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Czech Republic: Property Scandal Focuses Attention On Foreign Minister

Czech Foreign Minister Jan Kavan is caught up in a scandal involving the lease of a valuable piece of Moscow real estate to an obscure private firm. Kavan personally authorized the contract, whose provisions appear not only to contradict Czech law but also to deprive both the Czech and Russian state treasuries of revenue. Yesterday, Kavan accepted the resignation of an aide involved in the transaction. Kavan says he bears no personal responsibility and intends to remain in his post. RFE/RL correspondent Jeremy Bransten reports.

Prague, 28 March 2001 (RFE/RL) -- It was the popular Czech daily "Mlada fronta Dnes" which broke the story last week. At issue is a 10-story building belonging to the Czech state situated in one of central Moscow's choicest locations.

The building, called Czech House (Cesky Dum), is a holdover from communist days, when Soviet satellite states maintained a large presence in Moscow, with embassy staff and non-diplomatic personnel housed in vast properties built especially for them. Communism may have ended and ties between Moscow and Prague thinned considerably since their heyday, but Czech House has remained. The building is home to a hotel, restaurant, and office space for Czech companies. Until this year, the property was run by the Czech Embassy.

But starting in January, a law banning Czech government missions abroad from operating commercial enterprises came into effect. The law, drafted by the government last summer, required the Foreign Ministry to find a suitable tenant for Czech House.

According to standard government procedure, a public tender should have been the next step. What actually happened -- and what the newspaper "Mlada fronta Dnes" uncovered last week -- is that the Foreign Ministry signed a five-year lease agreement giving an unknown Czech company, registered in the provincial town of Rakovnik, control of the property in Moscow.

The company may have been unknown, but its founders were not. They consisted mostly of embassy staff who gave up their diplomatic posts before the lease came into effect at the start of this year. Such a close arrangement would be enough to arouse suspicions. But the contract that the Foreign Ministry signed with the company running Czech House has raised even more eyebrows.

The agreement, which Foreign Minister Jan Kavan personally agreed to, set a below-market rental rate for the facility. In addition, the contract allowed the private firm to import an unlimited quantity of goods for sale in Russia while avoiding taxes and customs duties. All goods were to be labeled as items intended for diplomats at the Czech Embassy.

The Czech Republic's own ambassador to Moscow, Jaroslav Basta, wrote a letter to Kavan expressing his misgivings about the contract. Prague attorney Tomas Sokol, who was asked by "Mlada fronta Dnes" to analyze the lease agreement, called the deal a direct encouragement to corruption. Sokol tells RFE/RL that the company's use of diplomatic privileges to conduct its business violated both domestic and international law.

"Under this agreement, the state would function as a type of supplier -- a wholesaler. The [Czech] state, officially represented by its embassy, would import goods into Russia that would be exempt from customs duties, precisely because those goods would be imported by the embassy. I would call that a violation of the law."

In addition, the lease contract gives the private Czech firm pre-emptive rights to buy Czech House, should the government decide to sell the property. Sokol notes that this too is illegal, as Czech law does not allow private companies to be given future rights to state property. The fact that such a deal was signed, says Sokol, puts the Czech government in an awkward situation.

"This provision contradicts law number 209, passed in the year 2000, which does not allow this type of pre-emptive purchase rights. But it's another matter whether the state is bound by this contract. There certainly is a danger that the state will be bound by this contract, even though the contract breaks the law I mentioned. Not everything in the contract that contradicts the law is automatically invalid."

Kavan, when confronted with the facts, admitted the contract had some faulty provisions. But despite his signature on documents authorizing both the drawing up of the contract and its final implementation, he rejected any personal responsibility. Kavan said an internal investigation would uncover staff responsible for the errors.

Yesterday (27 March) the first head rolled. Kavan's aide Karel Srb, responsible for economic matters at the ministry, stepped down. In his resignation letter, Srb absolved Kavan of all blame in the matter and accepted full responsibility for the contract.

But several opposition politicians say it is Kavan, who personally hired Srb and approved the deal at every stage, who should assume political responsibility. They note that the contract has already cost both the Russian and Czech state coffers lost revenue. At best, they say, Kavan allowed himself to be manipulated by his aides. At worst, it appears he took part in corruption.

"Mlada fronta Dnes" says one thing is certain: Kavan did not tell the truth. The paper accused Kavan of misrepresenting the case to parliament and his own ambassador on at least two occasions. Reporter Jiri Kubik explains:

"He [Kavan] told parliament -- and in his letters to Ambassador Basta claimed -- that the contract went through the standard approval procedure at the ministry, which was not true. The departments that should have reviewed the contracts at the ministry, and Kavan's deputies, never saw the contract. This was one of the minister's lies, because he said publicly things that were untrue. The second lie was that there was a rush in preparing the contract. Kavan said they only had from October to December [to do so], but the contract was actually being worked on beginning the summer before. Minister Kavan also originally hid this fact."

The Czech Republic's previous ambassador to Russia, Lubos Dobrovsky, says Kavan's refusal to accept political responsibility for the affair will harm Prague's image abroad.

"At issue here is the political responsibility of a minister who signed something which elicited unpleasant attention, not only at home, but in the host country, meaning Russia. And he pretends that he bears no responsibility for this. It undoubtedly harms Czech interests. It is necessary [for him] to assume political responsibility."

But Kubik says he is doubtful Kavan will step down.

The hubbub around the Czech House is the latest in a string of scandals involving the misuse of state funds or privileges by those with ties to senior Czech politicians. Journalist Jiri Kubik says he is disappointed but not surprised at what he considers the Czech opposition's only token efforts to put pressure on Kavan.

"The way in which the opposition has behaved so far in this case cannot be taken very seriously. At most, opposition politicians said the minister should explain himself. Maybe they are satisfied now because the minister has explained something."

It has become something of a tradition in post-communist Czech politics for low-level employees to take the blame when scandal erupts around their bosses. This has fed growing public cynicism about politicians. The latest survey by the independent Prague-based STEM polling agency found more than 70 percent of those questioned think senior politicians are involved in corruption.

The next few days could determine whether "business as usual" will continue in Czech politics or whether change is on the way.