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Post-Communist Czechlands and the Russian Dimension

Post-Communist Czechlands and the Russian Dimension

By Petr Vanèura (*). Prag, November 14, 2002.

  • Corruption

Corruption in the Czechlands has grown to unprecedented levels. According to the Transparency International Corruption Perception Index, only the Ukraine and Russia are now more corrupt in Europe, after a continuous descent of the Czech Republic on the TI list during the last several years. Public procurement, government appointments, from central to local, official permits, even university admission, all are subject to corruption.

  • The Government

The situation can only be improved from the top leadership, but none of the governments we have had so far after 1989 have given it any priority, or even wanted to do so. Fighting corruption was given "lip-service" in the programs of all, but some of the approved legislation actually smoothed the way for corruption, and other legislation, which might have helped to prevent it, could not make it through Parliament.

It is clear that beside the natural tendency of some in the Parliament to help themselves and their associates improperly, there was also the intention on the part of some legislators to create opportunity for corruption. It is the leaders who have had the most influence, who are under the strongest suspicion. Foremost among them is Vaclav Klaus, who had overriding influence on government in the first half of the nineties, and then Milos Zeman who succeeded him. They were not alone in empowering corruption, but there were not many others working to this effect with such influence.

  • Beneficiaries

The main areas of these corrupt activities were the privatization process, fraud in banking institutions, tax and tariff evasion, and government procurement.

One may recall how Vaclav Klaus fought against selling Czech industry to foreigners, giving preference to the "Czech way" instead. In the process, foreign investors were excluded, and state-owned banks provided credit to those who had the best access. Those who did, turned out to be a wild assortment of outright crooks and former communists. These people were then able to buy the companies and soon brought them to bankruptcy, taking out as much for their personal benefit as they could. Some of these companies never recovered. A number of the bigger ones, as well as those which languished in state ownership, and were also brought to bankruptcy by their inept managements, were later sold, cheaply, either to a new wave of local "entrepreneurs," usually with some foreign capital backing, or, in what may have been the better cases, to foreign companies. The "Czech way" thus resulted in giving many businesses to foreign investors anyway, but at distressed prices. Thus the approach imposed by Klaus primarily allowed those with influence to pillage Czech businesses beforehand.

The bank loans granted in this privatization scheme have mostly not been repaid and, as a result, all Czech banks eventually collapsed. The multitude of small private banks, which were allowed to mushroom immediately after the fall of the communist regime, possibly with corrupt intentions, failed soon. The funds they were able to borrow from the state were misused quickly, and they folded up. The larger state banks took longer to collapse, but when they did, the cost to the taxpayer added up to 500 billion Czech crowns. They were then all sold to foreign banks, the Austrian Erste, French Societe Generale, and the Belgian KCB, in a process apparently as corrupt as everything else. The corruption in these sales has been illustrated, for example, by the huge bribe of 10 million crowns received by the vice-chairman of ODS, Miroslav Macek (the party of Vaclav Klaus). This bribe went to ODS despite the fact that the sale was executed by the Social Democratic government of Milos Zeman. Another curious circumstance is that Erste Bank kept Livia Klausova, the wife of Vaclav Klaus, on the Board of Directors of the Bank, for no obvious reason.

Tax evasion scandals were another source of corruption and the biggest of them was the "light heating oil" scheme, organized by the Russian mafioso Semyon Mogilevic. Again, the cost to the taxpayer went into hundreds of billions of crowns. Various tax evasion schemes continue, some occasionally reported in the media, and others probably never even uncovered.

Now that little remains to be privatized, and the banks are in foreign hands, and tax evasion and other visible economic crimes are increasingly coming under EU supervision, the one sphere of large-scale corruption that remains is public procurement. Approximately one-half of the Czech GDP passes through the public budgets, and a significant proportion of this money can be subject to corruption. For those involved, this gives an extra incentive to increase these budgets, and the taxes that are needed to pay for the expenditures. Accordingly, the current Social Democratic government has outlined budget deficits of over 150 billion crowns annually, that will amount to about 8-10 percent of GDP through 2006, and will, coincidentally take the country far beyond the Maastricht criteria limits.

  • Motivation

Vaclav Klaus and Milos Zeman ostensibly accumulated no riches for themselves, and are not directly involved with the companies which benefitted from the corrupt processes. Of course, Livia Klausova remains on the boards of several of these companies, including the bank mentioned above, and some of ZemanÂ’s lieutenants, notably his Minister of Interior, Stanislav Gross, have been reported to be involved in questionable businesses.

The important point, and here we come to the core issue, is that when the beneficiaries of the corrupt processes are examined more closely, a link is almost always uncovered to former communists, to members of their secret police, or to Russian interests. Thus, it can be surmised that the key motivation of the corrupt developments in the Czechlands has been to amass power in the hands of those with deep roots in the former communist regime, and to groups with Russian links.

  • Further evidence

Security services: The Social Democratic government succeeded in purging the Ministry of Interior of all officers who entered it after 1989. Vaclav Klaus never managed to do this, partly probably because he presided over the first enthusiastic wave of government, which still included people who insisted on purging the communists. What he did, however, was to shelter the minority government of Milos Zeman, 1998-2002, by the "Opposition Treaty", which, among other things, freed ZemanÂ’s hands to undermine the security services.

After the Ministry of Interior and the police were purged, similar measures were taken at the Ministry of Defense, and the purges there have by now been largely accomplished. Most of the young, promising officers had left already, in a process taking place ever since 1990, dissatisfied by the government procrastination with any meaningful reforms. But now, according to some assessments, incompetents, by and large, have replaced qualified officers, often those who had passed courses at Western military schools.

Now, the process of bringing the intelligence services in line has also started. The government proposes to merge the civilian intelligence and counterintelligence services into one, and place it under the full control of the minister of interior. It would do the same with the military intelligence services, putting them into the hands of the minister of defense. In the process, existing checks and balances would be eliminated, and the former communist type of running the services reintroduced.

Media: There are two private TV channels in the Czechlands, but no one knows who owns them. Some say that they are owned by Russians. The original American investor of the more influential one, NOVA, Ronald Lauder, has been dispossessed, has sued the Czech government successfully, and the bill will again be paid by Czech tax-payers.

Control of the public TV has been the subject of intense fighting, with the result so far of its being led towards financial collapse, as described in the press many times. Observers worry that the hidden agenda of those in power is to privatize one of the public TV channels. The last remaining public channel could then be expected to be hobbled through personnel policies, as it seems happening already. For example, the present director has been busy cutting news reporting and commentary programs.

  • Russian involvement

The most revealing piece of evidence about Russian influence and activities has been provided, quite possibly as a swan song, by the internal intelligence agency, BIS, in its October 2001 public report: According to the report, the Russians were reviving and strengthening their influence networks in the Czechlands, penetrating government ministries and other public offices, down to local government, and organizing media disinformation campaigns, and campaigns to influence public opinion. How they managed all this did not appear in the public report, but it was apparently included in the secret report, which was submitted to the parliamentary committee overseeing security services. According to what was heard from this limited group of people, the secret report was horror reading, making some of the readers wish to emigrate. The issue was then hushed so successfully that, after the first two days of excited reporting in newspapers, no further report on it has appeared anywhere, and the government, little wonder, did nothing to deal with this astounding threat to Czech security.

The Russians, however, are now encountered almost everywhere. A Russian firm, Falcon Capital, shrouded in secrecy, investigated by the police for suspicions of involvement in organized crime, was accepted by the Czech government, upon the insistence of the Russian government, to mediate the sale of a major part of the Russian debt to the Czech Republic: the debt of over $2 bn, out of $3.4 bn, was sold for some 20 percent of its value. The same company bought the hotel in which a meeting of the NATO ministers of defense, preparing the Prague NATO summit, according to some reports, was to take place in September – the meeting was then moved to Warsaw. Russian organized crime has made the Czechlands its favorite Central European location, and, conveniently, the Social Democratic government disbanded the very successful special police department fighting Russian-speaking mafias.

The information available about Russian influence is patchy, but the impression is clear: the Russians play a frighteningly prominent role in many important spheres of Czech public and private life, especially those concerning security.

  • Czech capacity to reverse the trend

When faced with these damning facts, American and other diplomats and politicians say that our corruption is our own problem, and we have to solve it ourselves. Perhaps. But we are most likely not capable of doing so, because the stranglehold of the post-communist power is too strong, and the means at the disposal of honest people who oppose it are negligible.

The post-communists are past masters at penetration and discreditation of honest political groups. No political party exists in the country any longer that can be relied upon to take responsible action. Post-communist propaganda successfully discredits such elements in public life in advance, and almost no independent public education initiatives exist, because there is no funding or other support for them.

  • Consequences for the West

Some indications exist that the Russian-linked influences affecting the country have their parallels in the rest of post-communist Central and Eastern Europe. Such Russian-organized influences, in fact, are also operating in the West itself. Oganized crime, corruption of public officials, Russian-owned businesses that operate against the interests of Western societies (like Victor BoutÂ’s arms-selling company), incitement of protest movements of all sorts.

The West might benefit from looking into these issues, because they may very well be tied to the present wave of terrorism. It is worth noting that terrorism has replaced communism as the main global threat.

(*) Petr Vanèura, former Deputy Ambassador of the Czech Republic in Washington D.C., is currently director of the Prague Institute for National Security.


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Directeur de la publication : Joël-François Dumont
Comité de rédaction : Jacques de Lestapis, Hugues Dumont, François de Vries (Bruxelles), Hans-Ulrich Helfer (Suisse), Michael Hellerforth (Allemagne).
Comité militaire : VAE Guy Labouérie (†), GAA François Mermet (2S), CF Patrice Théry (Asie).