White collar crime in the Czech Republic is a closely monitored topic, particularly when it comes to the prosecution of certain publicly-active persons – among others, politicians.
There are two legal areas where the illegal acts referred to as “white collar crimes” are committed most frequently. The first relates to public contracting and drawing upon state budget funds and European Union funds, where manipulation and bribery are frequent occurrences. The other area involves insolvency proceedings and their manipulation.
A number of suspicious cases ended up fading away in the past, and it seemed that there was no political will to investigate and prosecute crimes connected with persons from upper political or social spheres.
Over the past several years, however, things have begun to change, and the public prosecutor’s offices and the police are beginning to work more effectively.
Of the numerous media-hounded cases of bribery involving publicly known persons, we reference that of David Rath, M.D., the former CEO of the Central Bohemia Region and a former member of the Czech Parliament and former Czech Minister of Health, who has been accused of accepting a bribe, causing harm to the interests of the European Union, corruption, and obtaining benefits from public contracts. The case began in May 2012, when David Rath was detained carrying a briefcase with CZK 7 million in cash. Rath insisted that he was carrying wine in a box; the police, on the other hand, asserted that the funds were obtained as a bribe in connection with the awarding of a public contract for reconstruction of a municipal mansion near Prague. In Dr. Rath’s house, the police found another approximately CZK 10 million in cash. During the course of the investigation, it was determined that a number of other public contracts in the healthcare and building industry had been influenced as well. The matter is now in court, and the case is close to being concluded. The former member of Parliament and Minister of Health may be punished with imprisonment of up to 12 years.
The case of Dr. Rath is just one of many over the past several years where Czech police have begun prosecuting even high-profile persons, including members of Parliament or former Government Ministers.
As far as criminal activities relating to insolvency are concerned, there have been cases where a vexatious insolvency petition was filed against a relatively prosperous company on grounds of a fictitious claim, insolvency proceedings were initiated, and the court appointed an insolvency trustee. Other fictitious claims were subsequently registered in the insolvency proceedings by some of the creditors (most often those with anonymous owners and based in Cyprus or the Seychelles). The insolvency trustee then acknowledged these fictitious claims while rejecting the legitimate claims of other creditors. Creditors of the fictitious – but acknowledged – receivables then had rights to vote in the insolvency proceedings and were able to influence the course of the insolvency, unlike those creditors whose claims had been unreasonably rejected by the insolvency trustee. In this way, the so-called insolvency mafia gained influence over developments in the insolvency and the subsequent sale of assets of the company so attacked.
Why is it that also cases dating back several years have now come under investigation? The credit for this goes mainly to Chief Public Prosecutor Pavel Zeman (appointed in 2011) and his subordinates Lenka Bradacova and Ivo Istvan – young and highly apt public prosecutors who have made full use of the authority conferred upon them by the current Act on Public Prosecution. The question is whether or not this trend will continue.
Robert Pelikan was appointed the new Minister of Justice in March of 2015. In his previous engagement as Deputy Minister of Justice, this young and ambitious lawyer and former attorney conceived and is now striving to implement his idea of a new Act on Public Prosecution. Until recently he wanted to restrict the independence of state prosecutors and make them report to the Ministry of Justice; he also proposed that the Ministry should have the right to obtain information from “live cases” as well as the right to appoint head public prosecutors. While appointments of head public prosecutors should be preceded by a tender organized by the Ministry of Justice, the Minister of Justice would not be obligated to respect the results of the tender. This proposed form of the Act on Public Prosecution has met with strong opposition on the part of state prosecutors, led by the Chief Public Prosecutor, Pavel Zeman, and some political parties – all of whom maintain that the bill will compromise the independence of state prosecutors and increase the influence politicians have upon investigations. The Ministry of Justice is now trying to find a compromise and has recently presented a less controversial version of the Act on Public Prosecution.
To conclude, the future form of the Act on Public Prosecution will be crucial for the ability of Czech authorities to investigate and prosecute serious corruption cases and other white collar crime.
By Alexandr Cesar, Partner, Petra Ledvinkova, Associate, Baker & McKenzie
This Article was originally published in Issue 2.2. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.