MP Babák’s explanation of VV finances doesn’t add up

Apart from ODS’s non-existent sponsors, the Public Affairs (VV) funding scandal is the most serious of its type since November 1989

Michal Babák’s explanation of where he got Kč 5.75 million to finance VV appears to belong in the realm of fiction | na serveru Lidovky.cz | aktuální zprávy Michal Babák’s explanation of where he got Kč 5.75 million to finance VV appears to belong in the realm of fiction | foto: © ČESKÁ POZICE, ČTKČeská pozice
Michal Babák’s explanation of where he got Kč 5.75 million to finance VV appears to belong in the realm of fiction

Michal Babák, an MP for the junior coalition Public Affairs (VV) party and its economic expert, has failed to provide a credible explanation of where he got millions of crowns that he donated to his party. His explanation reminds me very much of when former Prime Minister Stanislav Gross (Social Democrats, ČSSD) was unable to explain where he amassed the millions with which he paid for a luxury property on a government salary — and resigned from office.

Apart from the scandal in 1997 over the Civil Democrats’ (ODS) fictive sponsors — the Hungarian Lájoš Bács and Indian Radjiv Sinha — the Babák affair is the most serious political party financing scandal since 1989.             

Babák is claiming that the Kč 5.75 million which he paid into VV coffers came from personal loans that he took out as a private individual, and which he intends to repay from profit he hopes to generate from the sale of his alleged stake in the company Bene Factum. But that’s his own personal risk, and it’s not appropriate for us to evaluate.   

Babák claims that he gave the party Kč 650,000 of his own money; as long as he earned the money himself, why not? He says he borrowed Kč 1.6 million from a small accountancy firm, MxB, in which he has an 80 percent stake, and Kč 3.5 million from the company WCM CZ, for which he is a representative but in which he doesn’t hold a stake.       

Don’t forget the register, Babák!

Here the explanation begins to grate. It appears that MP Babák has neglected his duty as a company representative to regularly It appears Babák also neglected his duty to submit WCM CZ’s financial results these past two years.       submit the company’s financial results to the commercial register: The last reports for both WCM CZ and MxB are from 2008. Judging from the results from that year, the firms must have had a miraculous change of fortunes because if their finances are in a similar state now, the companies simply wouldn’t have anywhere near enough money on their accounts, or even in assets, to be in a position to lend millions.          

At the end of 2008, MxB had Kč 500,000 in cash and nothing on its account. One would expect an accountancy firm to keep its money in a bank account rather than in a drawer, but whatever. Perhaps Babák managed to collect Kč 970,000 in debts, clean out the company and somehow put together Kč 1.6 million.         

The situation with WCM CZ is more complicated. At the end of 2008, the company had nothing on its account and Kč 2,000 in cash. The company owns property valued at around Kč 10 million, which was transferred into its ownership and for which there is no mortgage.

At the end of 2008, WCM CZ owed its associates over Kč 7 million; therefore, there could have hardly been a spare Kč 3.5 million, which Babák claims the company’s majority owner, New Zealand motorcycle enthusiast Peter Clifford, said the parliamentary deputy could use to finance VV.            

In theory, since 2008 Babák could have retrieved Kč 5 million in debts owed to the company WCM CZ, but this seems unlikely since the indebted firm has consistently posted an annual turnover of around Kč 900,000 for the last several years.      

Return the money immediately!  

But the main problem with the loans to VV from the two companies lies elsewhere. “Because I took care of everything, Mr. Clifford told me to do as I pleased with the money. [He said:] ‘When I need it back, I’ll tell you a year in advance and then you’ll repay it,’” Babák told the daily Právo about the finances from WCM CZ.

Clifford, who declined to comment on the matter to Czech Position, may be a New Zealand economic liberalist, but he cannot change Czech law. Paragraph No. 196a in reference to Paragraph 135, Section 2 of the commercial code states that the approval of the majority of the company’s general meeting is needed for loans involving a representative and that such loans must be provided under the standard conditions of commercial practice. If it were agreed as Babák has said, then the loan was essentially illegal, and he should return the money to MCM CZ immediately.

We don’t know the conditions attached to the loan, but this is hardly relevant because if it were agreed as Babák told Právo, then the loan was essentially illegal. This means that Babák should return the money to WCM CZ immediately. Not even an agreement by the company’s general meeting could retroactively legitimize the loan.          

Obviously, the same legal provisions apply to the loan from MxB, thus Babák is in a precarious situation and will have to borrow Kč 5.1 million. Nevertheless, for now criminal charges are not an issue because Babák has parliamentary immunity.  

The best for last

Babák says he intends to pay back the Kč 5.75 million he borrowed by selling off a 15 percent stake in the company Bene Factum for Kč 35 million. Such a price for this stake is simply out of the question, and quoting such a figure amounts to carelessness by Babák. According to a report on ownership and relations of Bene Factum dating from March 29, 2010, Babák didn’t hold a single share in the company at the time, let alone 15 percent.

Bene Factum has two shareholders, Miloš Havránek and Petr Šrámek, who both hold a 50 percent stake. These two established the company and in the founding charter there is no mention whatsoever of Babák and his contribution of know-how, as he has claimed. Thus, unless Babák acquired a 15 percent stake since the submission of the report in March 2010, there is no question of him raising any money from a share sale, let alone Kč 35 million!

If in March 2010 Babák did have a stake in the company, Havránek and Šrámek would be criminally liable for falsification of official company documentation.  

Babák’s explanation of the source of the funds has become confused and contradictory. One moment he says that he forgot to declare his share holdings when he was elected to parliament, then he speaks about some secret options that he cannot prove; and on it goes. Ex-PM Stanislav Gross had to resign from his post for a significantly more minor affair. So what will Babák do?