End in sight for ‘bearer shares’ – common currency for corrupt businessmen, officials

Photo: Barbora Kmentová

The Czech Republic has been heavily criticised in recent years for allowing corruption to flourish – particularly for refusing to abolish anonymous stock certificates known as bearer shares. Anti-corruption campaigners say these unregistered paper shares are of great value to corrupt businessmen, dirty politicians and crooked officials, especially in doling out lucrative public tenders. Now however, their days are numbered.

Photo: Czech Television
The Czech Republic has suffered massive abuse of public funds in the last decade; billions of crowns of tax-payers’ money and EU funds have been siphoned off by shady businessmen in dodgy public tenders and other rackets. The gigantic solar power subsidy fraud, the hugely overpriced Opencard travel pass tender, and the VZP electronic health book system are just three examples.

In all three cases, police and other authorities found their hands were tied when trying to establish who owned the companies in question – and who benefited from the fraud. This is because it was impossible to identify the shareholders, because the companies’ stocks were issued as so-called bearer shares – unregistered paper stock certificates that don’t carry the holder’s name. In several cases, it transpired that a company which won a public tender was partly owned by the official who decided the outcome of the tender.

But from January 1st, 2014, bearer shares will cease to exist, after the lower house voted almost unanimously this week to abolish them. Anti-corruption campaigners like Jiří Boudal, from the NGO Reconstructing the State, say the legal change represents a small step towards stamping out corruption.

Jiří Boudal,  photo: archive of Reconstructing the State
“These shares are absolutely anonymous. That means the shareholder is literally the person who holds it in his hand.”

Physically in his hand, in his home, under his mattress etc.

“Yes, when you give it to someone else, then he becomes the owner of the company, it’s really as quick as that. And we believe that because it’s so easy, corruption is easy as well. So now that they’ll be changed to registered shares, while it won’t be a solution to everything, the investment needed to hide the real owners will be much higher.”

There are some 25,000 joint-stock companies in this country. The majority, some 14,000, issue their stock as bearer shares, meaning no-one – not the police, not the courts, not the tax office, not the stock exchange – knows who owns them. From 2014, the owners of bearer shares will have three choices: depositing them under their name with a bank, depositing them with the central depository at the Prague Stock Exchange, or exchanging them for shares which do carry their name. For some, the government sponsored legislation doesn’t go far enough. The leftist opposition tried to attach an amendment which would force companies bidding for public tenders to reveal their ownership structure. That failed.

Photo: Barbora Kmentová
Bearer shares exist outside the Czech Republic; they’re not a Czech invention. But only here are they perceived as such a huge contributing factor towards allowing corruption to fester in the economy. Critics say corrupt Czech businessmen will simply move their companies to tax havens abroad, like Cyprus, where anonymous stocks are legal, and apply for Czech public tenders from there. But for anti-corruption campaigners, abolition is a start.