State’s 2019 acquisition of Air France-KLM shares was irregular
The government acted irregularly by not informing parliament in advance of the State of the Netherlands’ acquisition of a 14% equity interest in the Air France-KLM holding company in February 2019.
In its audit reports Air France-KLM share acquisition and State of Central Government Accounts 2019 and its accountability audit report on the Ministry of Finance’s 2019 annual report, the Netherlands Court of Audit concludes that the expenditure of €744.4 million contravened section 2.27 of the Government Accounts Act 2016. The reports were sent to the House of Representatives on 20 May 2020.
Irregularity
A minister may incur expenditure only if parliament authorises a budget in advance. In the present case, the State entered into an obligation without parliament’s authorisation. In exceptional circumstances, policy can be implemented without authorisation provided parliament is informed in advance (Government Accounts Act 2016, section 2.27). Shortly before the share acquisition, the Minister of Finance held a confidential meeting at the ministry to inform 12 members of the House of Representatives’ Standing Committee on Finance but the procedure did not satisfy the formal requirements. The Senate was not informed at all. Parliament’s right to authorise the budget was therefore infringed, what, in the Court of Audit’s opinion, constitutes an irregularity.
European rules
The minister acknowledged in hindsight that the acquisition was irregular, but for different reasons. He had not followed the normal decision-making procedure, he admitted, because the State’s interest in the share acquisition could not be made public in advance. The transaction, he claimed, was therefore subject primarily to European rules on market abuse and insider dealing. If the minister had provided both chambers of parliament with confidential information in accordance with parliament’s rules of procedure, the transaction would have been regular. According to the Court of Audit, the minister showed a lack of trust in the safeguards in place for the House of Representatives to handle confidential information.
Recommendations
The Court of Audit recommends that future repetition should be avoided by means of a clearer interpretation of section 4.7 of the Government Accounts Act and further agreements between the minister and parliament.
Response of the minister and the Court of Audit’s afterword
In his response, the Minister of Finance accepts the Court of Audit’s recommendations, some of which are already being implemented. He thinks the Court of Audit’s description of the decision-making process is adequate. The minister does not agree with the Court of Audit’s conclusion that his action was irregular under section 2.27 of the Government Accounts Act: it was irregular under section 4.7 concerning the preliminary parliamentary scrutiny procedure. Given the need for confidentiality, preliminary parliamentary scrutiny would not have been possible, according to the minister.
In it afterword, the Court of Audit refers to the room for interpretation provided by section 4.7 and disagrees with the minister’s stance regarding section 2.27. It also refers to the lack of trust shown in the safeguards on the House’s handling of confidential information. In view of how the act is worded, the Court is surprised that the minister is uncertain about the need to inform the Senate in good time.