Czech Prime Minister secretly bought lavish French Riviera estate using offshore companies
Scilla Alecci and ICIJ
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In 2009, Czech Prime Minister and former Finance Minister Andrej Babis secretly bought several properties on the Cote d'Azur worth $22 million through straw companies, according to a new global investigation by an international consortium of investigative journalists (ICIJ) and partnerships, including Oštro.
Photo: dpa/STA
“Trump said, ‘Make America great again.’ That’s what I say, too. Let’s make the Czech Republic strong again,” Czech Prime Minister Andrej Babis addressed voters late last year, sporting a red baseball cap with the slogan “Strong Czechia” printed in white. This week a general election that next week will decide his future as a politician.
Known as a populist who rails against elites and the establishment, the billionaire politician has advertised himself as a business manager eager to fix the country’s economy, and to increase government transparency and tax revenues. But leaked confidential documents show that the self-styled man of the people has been involved in the kind of sleight-of-hand financial dealings that he accuses other members of the elites of engaging in.
Records obtained by the International Consortium of Investigative Journalists reveal that Babis moved $22 million through offshore companies to buy a lavish estate on the French Riviera in 2009 while keeping his ownership secret.
The five-bedroom Chateau Bigaud, with its 9.4 acres, is nestled between medieval ruins and lush forests. It is a hidden gem of Mougins, the hilltop village where Picasso spent the last 12 years of his life. As of January, public records showed that the chateau belonged to a subsidiary of one of the Czech companies indirectly owned by Babis.
At the time Babis acquired the property, the Czech press was beginning to report that his giant conglomerate was the secret owner of a luxury resort south of Prague that may have improperly obtained millions of dollars in European Union subsidies intended for small businesses. EU authorities would later find “irregularities” in the way Babis’ company had obtained the funds.
Babis’ ownership of the French chateau and the offshore transactions that obscured his involvement haven’t been disclosed previously. There is no evidence that the chateau’s purchase is linked to the subsidy.
But the purchase of Chateau Bigaud stands in sharp contrast to Babis’ carefully cultivated image as the prime minister who led a crackdown on tax avoidance as part of an effort to restore the country to fiscal health. It also shows how the offshore system can help even the most prominent public officials escape public scrutiny.
Experts interviewed by ICIJ said the offshore arrangement used by Babis could have reduced his tax bill while hiding his ownership of the property from the public.
Asset declaration forms obtained by Investigace.cz, ICIJ’s Czech partner, show that neither the chateau property nor the companies involved in its ownership appear in documents that Babis has filed, as required by Czech law, since entering politics.
Economists have estimated that the Czech Republic loses more than 7% of prospective state revenue to tax evasion, with about $5 billion lost each year to the use of tax havens by Czech corporations and the country’s ultrarich.
Petr Jansky, an economist and tax-avoidance expert at Charles University in Prague, said that public officials should lead by example. “It’s not a level playing field when all the citizens are required to pay taxes and abide by financial transparency rules, and there’s people who can opt out,” Jansky said.
The Czech prime minister didn’t respond to requests for comment, that were sent by ICIJ and three of its partners. Babis’ office then revoked the press accreditation of the three of ICIJ partners, Investigace.cz, Le Monde and the German broadcaster NDR to a campaign event on Wednesday.
Secret landlord
The son of a senior trade official in communist-era Czechoslovakia, Babis, 67, was educated in elite schools in Paris and Geneva. After graduation, he followed his father into international trade and took a job in the 1980s as a fertilizer trader at Petrimex, then a state-owned chemical company.
In 1993, after communism collapsed and Czechoslovakia had split into the Czech Republic and Slovakia, Babis took charge of Petrimex’s Czech unit. How he took control of the privatized parent company, how much it cost and where the funding came from are in dispute. He later said he used funds from “Swiss schoolmates.”
He renamed his firm Agrofert and used it to buy dozens of state-owned companies at prices that Babis himself would later acknowledge were low. Agrofert would eventually have more than 250 subsidiaries in 18 countries and come to control several sectors of Czech agriculture. Forbes magazine reported that Babis became the country’s second-richest man.
In 2009, as Agrofert’s acquisition spree continued, Czech news site Tyden revealed that Babis was the secret owner of the resort outside Prague, which had received more than $2 million in EU funds. News outlets reported that the real owner of the bearer shares was Babis’ conglomerate Agrofert, which would have made the Stork’s Nest resort ineligible to receive EU subsidies intended for small enterprises.
Pandora papers show that even as details emerged in the Czech press, in 2009, of Babis’ hidden role in the luxury resort, his advisers began engineering a secret plan to funnel his money into the French chateau purchase.
In July of that year, Babis hired Alemán, Cordero, Galindo & Lee, known as Alcogal, a Panamanian law firm that has a history of representing the rich and powerful. Its client list includes the Trump Organization and a lawyer for the late Chilean dictator Augusto Pinochet.
In confidential Alcogal documents, the employees of the law firm’s British Virgin Islands office listed Babis’ occupation simply as “director of company,” without naming Agrofert. They proceeded to set up a shell company in the BVI, called Blakey Finance Ltd., and another in Washington, D.C., called Boyne Holding LLC. Boyne Holding, in turn, owned a real estate management firm in Monaco called SCP Bigaud.
In November 2009, Babis injected $22 million into his BVI company, Blakey Finance, according to leaked emails between Babis’ Panamanian and French lawyers. The funds were then transferred to his D.C. company, which forwarded them to its Monaco subsidiary, SCP Bigaud. The documents describe the transfer from the Washington firm to the one in Monaco as a “back-to-back loan … directly for the final purpose of financing the Real Estate’s acquisition.”
That acquisition, the documents say, ultimately involved 16 properties in Mougins ー including Chateau Bigaud. The two-story villa came with a billiard room, a cinema, a fitness room with shower, a sauna and a wine cellar. The property also had a garage with room for three vehicles, a swimming pool and a caretaker’s cottage, as well as an additional three-bedroom house known as Casa Bigaud, with its own swimming pool.
The building in Monaco, in which one of the Babis’ companies was registered. Photo: Janne Järvinen, Yle
‘High risk’
The newly minted billionaire entered public life in 2010, founding a centrist political movement called ANO, Czech for “yes” and an abbreviation for what in English is rendered as “Action of Dissatisfied Citizens.” Babis denied having any political aspirations and called the organization a grass-roots civic movement.
But by mid 2012 Babis’ ANO movement had transformed itself into a political party with a populist agenda to fight unemployment and corruption.
Since his political debut, Babis has compared himself to the likes of Michael Bloomberg, the billionaire media entrepreneur and former New York City mayor, and Warren Buffett, the famed U.S. investor. Critics compare him to businessmen-turned-politicians such as Italy’s Berlusconi and Donald Trump for his bombastic style, his rhetoric about running a government like a business and the murky sources of his wealth.
In October 2013, Babis’ ANO party won 18.65% of the vote in national elections, the second-largest vote total, paving the way for the businessman’s political ascension. Within a few months, Babis was named finance minister. He promised to tackle tax evasion and increase tax revenues by $1.3 billion a year. He also called for legislation allowing the government to electronically monitor all payments for goods and services.
In May 2017, Czech President Milos Zeman replaced Babis as finance minister amid allegations that Babis had dodged taxes by buying tax-exempt bonds from Agrofert, improperly obtaining untaxed interest from his company. Babis denied any wrongdoing and said the allegations were raised by political opponents to discredit him before the elections.
In October 2017, the ANO party won the largest share of votes in national elections. Babis became prime minister, but not without controversy.
Alcogal Law Office is headquartered in Panama. Photo: Tarina Rodriguez/El País
As finance minister, Babis was required by Czech law to disclose his assets. That requirement applies to shares in offshore companies and any profits derived from the companies’ activities, according to experts consulted by ICIJ.
As Babis’ political career took off, the confidential records show, his Panamanian legal advisers increasingly came to regard him as a so-called politically exposed person. A PEP designation imposes due-diligence obligations on lawyers and offshore services providers because of a risk the client’s political influence will be abused.
According to BVI law, Babis’ new status as a public official required Alcogal’s compliance officers to review information about him and decide whether to keep him and his BVI firm, Blakey Finance, as clients.
On a “risk assessment” form dated Oct. 1, 2014, Alcogal officers answered “YES” to questions about whether they had negative information about Babis or his company officers and whether any of them were “known to be or suspected of any criminal or suspicious activities by any regulated authority.”
The assessment expanded on findings flagged by Alcogal officers two years earlier that there was a “high risk” that his company was “engaging in money laundering and/or terrorist financing.” But Alcogal kept him as a client.
In January 2015, months after Alcogal’s most recent risk assessment, Babis’ entity in the British Virgin Islands, Blakey Finance, was dissolved, according to the leaked records. The company’s demise is not explained in the records.
Alcogal explained to ICIJ that it “performs enhanced due diligence on a client who is determined to be a high-risk customer.” “As a general rule,” the firm said, “being classified as a Political Exposed Person (PEP) does not automatically disqualify a person from consideration to be a client of any service provider in any industry.”
Protests in Prague, June 2019. Photo: dpa/STA
‘Suspicious activity’
In 2015, there were reports that Czech police had opened an investigation into what the press came to call the “Stork’s Nest affair.” Investigators wanted to know how Babis’ resort outside Prague had obtained more than $2 million in EU subsidies intended for small businesses. By the end of 2015, the European Commission’s anti-fraud office also had launched an inquiry.
So did Alcogal, records show. Next year Alcogal filed a “suspicious activity report”, in which they suspected Babis of fraud. On the day Alcogal filed the report, it also dropped Babis as a client.
Soon after Babis took the oath of office, the European anti-fraud office released the findings of its Stork’s Nest investigation, alleging that one of Babis’ companies had made false statements in a grant application and obtained public funds for the luxury resort illegally. “The investigation revealed that the beneficiary’s representatives … provided untrue information and concealed important information from the operational programme’s managing authority,” according to the agency report.
At the end of 2019, a separate audit by the European Commission found that the prime minister had a major conflict of interest. Despite having transferred his holdings to two trust funds, the commission alleged, he had continued to control his conglomerate and Agrofert continued to receive EU funds.
As news surfaced about the two audits, hundreds of thousands of Czechs took to the streets to protest against Babis. The european commission recommended that Agofert return the EU funds, but Babis ruled out returning the funds or resigning.
In August 2021 the European Union threatened to halt some subsidy disbursements to Czech Republic until the country makes systemic changes to its conflict-of-interest law.
The next month, Babis officially presented his new political programme in a speech in an industrial town north of Prague. Using nationalistic and anti-EU rhetoric, he promised voters that, if re-elected, he’d raise pensions, not taxes. “This is the last chance to vote for Babis,” he said, “the last chance to protect national interests, our standard of living, our culture and uniqueness.”
With Babis’ premiership at stake, Czech national elections are scheduled for Oct. 8-9.
