Key Investments scandal: a year of futile struggle with tentacles of corruption

Exactly a year ago, Czech Position was the first publication to report on the scandal surrounding the Key Investments brokerage, which could be dubbed as the Czech equivalent of the Bernie Madoff case. While the US finance fraudster received a 150-year prison sentence, the main protagonists in the Czech scandal remain free — thanks to the level of morality and expertise in the Czech police and judiciary.

The Czech police’s anti-corruption and financial crimes unit has been investigating several criminal complaints relating to Key Investments for more than a year now, but not a single person has been charged, let alone prosecuted.

The case is nevertheless major with all the right attributes for media attention: large sums of money, corruption in high politics, dirty local deals clinched in town halls, “godfathers” from the Prague chapters of the largest Czech political parties — the center-right Civic Democrats (ODS) and center-left Social Democrats (ČSSD) — influential lawyers who work for all political parties, dubious auditors, secret owners of the Slavia Prague football team, the controversial businessman Petr Sisák who has a past conviction for fraud, nontransparent firms with front companies in the Virgin Islands, and unsellable, probably illegally emitted bonds bought by the administrations of Prague 6, 10 and 13 with hundreds of millions of public funds.

According to Czech Position’s latest information, there is yet another chapter to the story – a powerful financial group that is said to be guarding Key Investment’s invaluable archive in a safe.

A scandal too complicated

Many Czechs are in the picture when they hear Madoff’s name, but for the most part have no idea about what the Key Investments scandal is about.The Czech-language version of this publication alone has published 125 articles about the Key Investments scandal. Some other media, most notably the business daily Hospodářské noviny (HN) and biggest-circulation broadsheet, Mladá fronta dnes (MfD), also took up the case, but the country’s television stations and the tabloids have only mentioned the story in passing; therefore, a wider public outcry could not be expected.

It’s true that the Key Investments case is very complicated and understandably the tabloid Blesk (the nation’s best-selling paper) and the commercial station TV Nova are unable to summarize it in a few paragraphs or minutes, respectively. Unfortunately, state-controlled Czech Television (ČT) only gave fleeting coverage to the affair. Therefore it’s not surprising that many Czechs are in the picture when they hear Bernie Madoff’s name, but for the most part have no idea what the Key Investments scandal is all about.

Several years ago, Key Investments got involved in dealing in private obligations issued by firms with which the brokerage had links, including E Side Property and the Via Chem Group. The brokerage then proceeded to buy these high-risk junk bonds on behalf of Prague 6, 10 and 13 (all ODS-controlled) and other municipal and district administrations. In all, the administrations entrusted around Kč 1 billion of public funds to the brokerage. Apart from the Prague administrations, the towns of Sokolov and Votice and President Václav Klaus’ right-wing think-tank, the Center for Economics and Politics (CEP), also entrusted funds to the brokerage.

Around half a year ago, Prague 13 mayor David Vodrážka (ODS) managed, with the services of lawyer Jan Pacovský, to retrieve Kč 200 million of his district’s money from Key investments, but the circumstances of how this was arranged are not public. Who transferred the money? In whose interest was it that Prague 13 received most of its money back and part of the problem banished?

Klaus’ CEP had “luck” in getting its investment back, whereas Prague 6 and 10 still have hundreds of millions of taxpayers’ money tied up in non-tradable, high-risk, bonds, thanks to the dodgy brokerage, which is also being investigated by the Czech National Bank (ČNB).

Put simply, over Kč 1 billion of public funds was used to finance the commercial activities of private companies with nontransparent ownership structures. Isn’t that newsworthy?

Arrogance

President Klaus’ advisor and close associate Weigl certainly has many answers but has refused to answer any questions relating to the affairNone of the politicians implicated in the scandal has resigned or even admitted publically that they made an error. This impertinence and arrogance stems from given certainties: these politicians have such great protection from the highest places that they’re seemingly untouchable.

Those implicated in the affair are all known to Czechs who take a degree of interest in domestic politics: Minister of Environment and formerly long-term mayor of Prague 6 Tomáš Chalupa (ODS), Prague 10 Mayor Milan Richter (ODS) and one of his predecessors, Antonín “Tony” Weinert (Social Democrats, ČSSD); Mayor of Prague 13 and Chairman of the lower house of parliament’s foreign affairs committee David Vodrážka (ODS); and presidential chancellor Jiří Weigl, who was formerly the director of Key Investments’ former front parent company registered in the UK.