An even bigger problem

But suppose, then, that even in the Czech Republic it were possible to get fully independent experts involved. Here comes the second problem. The blind fund is also "blind" for a second inherent reason. This is that neither the politician nor any other public official can literally 'see' - cannot 'see' and know - what is happening to their former assets in the fund.

This is possible, for example, if the contents of the fund are necessary stocks and stock portfolios, for example, even large ones. In such a case, the manager of the blind fund, after taking control of it, can safely sell off the politician's entire stock portfolio and replace the stocks that the politician himself was still buying with brand new ones that he no longer knows anything about. Since he does not know about them, he cannot even be in a conflict of interest. He cannot favour this or that company or sector in his decisions because he knows that he owns the shares in question.

The manager of a truly blind fund, for example, can theoretically sell off a particular stock, such as Apple or Microsoft, and use the money to buy into the same fund shares in an exchange-traded fund whose composition replicates that of the Standard & Poor's 500 index, which reflects the performance of the five hundred most important companies in the US. In doing so, the politician, the original disposer of the shares in Apple or Microsoft, does not even know that the sale has taken place, nor does he know what the new fund's assets consist of.

However, this is possible in the case of shares or other securities. One can also imagine it in the case of investment property, for example. However, it is difficult in the case of entire companies, especially in a large holding such as Agrofert. It ranks among the ten largest Czech companies, is worth around CZK 100 billion and employs more than 30 thousand employees.

Selling Agrofert is not like selling a roll in a shop or a similarly anonymous and liquid Apple-type share on the stock exchange. A holding like Agrofert is not fungible, it is not interchangeable. It cannot be sold and replaced by another holding, any more than an Apple share can be replaced in an instant by another share.

A difficult sale of a holding

The possible impending sale of a large holding such as Agrofert is difficult to hide, especially not in a small Czech pond. It is very likely that the original owner would know about it even if he did not want to. A company worth hundreds of billions of crowns and with tens of thousands of employees, straddling several unions, is not very liquid, and therefore not easily monetisable. It may take years to find a buyer.

It is precisely the difficult monetizability of a holding company like Agrofert that represents an objective reason why even the sale of such a company before its inclusion in a blind fund may not be a satisfactory solution to a potential policy clash. After all, a politician running for the electoral vote in a democratic election does not know in advance whether he will succeed in the election or not.

If he is also a big businessman, he can hardly get rid of his assets in advance. Why should he get rid of it if he does not even have to be elected? If he succeeds in the elections and is to take up public office, he naturally finds himself under time pressure.

If he were to sell such a large company like Agrofert in the short time window between his success in the elections and taking public office, he may not succeed objectively, i.e. he may not find a buyer, because of the difficult monetisation of the entire holding.

And even if a buyer is found, it can take advantage of the time pressure the seller is under to pressure the newly minted politician, the outgoing big businessman, to sell far below cost. In such a case, the big businessman's freedom to dispose of his assets is already so curtailed that it is questionable whether he is effectively excluded from democratic competition.

In short, it is not possible to apply the paragraphs to all the contingencies of life in a democracy. In the end, it is not the lawyers and the courts that should be the decisive judge anyway, but the electorate itself - after all, the people are the supreme sovereign of democracy. The voter knows who he is giving his vote to.

If a big businessman has received so many votes in an election that he succeeds, this is actually a signal that his potential clash of interests is not the most important thing to a significant part of the public.

"The 'short-sighted' fund and Jimmy Carter

After all, putting entire companies - not just shares, i.e. small stakes in companies - into a blind trust does not work in the United States either, in accordance with some kind of paragraph ideal, not necessarily the ideal of pure democracy.

Indeed, even President Jimmy Carter has failed to do so. He transferred his family's peanut business, which he had headed since the early 1950s and which was several orders of magnitude smaller in turnover and number of employees than Agrofert, into a 'blind trust' shortly before his inauguration in January 1977.

The fund was managed by his longtime friend, Atlanta lawyer Charles Kirbo. Carter remained the owner but had no control over the day-to-day running of the company. In effect, then, it was not a blind fund, but a "myopic" one. Carter knew all along what its contents were. And the trustee of the fund was certainly not a person independent of him, quite the contrary. In doing so, Carter himself signed the Ethical Conduct in Federal Administrative Functions Act of 1978, which established the institution of a qualified blind trust. However, the fund administered by his friend Kirby never was.

And, in fact, it is impossible for it to be. Because, in short, Carter couldn't have failed to mention that the family peanut business had put the fund in place. He would have to be insane to forget something like that, which would rightfully disqualify him from the presidency. So he wouldn't even have to address the transfer to the blind, but rather myopic, fund. Carter didn't sell his peanut business until 1981, shortly after he left the White House.

Putting assets into a blind trust fund is, in short, not a magic solution to avoid conflicts of interest, even in developed democracies and countries with an established and stable institutional and legal framework, which is not only the United States, but also, for example, Canada and the United Kingdom.

In these countries, it is quite common for politicians to place their assets in a blind trust fund when they take public office. Such a solution has recently been applied, for example, by former British Prime Minister Rishi Sunak or his current Canadian counterpart, Mark Carney. But, let us repeat, this is much simpler, much easier to do in the case of equities than in the case of companies.

Trump has avoided the blind trust

Incidentally, US President Donald Trump, unlike some of his predecessors in the White House, has avoided the blind trust fund solution. His estate, the Trump Organization conglomerate, is now run by his children Donald Jr and Eric. So there can be no question of a blind trust for that reason alone.

And so the US president can continue to informally influence what happens to his assets while in office through the family connection to his sons. Moreover, he remains the ultimate owner of the Trump Organization. Therefore, he does not go as far as his aforementioned predecessor Carter, and certainly not as far as Babiš.

The limits of the solution

Thus, the central idea of the blind trust fund is that, in order to blind it, it will be headed by a person who has nothing to do with the person whose assets are in the fund. Neither in terms of family, nor in terms of business and finance. However, even a plausible blind trust fund has its limits, particularly when it comes to avoiding potential conflicts of interest altogether. Because, for example, a politician who puts his assets into a blind trust fund understandably knows what assets he is putting into it.

Even in the practice of advanced Western democracies, however, a politician can set the basic boundaries for the operation of a blind trust fund. In theory, the trustee of a trust fund could, for example, replace the politician's entrusted stock portfolio with completely different stocks, but in practice such radical changes do not occur.

The trustee transforms the form of the entrusted assets through his sales and purchases without ever knowing about specific policy changes in public office (in this sense it is indeed blindness), but rarely are these changes completely revolutionary.

Indeed, a politician may communicate to the trustee of a trust fund before the transfer of assets his or her basic requirements, for example that he or she does not want the blinded fund to invest in cryptocurrencies or coal mining companies. The notification need not be direct. In advanced democracies, communication between the politician and the trust trustee takes place through another person or group of persons, such as the relevant commission.

Thus, even in advanced Western democracies, a politician can effectively prevent the trustee from selling the trust assets in their entirety.

Two types of trust funds

There are two basic types of blind trusts. By setting up the first type, the politician relinquishes control of his assets irrevocably until his death; setting up the second type implies relinquishing control, for example, only while holding public office.

In both cases, although the politician does not know what changes are taking place in the fund, he or she is able to consult the basic, usually quarterly, financial statements and see how the basic parameters of the fund are evolving, such as the respective total balance or the current value of the entrusted assets.

In Western democracies, blind trusts are mainly used to hold equity or other securities portfolios, less so real estate or companies.

Paradoxically, the establishment of a blind trust fund can mean a loss of transparency. Indeed, by entrusting assets to such a fund, even in advanced Western democracies, a politician exempts himself from the obligation to disclose his assets to the public, since the assets entrusted to the fund formally cease to be his.

In effect, the public is also 'blinded' by the establishment of the fund, because it ceases to have insight into the development of the politician's assets. At the same time, if a politician expects to regain control over the assets in the trust fund after leaving public office, the public loses control over the assets, which will, after a certain period of time, be the politician's entirety again. Therein, then, lies the fundamental contradiction of many blind trust funds: they are supposed to eliminate conflicts of interest, but they actually deprive the public of control over whether this is actually happening. The public must blindly believe that this is happening.

Blinding the fund into which Babiš puts his assets is not actually possible, even if Czech law fully allowed it. It is nonsense to ask for such a thing. Babiš knows and will know that the contents of the fund are still Agrofert - and that these assets will go to his children after his death. However, such basic boundaries for politicians heading for public office - that (some) entrusted assets are not to be sold and others bought, or who gets the assets after the politician's death - can be determined even in advanced Western democracies.

Babiš, on the contrary, goes further than numerous politicians in the West who use the blind trust institute in that, unlike them, he relinquishes the entrusted assets irrevocably.

The text, which is truncated, was originally published on lukaskovanda.cz.