Corruption Destroyed the Czech OKD

Corruption Destroyed the Czech OKD

Can a Parliamentary Commission Save It?

When the Soviet Union crumbled many assumed economic liberalisms would spread across Europe. Countries began holding democratic elections and initiating economic privatization, a process challenged by corrupt politicians and businessmen set in the ways of Soviet economic exploitation. Tragically, we are currently seeing this play out in the Czech Republic. Ostrava-Karviná (OKD), a Czech mining company was manipulated, undervalued and forced into bankruptcy—only to be reacquired by the state.

OKD is the only producer of black coal, making it vital to the Czech economy. But holding a monopoly on black coal did not protect the company’s profits from being plundered by corrupt politicians. The Czech government, led by unscrupulous individuals such as Miloš Zeman, Andrej Babiš, Stanislov Gross, Václav Klaus, Bohuslav Sobotka, and Stanislav Gross, intentionally drove OKD into the ground. Those individuals benefitted from OKD’s downfall and resale to state-owned Prisko for pennies on the dollar. As the case winds its way through Czech courts, the government has set up a Parliamentary Commission of Inquiry to uncover what exactly went wrong. The Committee is scheduled to release their final report in April 2019. However, that report will still be shrouded in questions of transparency, outside motives, and conflicts of interest.

To fully understand what happened, some background is necessary. In 1998, during the immediate post-Communist period, states throughout the Soviet-bloc used voucher privatization to bring their economies into the modern world. This was effective but also led to the rise of oligarchs and corrupt politicians who benefitted. ”Red Notice” by Bill Browder does an outstanding job of detailing how this worked in Russia. In the Czech Republic, then Finance Minister Václav Klaus implemented voucher privatization so that the Czech people could finally see the benefits of capitalism; behind the scenes, however, sinister things were beginning to unfold—not the least of which surrounded the OKD.

Is the OKD Parliamentary Commission Independent?

The Czech Parliament set up an Inquiry Committee at the end of 2017 to investigate the OKD affair. Led by Lukáš Černohorský of the Czech Pirate Party, the committee has an official mandate to investigate all aspects of the case. Six of the nine members come from the Moravian-Silesian region. This should be a good thing as the region is one of the most affected by OKD affairs, and its MP’s are therefore well informed on the issues. There is, however, a flip side; being electorally responsible for the affected miners means that the committee may be persuaded into tailoring their findings in favor of them. There is speculation that this will cause delays or a less than truthful report.

Nepotism and cronyism are nothing new, especially in Soviet-bloc countries, but there are serious issues with this committee. Václav Klaus Jr., for example, is a member whose father was Finance Minister when OKD was first undergoing privatization. This begs the question: will he allow a report that puts blame on his father if the evidence points there? President Zeman has also been declared a no-go to the committee. Zeman was Prime Minister when OKD was originally privatized and is now President. Why is such a key figure not of interest to the Inquiry Committee? The lack of involvement by Zeman points to fears of having to admit to his followers that he is as corrupt as the men he railed against on his way to power. While playing a man of the people on television and pretending to empathize with the common Czech, Zeman has amassed a fortune; revealing how he accrued that would put a dent in his credibility with voters.

There is another interesting outlier being investigated by the Inquiry Committee – Zdeněk Bakala. Mr. Bakala is an American-Czech dual citizen frequently used as a scapegoat by those in power. Due to his campaigns for greater transparency, liberalism and economic modernization, he is frequently in the crosshairs of populist leaders like Babiš and Zeman. Czech politicians looking to score points regularly accuse Bakala of misbegotten financial gain through embezzlement. These charges, of course, have never been proven. With those in power already aligned against him, it is no wonder Bakala has no impetus to testify.

If this committee is indeed dedicated to following the law and acting in the public good, then it is imperative they remain uninfluenced. They must intently listen to testimony without political interference and place fault on those responsible. American corporations such as Citibank are among those involved, as they are the largest creditors hamstrung by Czech corruption. The Inquiry Committee must consider all relevant facts and keep to their April deadline.

Bakala v. Krúpa

In 2004, the parent company of OKD, Karbon Invest, was acquired by notorious Czech billionaire Zdeněk Bakala. This put the company in the crossfires of politicians who have always been bent on taking him down. The sale was cleared by Czech courts despite questions about the suspiciously low sale price of the mine by the state.

In 2016, out of nowhere, when OKD began insolvency hearings, Pavol Krúpa, a Slovak billionaire came into the picture. He began a campaign of harassment, threats, and extortion against Bakala and his ownership of OKD. By that point, the Czech government had already used questionable means to force OKD into the hands of Prisko, a state-owned firm. To achieve this, the state blocked the sale of OKD to Alcentre for five times more than Prisko eventually paid. Krúpa, fuming over being beat, partnered with Bakala’s enemies in the Czech government to launch a smear campaign against him.

Beginning his campaign in Ostrava (where much of the Czech mining takes place), Krúpa paid miners to demonstrate against Bakala. He even bussed them to Bakala’s house in Switzerland. The threats became so bad that Swiss police advised Bakala and his family to leave there. Not to be deterred, Krúpa hired “Crowds on Demand,” a notorious firm that organizes paid protests to protest outside Bakala’s South Carolina home, drawing ire of residents and a $23 million extortion lawsuit.

The close relationship between President Zeman (Finance Minister during OKD’s first round of privatization) and Krúpa makes this compelling. Krúpa, a foreigner, was awarded a medal by the Czech President after donating 300,000 CZK to Zeman’s election campaign. This wedding allows Zeman to have a financier for his political campaign against Bakala.

The Damning Truth

While many aspects of the OKD case remain ambiguous, one thing has emerged. Krúpa, Zeman, and Babiš have united to launch a full-scale campaign against their business and political rival, Zdeněk Bakala. That should alarm anyone interested in personal and economic freedom. Government and business have combined to threaten a private citizen with opposing political views. Fighting to keep the Czech Republic from reverting to Soviet-style corruption has placed Bakala in dangerous territory.

A scary side note is that government mismanagement of the mine is now having deadly consequences; Frequent changes in management may have led to the explosion in December that killed 13 miners.

If the Inquiry Committee adheres to their self-imposed deadline and releases the results in April, it should be damning. Exposing corruption in the upper levels of government is never easy, especially when the government is doing the investigating. If the committee is intent on the truth, then we should see names of prominent Czech politicians being released for their role in the corruption that doomed OKD.