· Published in Know your Billionaires!

Andrej Babiš : A route form billionaire to oligarch

As with most of the super rich who have emerged to form the new ruling classes in postsoviet European countries, the story of Andrej Babiš begun even before the democratic revolutions of 1989. An aspiring Slovak top manager of a state industrial company, he used his background in a privileged communist family to get a highly unusual job for that era. He became a businessman – stationed in Morocco – charged with acquiring a strategic commodity for the Czechoslovak agrochemical industry, essential to the whole of the Soviet bloc. It goes without saying that back then it was not possible to hold such a position without a proper clearance by the communist authorities. The essential question today is to what extent these ties remain active, and whether the operational methods he learned at that time still inform the ways he conducts business and politics today. There is also a looming shadow over the question of where exactly he obtained the initial money to start his business after 1989. The Czechoslovak Velvet Revolution caught Andrej Babiš as a trade expert in the quickly deteriorating Council of Mutual Economic Assistance in Morocco. But before too long, he was back and ready to set up his own company, Agrofert.

Where did he get the first millions of Czechoslovak crowns to do that? The official story is that he borrowed the money from former classmates of an international high school in Geneva, where he studied while his father was a Czechoslovak diplomat following the General Agreement of Trade and Tariffs – the international body preceding the World Trade Organisation. Almost no one believes this story. Hence it is generally assumed that from the onset of his business – and later political – career, he had a secret institutional partner who provided him with money and backing. What we know for sure is that Very quickly he became one of the most aggressive and quickly successfulbusinessman of both republics of former Czechoslovakia. He acquired Agrofert which had been set up as a daughter company of his original employer, the Slovak chemical corporation Petrimex under highly dubious circumstances. This gave him a key platform he could use to expand his operations on a larger scale. The situation in Slovakia became very volatile for him early in the 1990s, with Prime Minister Vladimir Mečiar assuming power and creating a clientelistic system through which he would decide the fate of the various businessmen trying to establish themselves as the new major players – not unlike the way Victor Orbàn is ruling Hungary today. Andrej Babiš was not in good terms with Mečiar – a fact he would later use to portray himself almost as a freedom fighter – and henceforth decided to set up headquarters in Prague. He has used his position as a major provider of fertilisers and other inputs for the agricultural sector to expand quickly, by acquiring agricultural companies of all kinds, co-ops and both mid- and large-scale former state companies. He has also sought to diversify his business portfolio through the acquisition of various enterprises in the food processing and chemical sectors. After he succeeded in overtaking his only major competitor, a corporation named Agropol, in 2009, through a transaction absurdly approved by the Czech Antitrust Authority, he achieved total dominance and almost monopoly status on many agricultural commodities in the Czech market. Andrej Babiš likes to portray himself as a self-made man who has built his economic empire from scratch, thanks only to his personal talent, work ethic and creativity.

But a large-scale investigation which we have carried out after he entered politics tells a completely different story. A story of wealth built through predatory hostile takeovers, abhorrent treatment of business partners and employees alike, and a systemic milking of subsidies, tax breaks and public incentives. And, last but not least, through large scale political connections ensuring that all relevant regulations and public policies would favour his company. Andrej Babiš did not belong among the most spectacular cases of ruthless businessmen building fortunes in the murky waters of the wild and mismanaged privatisations of the 1990s. Against a backdrop of dozens of criminal stories of sharks plundering the country – the costs of the botched economic transformation of the Czech Republic alone are estimated at tens of billions of euros –, he did not seem the worst. The Czech political landscape during the first twenty years after 1989 tended to consolidate around the two major parties – the conservative Civic Democratic Party that was the hegemon for the longest time after 1989 and the centre-left Social Democratic Party. Parliamentary politics, with the smaller right of centre Christian Democrats, the isolated Communists on the left, and one liberal right leaning party, was remarkably stable. Only those five parties have been elected to parliament in all four elections from 1996 till 2006 in the Czech Republic. For Babiš, who was slowly building his empire and evading closer scrutiny, this worked just fine, as it likely did for all the other richest businessman of that era. He had allies in both major parties who would take care of his interests. But more and more people realised that the major political parties did not represent the interests of the people who voted for them, but rather those of a largely invisible network of powerful financial players. Václav Havel, still then the serving president of the Czech Republic, spoke of the new system as “mafia-capitalism”. The word “Godfathers” was used to describe the people behind official decision- making processes, and making hefty sums of money. Thus, instead of the expected win of the Left, the elections of 2010 brought a seismic shift, with two parties leaving parliament and three new parties entering it. Conservatives managed to hold on to power by forming a government with two of the new populist parties, one a new neoliberal populist party called TOP 09, the other a peculiar populist project called Public Affairs, led by a businessman.

The outcome of the elections must have come as a complete shock to Andrej Babiš. His allies in both major parties had lost the ability to protect his interests, while he had become dependent on the state institutions to play the ball for him. And he must have felt personally offended by the relative success of a political party founded by another businessman – actually, the owner of a private security agency – with far less resources than his own. This was the moment he decided to take action to protect his political interests, that had become by then intrinsically linked to his way of conducting business. In 2011, the political movement ANO 2011 (Association of Dissatisfied Citizens, the abbreviation meaning “YES” in Czech) was born.

A story with two sides

Of course, this was not the story he could tell to the public to win its support. Hence, what he told them instead was a cover narrative, one that most of thepeople loved to hear. As a matter of fact, his PR cover was a well-crafted and quite credible story. He was saying that as a successful businessman, he was fed up with the unprecedented levels of corruption he had been experiencing first-hand; that the country was a land of smart people governed by inept politicians; that he would use the know-how that had made him so successful in business to the benefit of the whole nation. To make the story even more convincing and overcome the initial distrust of many segments of society, because of the mixed memories of how fortunes were built during the privatisation era, he managed to attract the support of several respected personalities of Czech civil society. He only made sure that the structure of the new party would firmly stay in his own hands.

And he did yet make another bold move to take care of his personal reputation. Maybe inspired by the misfortunes of the Public Affairs populist political project, which had become discredited after an investigation by Mafra, a major mainstream publishing house, that revealed corrupted internal processes, he decided to buy Mafra in 2013. Thus, on the onset of his political career, he had also become one of the main media owners in the country. Thanks to later acquisitions, he is as of today the largest publisher of printed media in the Czech Republic.

Around that time, his team also started to build up the most powerful social media machine, especially on Facebook, that the Czech Republic has ever seen from a political entity. When the utterly unpopular right-wing austerity government collapsed in 2013, and early elections came, he was ready and did surprisingly well, finishing close second behind the Social Democrats and entering a coalition government with them. While there were already widespread doubts about his real motives even then, the story he was telling seemed plausible. Even some respected liberal personalities and segments of civil society fell under the charm. Also because of the totally compromised politics of the past, it was not that hard to imagine that something good might arise from his movement. It took a couple of years of investigation to reveal that his story had two very different sides. One he was telling to the public in order to be liked, and the other one he wanted to hide at all costs. When he campaigned with the slogan “I will run the country like a company”, it seemed to us like a good idea to go and see for ourselves how his corporations were run, and what his employees and business partners had to say about their experience with him.

A business model : private profit, public costs

Had we met people who would tell us stories of how he had made them happy and how their lives had improved by working for Andrej Babiš or conducting business with him, we would have told their stories and we ourselves might have been convinced. Surely that would have been a way of operating which everyone would love to see replicated in government at national level. But that is not what we heard and saw.

Instead we have heard the story of the hostile takeover of agricultural corporation Agro Jevišovic [1] through deceit, psychological terror, broken promises and merciless squeeze-out. The original owner, in spite of having faced harsh reprisals from the Agrofert corporation, is still locked in with it in numerous lawsuits. We heard the heart-breaking story of a brilliant co-op of butchers [2] who managed to defy the neoliberal privatisation drive which, by principle, excluded co-ops. They found a way to bypass the rules and used their strength and invention to build the largest and best meat processing factory in the Czech Republic, only to see Andrej Babiš take it from them through false accusations on the managers and a prolonged investigation by the police in what was called by the press at that time “the worst case in the history of the Czech judicial system”. It also involved Babiš finding a way to buy a share in the company through a secret behind-the-scenes deal with a state official later convicted for corruption. We heard the story of an innovative agricultural corporation, that was intuitively building a community-supported agriculture scheme of unprecedented scale, taken over and completely ruined by Babiš [3]. “Why did he buy it just to ruin everything?”, locals would ask us in disbelief. We did not know the answer then, but we know now. We also saw illegal foreign workers employed in appalling conditions in a poultry factory in South Bohemi [4]. We got sued by the Babiš corporation after we published these revelations. The case was dropped when it became obvious our investigation was sound. We have found that the quality of the production has fallen dramatically in all the companies he took over. The reason for this is a drive to cut costs by all means available. Hence jobs would be destroyed, salaries would be pushed down, and low payed untrained staff, sometimes illegal foreign workers without any protection or welfare, sometimes inmates, would be hired. We have discovered how Andrej Babiš has created a whole machinery dedicated to hostile takeovers. He has undertaken hundreds of them. He was even employing specialists with the task to organise these acquisitions for him. We spoke to one of them who described how it was done.

Andrej Babiš profited from very bad state regulations and from the virtual absence of state support for small and medium scale agrobusinesses. In the agricultural sector, companies operate with what is called “long money”. It takes a long time from buying the seeds, fertilisers and all the other inputs to getting real income from the harvest. And all the more so in the fragile trade environment of a post-soviet country like the Czech Republic, where only a few businesses could develop cash reserves.

Thus, given the glaring imbalance in scale and financial power between Andrej Babiš and his smaller partners, the latter were at a great disadvantage. Should they get into any kind of financial trouble, which is pretty normal for everybody from time to time, Babiš would pretend he was being a good friend by offering, for instance, to transform a debt into a minority share in their company. Using loopholes in Czech law and the information he could obtain through the people he put on the boards of those companies, he would then quickly proceed to turning the minority into majority share. And, as a final step, he would squeeze the original owners out, usually without a proper compensation but with just enough money, or threats, to keep them silent.

A hostile take-over of the Czech Republic

With the expansion of his Agrofert corporation, it became both essential and possible for Andrej Babiš to influence and even shape public policies in a way that would serve his interests. Antitrust laws would not be enforced. Subsidies, tax breaks and state incentives would begin to constitute a larger and larger share of his income. Today, various subsidies and incentives form the core of the profits made by the Agrofert corporation. There are hundreds of them coming both from national and EU level.

This is also why, all of a sudden, it could make sense for him to close down flourishing agricultural companies, as in the case mentioned above. While it was fine to keep experimenting with all sorts of activities as long as the primary objective was to serve clients and the community, it made as much good sense for Andrej Babiš to close everything down as unnecessary costs, as long as the subsidies would still be coming in the same or even higher amounts. Under the twisted system of industrial agriculture perpetrated by the European Union under the Common Agricultural Policy, it actually can pay off to cut costs ad absurdum and still get the same subsidies as if the land was cultivated in the most productive way. This is made worse by the fact that EU allows member states to set up their own policies for how the subsidies should be used. Henceforth, unlike in most EU countries, in the Czech Republic there is no limit to the surface area of a farm obtaining subsidies. Thus, we end up in a totally absurd situation where low income European employees are subsidising the dubious businesses of agricultural corporations, in this case owned by the Prime Minister of an EU country.

Nowhere has this been more obvious than with the EU subsidies for the Czech biodiesel scheme. The Czech Republic has managed to convince the EU to subsidise a scheme that – under the pretext of fighting climate change – requires all petrol sold in filling stations in the Czech Republic to include six percent of Rapeseed Methyl Ester. Over ten years, the resulting Czech subsidies, in the form of tax breaks sanctioned by the EU, amounted to over 650 million euros. Andrej Babiš made sure that the Czech scheme would only allow for Rapeseed Methyl Ester and not – let’s say – Sunflower Methyl Ester. The reason for this? He owns a major facility to process rapeseed oil into Methyl Ester, while he has no business in sunflower oil. He also used his position in government to squeeze out all his larger competitors so that virtually all revenues from this heavily subsidised scheme would go to Agrofert. He also managed to get state incentives to build a new processing factory – forty percent of the investment, amounting to over 20 million euros. But the largest share of income by far in the rape-seed oil business comes from the very core of Babiš’ activities – revenues from the sales of fertilisers and pesticides. The highly intensive production of rapeseed requires about seven times more agrochemical inputs than common conventional crops like wheat or corn. All the money for these inputs ends on the balance sheets of Agrofert. The corporation also gets revenues from the storing, cleaning and drying of the harvested rapeseed. This altogether amounts to profits estimated at a minimum of sixty to one hundred million euros every year, and probably much higher. All of this is heavily subsidised both directly and indirectly by the Czech state and the European Union. And it was made possible only by heavy lobbying on behalf of Andrej Babiš.

In this context, it becomes obvious why it was of utmost importance for Babiš to get control over the Ministry for the Environment. He made this a top priority in his coalition negotiations in 2013. When he was awarded the power to choose the head of the institution, he appointed Richard Brabec, one of his most trusted hands, former director of one of his big chemical factories Lovochemie. As we have documented, soon after becoming minister, Richard Brabec orchestrated a well-planned purge of the Environmental Inspection, the body tasked with enforcing environmental laws and punishing the corporations which break them. All we needed to confirm our suspicions was to find cases where this influence would be used to favour companies linked to the Agrofert holding.

We have managed to find one such example in the city of Kroměříž, in central Moravia. There, a handful of Agrofert companies, a meat processing factory named quite fittingly The Godfather and an agro-industrial facility of the Agrofert group, were wreaking havoc on the local community. People suffered from exposure to a greasy smoke used to process the meat, their houses had cracks because of use of heavy machinery, and the standards for dust and noise were routinely disrespected. All of this gave little concern to the Environmental Inspection, which failed to enforce the law in the interest of Andrej Babiš and his corporation. Of course, the fact that he had control of vast and ever-expanding swathes of the media helped him to divert public attention from all this. One of the newspapers he bought used to have the best local and regional coverage – something that was not lost on him. After his takeover, local and regional stories like the one from Kroměříž would not get reported any more, or only in a blatantly distorted way.

A fight for democracy in the Czech Republic and in the EU

After the 2017 general elections, the situation has only gotten worse. In spite of all the efforts of civil society and independent journalists to expose the real motives behind the political project of Andrej Babiš, he has managed to win almost thirty percent of the votes, helped by the absence of any compelling alternative presented by the other parties. Even the fact that he was under an investigation for an alleged fraud on EU subsidies for building his lavish personal villa, the so-called Stork’s nest, did not diminish his political base in any significant way. Nor the fact that he managed to more than double his personal wealth during his four years at the Ministry of Finance (from slightly less than two billion euros in 2013 to over four billion euros in 2017 according to Forbes).

Due to a slick communication strategy, using many of the tactics deployed by the new wave of populist strongmen around the world, he was able to get the support of almost a third of the Czech voters. And he started to use his increased powers to gain control of some of the most fundamental institutions of the state. But since he did not have an absolute majority, first he needed to find allies in parliament. He found them in a farright xenophobic nationalist party and in the communists, who in the Czech case are closer to a traditionalist party of people nostalgic of the old regime of the 1970s and 1980s than anything that would resemble a progressive Left. But these two parties would have been too heavy a reputational burden had they joined him in government. Thus he managed to convince the decimated Social Democrats to play the indecent role of junior coalition partners.

Demonstration for independent justice in Prague, in 2019.

Again and again, they have proved totally powerless to change policy in any meaningful way, and they have seen their political support to plummet, but they stay on, perhaps thinking that this is their last shot at holding positions in government for a very long time. But for Babiš, they play the invaluable role of giving him a better image, especially in the eyes of the European institutions – it looks as if he has a civilised coalition partner. And this good image is something he badly needs, since conflicts with European institutions have been one of the major obstacles for him to consolidate his power. After it was exposed that milking both national and EU subsidies was in fact the core of his business, European institutions have been forced to act. The official investigation of European Commission concluded that Andrej Babiš, in spite of claiming that he had formally severed his ties to the Agrofert corporation,still remained the final beneficiary of EU subsidies. This mean that the EU demanded that the Czech Republic pay back all the subsidies illegally granted to Agrofert. Since the Czech government has already declared it would not comply with EU demands but rather defend the personal interests of the Prime Minister an escalation of the conflict seems inevitable. The efforts of Andrej Babiš to consolidate his hold on power have been slowed down by domestic developments as well. First, the investigation of the alleged Stork’s nest fraud has dragged on. An indictment, resulting in a criminal prosecution of him and some members of his family, is still possible. Second, as more and more people realised the real motives behind Babiš’ decision to enter politics, a popular protest movement emerged. In 2018 and 2019, the Million Minutes for Democracy movement organised the largest demonstrations in the country since 1989. And while their demands remain vague and their protest strategies quite opaque, the very fact that people protest in such large numbers is a great problem for his image, both at home and abroad.

In the meantime, he has focused on capturing more and more state institutions vital to his political and economic goals, but also to consolidating his power. It was no surprise that the very first institution he tried to control by placing his own people after the victorious elections of 2017 at the General Inspection for Security Forces, which allows him to control the police and other security forces. This is essential to influence the current – and potentially any future – investigations of his crimes, and at the same time it can be used to intimidate his opponents. What has happened after it was exposed that Andrej Babiš had allegedly had his son kidnapped to Crimea to obstruct the investigation on the Stork’s nest case speaks volumes about the capture of the Czech state. He was not forced to resign, and escaped scrutiny by questioning the mental health of his child and by running vicious attacks against the owner of the media organisations that had published the revelations. Until today, no one knows the whereabouts of his son, still wanted by the Czech police for investigation.

Journalists in state-owned media or in smaller independent online platforms are attacked as being “anti- Babiš” as if it was a disqualifying label that gives him a pass to avoid responding to criticism. Many media have adapted, trying not to seem “anti-Babiš” and thus treating as normal some of his most outrageous dealings, such as his and his employees’ blatant conflicts of interest. Under the radar of a stressed and grossly under-financed Czech media, more and more state institutions are progressively being captured. Usually, this is done in such a way as not to hamper the basic operation of the organisation that is taken over. Most people would keep on doing their jobs, just making sure that the boss’ interests would not be compromised. Only a handful of people who could not be trusted in this respect would be fired. And a small unit operating on direct orders would be installed. This is the operational template used for the Czech Environmental Inspection and for the major media he controls. While Czech civil society and the remnants of freen media still resist, the role of the European Union is absolutely crucial. If Europe is to restore the deeply compromised hope of a common European house with a vision of a better and meaningful life for all Europeans, it has to change its policy towards new member states in several essential aspects. To begin with, European subsidies – the money of ordinary European citizens – should not end in the pockets of the new class of the Eastern and Central European post-soviet oligarchs.

Jakub Patočka, Zuzana Vlasatá (Deník Referendum)

Jakub Patočka, Zuzana Vlasatá are the authors of the book, Žlutý baron - Skutečný plán Andreje Babiše: Zřídit stát jako firmu, on Andrej Babiše.

Article published as part of our investigation: «Know your Billionaires!»
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