Scandal-hit agency faces slow death

DISMANTLING the national agency set up to support small and medium-sized businesses may not be an easy undertaking.

DISMANTLING the national agency set up to support small and medium-sized businesses may not be an easy undertaking.

After €4.5 million disappeared somewhere within the Byzantine financial management system of the National Agency for the Development of Small and Medium-Sized Enterprises (NADSME), Prime Minister Iveta Radičová tasked Economy Minister Juraj Miškov with dismantling the agency, suggesting that “one letter from the economy minister is enough and at that moment the agency will cease to exist”.

Miškov was given a deadline of October 15 to submit a plan to liquidate the agency. But it has since become clear that it may take much more than a simple letter. The Ministry of Economy in late September said it suspected that the agency had channelled €13.5 million to firms linked to its fund managers. The ministry has also said that the state is no longer sure where another €30 million in public funds assigned to the agency has gone.

After meeting representatives of the Association of Slovak Entrepreneurs (ZPS) and the Slovak Tradesmen's Association (SZZ), who are opposed to dismantling the agency, Miškov said on October 4 that he was uncertain about the future of the agency.

“The participants at the meeting [ZPS and SZZ] agreed that one-sided withdrawal by the Ministry of Economy and Construction from NADSME would result in damages exceeding €200 million,” the ministry stated after the meeting.

The association representatives at the meeting agreed that it is necessary to demand responsibility from those who may have erred within the agency, but objected to collective punishment of all of the agency’s employees.

Meanwhile, the European Anti-Fraud Office OLAF has started checking on NADSME's use of €50 million in EU funds, money originally intended to support businesses.

The controversy swirling around NADSME has sparked a high-level round of finger-pointing. Current Finance Minister Ivan Mikloš blamed the previous economy minister from the Fico government, Ľubomír Jahnátek of Smer, for not taking any action over the past four years.

Jahnátek countered by saying that the situation within NADSME is in fact Mikloš’s fault because it was Mikloš who in 2005 developed the structure for the agency which allowed questionable practices to flourish. Mikloš temporarily assumed the post of economy minister for several weeks in 2005 after the previous economy minister, Pavol Rusko from of now-defunct New Citizens Alliance (ANO) party, had been sacked.

The SITA newswire reported that Jahnátek had said that initially he did not know exactly what was happening within the agency, which is now facing allegations that money was “tunnelled” – i.e. embezzled – from two of its funds. Jahnátek said all he knew was that the Economy Ministry no longer had control over the funds that were flowing through NADSME.

“We did not know what was happening there,” said Jahnátek, as quoted by SITA, insisting that NADSME was tuned to a regime in which the ministry was unable to access necessary information when Mikloš was the acting economy minister.

“It [2005] was the time when the contracts, which are concealed today, were born; at that time the contracts which blocked the influence of the state and the control of the state over the flow of this money were signed,” Jahnátek stated.

Mikloš responded to Jahnátek’s charges by pointing out that he had only been in charge at the Economy Ministry for a few weeks and had been tasked with resolving a specific situation involving a financial leak from the agency. He sacked the sitting management at that time and appointed Bystrík Berthoty as the head of the agency.

“If Mr. Berthoty acted at odds with the rules, he bears responsibility,” Mikloš said, as quoted by TASR. “I haven’t been spoon-feeding him over the past five years.”

Jahnátek also warned about losses the state might suffer if the agency is terminated, estimating that as much as €53 million in EU funds will need to be returned to Brussels. He also said that Prime Minister Radičová is “washing her hands” of the matter and is trying to “sweep the dirt” that her SDKÚ party colleague Mikloš left behind.

The agency was first established as a foundation in 1993, as a joint initiative of the European Union and the Slovak government to support the development of small and medium-sized businesses and to strengthen the competitiveness of this sector within the EU common market and markets of third countries, states the agency’s webpage.

The foundation changed its legal form in 1997 to an organisation consisting of the Economy Ministry, ZPS and SZZ. Within NADSME a subsidiary operation was founded in 1994 which was known until 1996 as the Seed Capital Company and is now called the Fund of Funds. This subsidiary body was initially created to administer funds flowing from the Phare programme, one of the three pre-accession instruments financed by the European Union to assist applicant countries.

Economy Ministry State Secretary Martin Chren (SaS) said that the suspicions of financial impropriety do not concern NADSME itself but rather this 100-percent subsidiary company, the Fund of Funds, which is charged with serving as a vehicle for providing risk or venture capital to small and medium-sized enterprises, TASR wrote.

Meanwhile, ZPS has voiced support for the continuation of NADSME and claims that the state is acting with incomplete information or is misinformed.

ZPS head Ján Oravec told The Slovak Spectator that “liquidation of the agency is complete nonsense with which the government could have agreed only out of a lack of knowledge of the facts or based on an imaginary diagnosis of its current status,”

Oravec said that decisions on financial transactions within the Fund of Funds are not made by NADSME but rather by the fund itself based on the structure developed in 2006, adding that this is where the core problem lies.

Oravec explained that there are three risk capital funds within the structure of the agency, two of which are thought to have problems, and these three funds are in the hands of managerial companies which then report to the Fund of Funds. Nevertheless, NADSME is the 100-percent owner of the Fund of Funds, suggesting that the agency should have direct influence on the operation of the funds. The agency’s general director served as the three funds’ authorised representative. But Oravec said the influence ended there.

“How does the decision of the government solve this problem?” Oravec asked. “The answer is unambiguous: it doesn’t in any way. On the contrary, it brings about further problems since with the liquidation of the agency even the feeble linkage that exists with the funds will be destroyed and thus it endangers programmes and finances worth hundreds of millions of euros.”

Oravec, who is also the head of the Hayek Foundation, which has been embroiled in controversy over state contracts awarded to an affiliated organisation, Hayek Consulting, claims that the government’s decision unfairly affects employees of the agency and members of its bodies who are not responsible for the current state of affairs.

“The decision liquidates an institution which over 17 years has justified its existence and thus it harms small and medium-sized businesses in Slovakia,” Oravec told The Slovak Spectator.

NADSME was the institution that signed the much-debated state contract with Hayek Consulting worth €8,100 which has led to question marks being placed over the ministerial careers of State Secretary Chren and Transport Ministry State Secretary Ivan Švejna (Most-Híd) since the two individuals were co-owners of the private consulting firm before, and possibly after, taking their government positions.

Oravec told The Slovak Spectator that the government should try to gain a complete picture of the existing funds and make a realistic assessment of the funds’ portfolios along with a detailed review by lawyers of the management contracts of the funds. Then, if the information proves that management of the funds was flawed, remedial agreements should be sought with the managerial companies on future administration.

Oravec added that everything now probably depends only on the goodwill of the people who control the managerial companies.

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