the background or to “grow” politicians willing to work against their own country out of fear of being compromised.

 

Returning to the Prague transport company – the most visible symbol of strange, opaque business dealings on the municipal level countrywide – it’s easy to imagine the security risk such companies can represent for the state. Where do the true loyalties lie of people who become embroiled in complex corruption schemes? The answer is far from clear. With the city they are supposed to serve? With the Czech public? Or with what Laska dubs an organized criminal structure, which typically of mafialike groups, has its own rules of loyalty? Or, even worse, are some of these people tied to foreign agencies, agencies for whom it was no problem to penetrate a given company’s anonymous or unclear ownership structure?

 

The BIS report is thus a call for politicians at the highest level to not only come down hard on criminal practices in the public sphere. They also must understand that they have permitted a monstrous system of manipulating public money and other forms of corruption to develop, a system that in the final reckoning may threaten the independence and security of the state.

Jiri Pehe is a former adviser to Vaclav Havel and the author of Democracy Without Democrats. This commentary originally appeared on Czech Radio 6. Translated by Ky Krauthamer. Photo by Jurjen van Enter/flickr.

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