American-Hungarian relations are crumbling

Let me summarize what we know so far about the U.S. action against certain Hungarian businessmen and government employees.

Initially it was reported that ten people were banned from entering the United States, but by now that number has been reduced to six. We definitely know of one businessman who reported on his fate to ATV. It was he who mentioned three employees of the Office of Taxation and Customs (NAV). One of the three was allegedly the president of NAV, Anikó Vida. The spokesman for the tax office did not deny the charge. If the number six is correct, there are still two people about whom we know nothing.

Although the Hungarian government feigns total ignorance of the details and keeps repeating that it is unable to move against the corrupt officials, in fact they have known for two weeks about the American resolve to pursue those Hungarians who have been trying to blackmail American firms and extort kickbacks of billions of forints from them.

M. André Goodfriend, chargé d’affaires of the U.S. Embassy in Budapest, sketched the timeline of events this afternoon. According to him, on October 6 he had a talk with Levente Magyar, one of the undersecretaries in the Ministry of Foreign Affairs and Trade. During the meeting Goodfriend explained the significance of Proclamation 7750, which is an executive order signed by George W. Bush in 2004. The Proclamation gives the State Department power to ban corrupt individuals and their families from entering the United States. Such a ban can be imposed only by the undersecretary for political affairs–in our case by Wendy Sherman, who is the department’s fourth-ranking official. (Here is a handy chart of the structure of the State Department.)

Levente Magyar must have understood the gravity of the situation because a subsequent meeting was arranged at the request of the Hungarian foreign ministry between Péter Szijjártó and André Goodfriend. This meeting took place on October 13. The American chargé repeated everything he had already told Magyar. Szijjártó then insisted that he reveal the names of those would be affected by the ban. Goodfriend in turn explained that the American government never reveals names in cases connected to Proclamation 7750. What the U.S. expects is swift action against the culprits.

Let’s stop here for a minute. I assume that Viktor Orbán was notified immediately after the encounter between Magyar and Goodfriend on October 6, and I also suspect that the prime minister’s advice was to insist on “proof” from the Americans. When that failed, in typical Orbán fashion the decision was made to launch a counterattack. NAV leaked information to Napi Gazdaság, a financial paper owned by Századvég, a consulting firm and think tank close to Fidesz, that the United States is contemplating evoking Proclamation 7750 against certain Hungarian businessmen in retaliation for NAV’s tax probes against certain American firms. If the Hungarian government hadn’t decided on this counterattack, we perhaps would never have found out about the travel ban on the six, still unnamed individuals. Colossally stupid move, but I think it is typical. Viktor Orbán always has to have the last word.

Since October 16, the day that Napi Gazdaság published its article containing the disinformation concocted by the Hungarian government, the controversy between the United States and Hungary has been escalating rapidly. The Hungarians kept insisting on “creditable proof” while the Americans steadfastly refused to fall into the trap. Moreover, while at the beginning the controversy seemed to be connected only to widespread corruption in Hungary, as time went by it became obvious that the United States might also take action against the Orbán government’s increasingly anti-democratic behavior. A day after the appearance of the accusations against American businesses in Napi Gazdaság, an article was published in Foreign Policy magazine from which we learned that “at a meeting last month, the Community [of Democracies] set in motion a process that could result in Hungary’s removal from the council and withdrawal from the Community. If Hungary leaves, it will be an international acknowledgment  that the nation has ceased to be a democracy.”

What is the Community of Democracies? It is a global intergovernmental coalition of states founded in 2000 at the common initiative of Madeleine Albright and Polish foreign minister Bronislaw Geremek. The organization is headed by a Governing Council consisting of 26 countries, among them Hungary. Apparently it was the United States that suggested that Hungary be removed from the Council and perhaps even from the organization. Or perhaps Hungary might consider a voluntary withdrawal from the Community in order to avoid embarrassment. The likelihood of an American initiative in this case was reinforced by André Goodfriend’s observation that such a move might be warranted under the circumstances.

M. André Goodfriend at one of his press conferences

M. André Goodfriend at one of his press conferences

While the Hungarian government is stonewalling, the U.S. chargé d’affaires in Budapest, most likely following instructions from the State Department, is delivering tougher and tougher messages to the Hungarian government during fairly frequent press conferences at the embassy. Perhaps the strongest language could be heard this afternoon when Goodfriend explained the reason for American action. In Hungary prior to 2010 the level of democracy and transparency, especially in comparison to some other post-socialist countries, was high. But while in other countries the trend is toward greater democracy and transparency, in Hungary the opposite is true. “If that trend continues it may reach a level where the United States can no longer cooperate with Hungary as an ally.” Clearly, the United States is not joking–as Antal Rogán assumed only yesterday during an interview.

Let’s return briefly to the three high officials of the Hungarian tax office who most likely are implicated in the case. In what way can they engage in fraud and corruption? Here is an explanation offered by Dávid Jancsics, who is currently conducting research at the City University of New York. His expertise is corruption. He learned from two independent sources that the NAV employees demanded kickbacks from two American companies in exchange for tax breaks and a lower VAT. Apparently they demanded 2 billion forints in exchange for these favors, money that the American companies were supposed to pay to a foundation associated with Fidesz for purposes of “research and analysis.” In addition, the NAV officials promised heavy fines on the American firms’ competitors. When the Americans didn’t bite, the NAV officials began threatening them with tax probes. It was at this point that the firms turned to the American embassy and reported the bribery attempts. The implication of this analysis, if it is accurate, is frightening because in this case the tax office is part and parcel of a corruption scheme that appears to be centrally organized.

This takes us back to an old story about a whistleblower at NAV who claimed that high NAV officials refused to investigate obvious fraud cases. András Horváth, the whistleblower, said that he was mostly involved in investigating companies that dealt in agricultural products. Index came to the conclusion that one of the two American companies in question was Bunge, a leading agribusiness and food company. It is a global firm with 35,000 employees in forty countries, including Hungary. They produce among many other things cooking oil sold in Hungary under the label Vénusz. It was well known that the management of Bunge was very unhappy about the VAT fraud and that their efforts to enlist the help of NAV were fruitless. It is possible that after a lot of complaints from the Bunge management NAV officials offered to do something about the competition’s fraudulent business practices but only at a price.

Hungarian journalists in the last few days have asked several business groups, like the German-Hungarian Chamber of Commerce, about the extent of corruption in Hungary. The answer is that foreign companies have known for years about corruption involving billions. “Hungary is a part of the Balkans” by now, and the situation is only becoming worse. According to foreign business leaders, Hungarian business life is corrupt through and through. Healthy competition is impossible under such circumstances.

Péter Szijjártó is leaving Budapest for Washington tomorrow to meet Victoria Nuland. I wouldn’t like to be in his shoes.

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77 comments

  1. @Verges
    “I hear fideszniks madly loughing at this sentence.”
    That’s the whole point!
    Because I suppose, that the blind zealotry will indeed take over, the arrogant megalomania of Orbán will kick in too, and they keep digging the hole deeper and deeper.

    I said “the only way” – which is, knowing the character – in essence means “there is no way”.

    Of course, Orbán has no the slightest intention to give in, whatever price the country has to pay. I wouldn’t bet, however, that the US has no more ways to apply pressure where hurts most. While is true what you said about dictators, one shouldn’t forget, that he’s still working on it, not ready yet. At present he simply can not afford to loose access to the EU funds, and the US has pretty good chance to pull some strings or two, believe me.

    This is going to be such a pissing contest what Orbán can not win, whatever will he do, it certainly could be a something to be “angered” about.

  2. @Kirsten: There will be no tough responses. There cannot be. The EU will not cut funding and even if wanted to it Orban could compromise with them even in the last minute. The EU is no danger to Orban at all. The Russians are tough, swift and cannot be blindsided, they know Hungary and the region inside out. They are merciless, they don’t waste time on proposals and meetings, they turn off the tap immediately or order the “liquidation” of a person and that’s that. I think Orban is afraid of them, but he also benefits from them. The Americans are playing the tough guy, but they have no leverage in reality, they are bluffing. Orban would happily leave NATO or even the EU, he’s beyond these inhibitions, that’s his source of power.

    @wolfi: The Serbs adored Milosevic all the while he was busy destroying the country below the level of Albania. I guess Hungarians if they could would have voted for the arrow cross in 1945 even after the utter destruction the right wing Hungarian politicians generated. There is no logic to it.That’s the point, politics and survival for dictators are not logical in a way an educated Western middle class citizen would imagine them. I’m not optimistic at all. I think not much can be done in the next two years, until the mid point of the election cycle. The leviathan is still way too strong. Only when cracks appear can anything be done against them, but I see no cracks at all. The situation will only get worse, it cannot possibly improve. Many people do adore Orban and his grip on power will be ever tighter.

  3. Verges: ” Orban would happily leave NATO or even the EU, he’s beyond these inhibitions, that’s his source of power.”

    Why, according to you, is he not doing so if he so much loved to? Who or what is stopping him? I am afraid you underrate just how annoyed others are to see what dilligent servant of Russians he is. The fact that Hungary is unimportant generally can change if circumstances change. I think you should read carefully what Istvan writes. Hungarians bragging about their self-sufficiency in defence and clever choice of allies might perhaps be helped by some history book, even the last 100 years might suffice to make some extrapolations.

  4. “There’s no backing down, the Americans can just suck it up.”

    I don’t know, maybe you missed this story from yesterday, the first line is pretty revealing:
    “It’s been a long time since the Hungarian government has been so restrained and polite – if nothing else, at least the American visa scandal that erupted last week has brought this change.” If you read the story, you’ll hear Lázár speaking a lot more meekly than is usually the case with him.

    I think the government realized they’ve finally crossed a line they shouldn’t have and are frantically scrambling to patch things up.

    If they were really serious, the US could take many more harsh steps that would result in a real loss of prestige and credibility and a stream of negative headlines for the Orbán government. I hope it won’t come to that though.

  5. Verges:

    “The EU is no danger to Orban at all.”

    Nonsense.
    You, I and everybody with half a brain cell knows that it is the EU’s money keeps the Mafia Regime afloat- by logical extension, the moment they cut off that funding then Orban is living on borrowed time.

    Is there a line beyond which they will take that action?
    I seriously believe we are heading in a direction where Orban will become so frustrated at the refusal of the few remnants of independence in the country (eg individual journalists, the NGOs, charities, churches) that he will start to employ direct violence to silence them.

    It is the nature of the man- whilst there is a pragmatic side to his character, he is also driven by an irrational inferiority complex and a hatred that demands anybody daring to stand up ro him must be crushed. So far, he has been able to able to silence any opposition by indirect threats and intimidation but those few that remain opposed to him, stay defiant.
    I hope it doesn’t happen but if/when that state violence does occur, then the EU will turn off the tap.

    Moreover, your Russian chums no longer have the resources to keep the MR up and running in such a scenario and you and Fidesz/Jobbik seriously overestimate Hungary’s place in the big socio/political/economic picture if you believe that Putin sees Orban and his joke puppets as a major pieces in his chess game against the West.

    Orban has believed too much in his own publicity and invincibility since April 2014 and has trusted too much in Vladimir’s promises.

  6. Austria was saved from communist take over by a decent interior minister around 1945..

    Hungary had no such luck.

    There is no decent civil service, police or army in Hungary/

    Let us bury this unfortunate place. Trianon II will dissolve diseased Hungary.

  7. Responding to Verges: It is not in the interest of the United States in the least to consider any form of regime change in Hungary. The idea that the United States are “weaklings” and the Russians are decisive and effective I think is pretty much not the case. When there is a consensus in the US we can act very decisively, for better or worse, as was the situation relating to the invasions of both Iraq and Afghanistan. Let us recall that the United States as of February 5, 2013 officially had 6,640 members of the armed forces killed in combat in Iraq and Afghanistan and another 50,430 wounded in combat (http://journalistsresource.org/wp-content/uploads/2013/02/RS22452.pdf ). The number of insurgents killed and wounded is in the multiple hundreds of thousands in Iraq and Afghanistan. I think the US Marines who fought over a 24 month period in Fallujah would beg to differ with Verges as would the Polish troops who also fought in those streets alongside of the Marines.

    The US Department of State is attempting to modify the behavior of the Hungarian ruling elite, in relationship to a number of areas inclusive of its eastern drift, corruption, and curbing of democratic rights. It’s up to the Hungarian people to keep or not to keep Fidesz/Jobbik rule. President Obama’s term ends Jan 20, 2017 and the next president as I have said will likely be far more aggressive towards Russia.

    The Hungarian people can decide whether they want to make a common front with Putin against the USA. President Obama and our State Department is setting the stage for forcing Orban to either be with the west or against the west. That is as much as can realistically be expected from the current administration.

    I would like for the USA to go well beyond pushing Hungary out of the Community of Democracies and move to suspend Hungary from NATO as I have stated several times. If Orban/Fidesz play their cards wrong the US even under the Obama administration could move against Hungarian membership in NATO. That is not likely, but not impossible either.

  8. State Department press conference, October 20

    “QUESTION: Can I go to Hungary?”

    ” the foreign minister, whose name I’m afraid I can’t really pronounce – Szijjarto”

    “We have applied Presidential Proclamation 7750 to certain current and former Hungarian officials. It provides authority to deny visas to current or former government officials who have engaged in public official corruption.”

    “QUESTION: So we could assume that this doesn’t apply to the foreign minister, since he’s”

    “MS. HARF: — and then I am going to go around the room.

    QUESTION: Another visa question on Ebola.”

    http://www.state.gov/r/pa/prs/dpb/2014/10/233166.htm#HUNGARY

  9. D7 Democrat: I’m no fan of Mother Russia, just to make it clear. But Russia has some USD 600bn in reserves and the people are happy to endure a bit of trouble if that’s what it takes to keep Crimea and defeat the “fascists”. Besides they have no choice but to endure, there is no talking back in Russia now. Russia is a much more resilient police state than people assume. Are its long-term prospects bad? Sure. Will Putin stay in power as long as he lives? Yes. While it’s true that the Russians need some USD 110/bl (perhaps more) to more or less balance their budgets, they have ample reserves to survive a few years with lower levels too. I find it improbable that crude oil could remain below current levels for an extended period; the current levesl just dont cover the cost of new projects and no, shale oil is not a game changer for many reasons. The EU cannot just turn off the tap of financing. That’s its fundamental problem. Because the EU is overly procedural and politically deeply divided its threat of stopping the financing is simply not credible. There is no credible projection of power. The problem is that the EU has to adhere to convoluted laws applied by disinterested and often changing burocrats because it wants to remain a region of the rule of law, while Orban just decides and acts. Dictatorships can be more “efficient” unfortunately. The EU will not turn off financing and like it was said even if it looked like it initiated the necessary many year long legal procedure with appeals and votings etc. to decrease financing somewhat in the end the EU would blink, as it always does. It would compromise. You know that, we all know that. That’s how the EU operates. The point is Orban will continue to be financed by the EU. Orban can be deposed, however for that much much more would needed. The West just doesn’t dare, because ultimately it doesn’t care.

  10. Dream on, Verges, that the Russian billions are here for Orban or the Hungarians. If dictatorships were so efficient how come Hungarians have been running away from such a paradise country? So efficient! And with Russian billions! I am sure that the nation does not mind to endure a bit, so that efficient Orban can keep his billions, most probably very Hungarian billions, that is comforting.

  11. Istvan:

    There’s no contradiction. I think we’re on the same page. The US doesn’t want to force a regime change and it won’t. Orban knows that and he acts accordingly. Like it was said, the US can either bomb and occupy countries or else whatever it does it has no material relevance against a committed revolutionary thug. Sorry, but that’s the case.

    Meanwhile Orban would be perfectly happy outside of NATO and even outside of the EU. He may put too much faith in Russia, but that’s what I think. Given the brain washing which the EU has been tolerating way too long (i.e. that it’s the focal point of hatred, the bogeyman, just like the out of touch federal government for the Republicans, as they can’t openly hate black anymore), I vager that the if there would be a referendum now most people would vote against NATO and/or EU.

    That’s also the point, most people , despite the occasional complaining, are happy with the turns of events. Like the Serbians who wanted Milosevic and his thugs, most Hungarians who vote want Orban and his thugs, the consequences be damned. If we move towards Russia, then be it — many voters are absolutely OK with that unfortinately.

  12. “So far, [Orban] has been able to able to silence any opposition by indirect threats and intimidation but those few that remain opposed to him, stay defiant.”

    Well, on that topic, coming next year in Hungary will be a tax on internet usage.150HUF per 1GB.

    So, listening to Klubradio online for a few hours, or finding out what the NY Times, Economist, et al have to say about the decline of Hungary this week will become a non-essential cost for some.

    http://www.portfolio.hu/en/economy/hungary_to_impose_internet_levy_in_2015_tax_plans_show.28561.html

  13. Two things:
    Orban does not leave Nato or the EU because the Hungarian populace–dreamy and somnambulant as it is–is not ready for either of those moves.
    What happens in Hungary is not decided by Orban, but by Pyutin and the Russians…

  14. @Verges: Orban may think that Putin is a good bet, but who knows how long Putin will be all that powerful. Oil prices are falling, so Russia’s oil revenues are shrinking… that’s hurting Russia, probably more so than the sanctions.

  15. @Marcel Dé

    The internet tax is part of the grand plan to restrict access to independent information.

  16. @tappanch: ‘independent information’ hardly needs broadband, or more exactly it can adapt.

    Now, tell the people I mentioned above, or tell an Erasmus student that their Internet bill in Budapest will be 100% higher than in Vienna, Prague or Berlin …

  17. Tappanach, yes, some European companies are resigned to pay bribes, because their local laws take this into account. In Germany, for example, companies may report bribes as business expenses to the tax authority, but the reporting has to include complete documentation, including names and account numbers. US corporations, on the other hand, not only does the 1977 US Foreign Corrupt Practices Act make bribery illegal, but bribe demands are expected to be reported and bribe paid are not tax deductible. Interestingly enough, for Hungarian firms doing business abroad, bribes of foreign officials do not qualify as a deductible expense.

  18. tappanch: “The internet tax is part of the grand plan to restrict access to independent information.”

    That is my guess too. Among other things it may kill Klub Radio, because of its limited coverage over the air.

    Isn’t there an EU regulation against this? It would be much more helpful than regulating the size and shape of the cucumbers and such…

  19. “The point is Orban will continue to be financed by the EU.”

    When “inconvenient” dissadents start “disappearing”?
    When NGO workers start getting beaten up in the streets?

    No. You are wrong. The EU will not continue to subsidise a regime which employs such violence and make no mistake, Orban will have no compunction in following his hero Putin when the few remaining independent “rabble” refuse to bow the knee to him and his assorted Brownshirts.

    I also note that you ignore my assertion that Hungary’s importance to Putin shouldn’t be over-exaggerated.

  20. D7: Russia has a policy tailor made for each and every EU member state. The Russians use submarines against the Swedes, kidnap Estonian agents, finance extreme right wing organizations all over Europe, you name it. I agree that Hungary is not so important in the greater scheme of things, but it would be a huge feat to flip it. Don’t underestimate the value of that. It would by a symbolic turning point of the post-1990 history of Europe. Before such event countries wanted to be in the EU and NATO, now we would be surely beyond “peak-West”. And this is worth anything for Putin. Besides having such a total Russian agent within EU/NATO (but Russia has other such agents within), Hungary could potentially be a symbol for a new era. I mean look today Rogan was initiating a bill that would allow building South Stream even if it was contrary to EU law. They figure what can the EU do, send here troops to stop construction? Orban just doesn’t give a s***t, he will build the pipeline and then the EU politicians, EU lawyers can argue about it for ever afterwards. End of story. The symbolic political value of this total and utter disregard for the EU, this making of the impotence of the EU an the Europeans in general so painfully obvious to the world is priceless (even if Hungary remains in these groups). Moreover the money Orban makes from the energy deals is just insane, it’s a perfect combination of incentives, in Orban’s mind i’ts worth fighting for this friendship till the last bullet. Come to think of it, Orban is increasing the expenses on defense and abolished the VAT on tanks (he is preparing to procure tanks I guess). His trick is to sell these steps to the NATO as an effort to comply with the 2% rule, when in fact he is gradually preparing for the exit from the NATO which will necessarily involve more spending. And if he buys let’s say German tanks all will be forgiven as the arm producer companies and their lobbyists will pull the necessary strings politically. The point I guess is that Putin is not about to give up on its best pupil anytime soon.

  21. Please tell me something: if the USA wants to protect democracy and transparency (of course we all know that is usually not the case, just a pretext to defend American interests) then why doesn’t it present the proof that was requested? We are talking about Hungarian citizens who were comitted crimes according to Hungarian law and who may be prosecuted according to US law too. There is no need to “protect their rights”. Also, by refusing to present evidence, BUT leaking damning information to the press and to government officials, the U.S. government is essentially libeling individuals (vaguely of course to avoid litigation), libeling and attempting to destabilize the Hungarian government by manipulating public opinion. By denying what is presented as essential information about a corrupt government that is not publicly known to the citizens of Hungary, the U.S. is spitting itself and its values (and by that its own citizens) in the face: it says the country should be aware of corruption, the country (in a democracy) IS the people, if the U.S. is really concerned about democracy and transparency then it shouldn’t play this pitiful game of “we know what you did last summer”.

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