Democratic Round Table’s Manifesto to the People of Hungary

It was on January 16 that four people who are concerned about the fate of Hungary announced the formation of a new Democratic Round Table (Demokratikus Kerekasztal or DEKA). People familiar with the period of the regime change in Hungary will recall that it was at such a round table that the foundations of the new democratic Hungary were laid.

The four patriotic people are Zsuzsa Ferge, a sociologist whose primary interest is social stratification with special emphasis on poverty; Gábor Iványi, the Methodist minister who works with the homeless and the poor; András Horváth, the whistleblower who revealed the rampant corruption within the Hungarian Tax Authority; and Zoltán Lovas, a journalist who was one of the organizers of the long demonstration against the erection of the memorial to the German occupation. They are convinced, as are many others, that Hungary is in a social, political, and economic crisis, and they are trying to stave off a “national catastrophe.” Due to the growing poverty in the country it is possible that people will increasingly be attracted to “radical solutions.” That’s why Hungarian society cannot remain quiet and must begin a dialogue, not just among the political forces of the left but also with those moderate conservatives who might have had high hopes for the Orbán government in 2010 but are by now disillusioned.

Their plan is to create several democratic round tables where people will form “working groups” concentrating on different facets of the groundwork that has to be done in preparation for a regime change. Their final aim is, of course, Viktor Orbán’s removal from power by legal means. There will be six working groups: (1) vision,  (2) democracy and law, (3) social policy, (4) economic policy, (5) civilization, education, culture, and (6) foreign policy.

DEKA already has a forum that anyone can join. Although the working group discussions will not be open, they welcome suggestions from everyone who’s interested. I urge all those intelligent readers of Hungarian Spectrum to join this new think tank. So many of you have excellent ideas, and this offers you an opportunity to contribute something for the common good. Here is the link to the DEKA Forum. I’m sure that English-language comments are welcome.

For those of you who know Hungarian, here is a video about the launch of DEKA.

DEKA wants to work with everybody, including parties. For the time being, only Demokratikus Koalíció has said that they will definitely support the initiative, which is not surprising because DK has always been ready to cooperate with all groups that are interested in restoring democracy to Hungary.

Below is the English-language version of DEKA’s manifesto.

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A Manifesto to the People of Hungary

Our nation has reached a crossroads as of early 2015. We are teetering on the brink of an all-pervasive social, political, societal and economic crisis.  Our nation has been fragmented into hostile camps pitted against and unable to communicate with each other. If our fate continues to be shaped by trends similar to those seen over the past years, one likely outcome is that the current regime will become entrenched with an increasingly autocratic profile. Nor can we rule out a scenario where social tensions reach a boiling point and where both the masses living in destitution and the members of the sinking middle class embrace radical solutions.

Concerned and worried about the fate of Hungary, we, therefore, recommend that our fellow citizens who bear responsibility for how things will evolve should enter into a dialogue with each other.  By opening such a dialogue, they should achieve a minimum consensus on the nation’s political, economic and social issues that enables the forces of a now badly divided nation to come to an agreement and find a way out jointly. We recommend that the restoration of the republic and democracy, the reinforcement of Hungary’s orientation towards European values and the remedy of the social injustices caused by the system be deemed such a minimum consensus.

The key to success is engagement in the dialogue by civil society organisations and movements, political parties, employer and employee organisations, the churches and all members of the nation, whether in Hungary or abroad, with a stake in public affairs.

This is likely to require a series of round table talks making way for change. Parties to these round tables may hold different values, however, they should be ready and willing to continue to co-operate. We as politically unattached thinkers believe that at least one round table with liberal left-wing stakeholders committed to the values of Europe and one with conservative right-wing participants need to be put in place.

We do hope that those in support of achieving a shared minimum social consensus will, their differing political or ideological affiliations notwithstanding, contribute to reaching such consensus on account of their commitment to democracy, the republic and fundamental European values. By this spring their co-operation could lead to the emergence of a negotiation forum and scheme that facilitates the forging of a new historic compromise serving the interests of the nation. We recommend that the starting date of the operation of the National Reconciliation Forum (NRF) be 15 March 2015.

Budapest, the 14^th of January 2015

This manifesto has been endorsed by

Zsuzsa Ferge
András Horváth
Gábor Iványi
Zoltán Lovas

An additional note to the manifesto:

A democratic round table (DR) upholding left-wing values is slated to be established on 25 January 2015. The DR strives to contribute to the envisaged success of joint national efforts through offering documents drafted within the framework of its workshop targeting the public at large. We hope that similar documents will also be drafted under the aegis of other workshops, primarily by parties to a conservative right-wing round table.

Viktor Orbán picks another fight with the West, this time over the Southern Stream

I know that everybody is intensely interested in the Hungarian government’s latest brainstorm, the introduction of an internet tax, but I would rather wait with an analysis of this latest scandal until it becomes clear what the fate of the proposal will be. So far the reaction to this new tax has been so vehement that the government most likely will have to retreat. When an article in the right-wing Válasz predicts that “if we had an election today Fidesz would lose big,” I think it’s time to order a quick turnabout. I would like to add just one observation on a related topic: the Hungarian budget must be in a sorry state if an additional tax must be levied on soap and detergent, allegedly because they are harmful to the environment. Let’s not contemplate the detrimental effect of curtailing the use of soap because this would take us too far afield.

So, instead of dealing with the effects of an internet tax, I will look at other recent governmental decisions that have been detrimental to Hungary’s relations with the United States and the European Union. What I have in mind is Viktor Orbán’s flirtation with Putin’s Russia, which is being watched with growing concern in Washington and Brussels. Already there have been a couple of moves indicating close cooperation with Russia that raised eyebrows in the democratic world: the building of a nuclear power plant by a Russian firm on Russian money, Hungary’s refusal to support the common European position on the Russian sanctions, a tête-à-tête between Gazprom and the Hungarian prime minister followed by the Hungarian decision to stop supplying gas to Ukraine, and the government’s decision to let Gazprom use Hungarian facilities to store gas in case Russia cuts off the flow of gas through Ukraine.

These moves worried and irritated the United States and the European Union, only compounding their concerns about all the transgressions of the rules of democracy committed by the Fidesz government against the Hungarian people. Years have gone by; at last western politicians are slowly, ever so slowly deciding that they have had enough. After Norway it was the United States that openly showed its dissatisfaction with the domestic and foreign policies of the Orbán government. Yet, as the last few days have demonstrated, Viktor Orbán is not changing tactics. On the contrary, as I wrote yesterday, he is strengthening ties with countries whose relations with the United States and the European Union are strained. Almost as if Viktor Orbán purposefully wanted to have an open break with Hungary’s western allies.

Yesterday one could still hope that Viktor Orbán would  come to his senses and would at least make some gestures, but as yesterday’s meeting between Péter Szijjártó and Victoria Nuland indicated, the new Hungarian foreign minister was sent to Washington without a Plan B. By today, however, most likely in his absence, the government came out with a new idea. What if the Hungarian office of taxation and customs (NAV) announces that in the last several years they have been diligently pursuing their investigation of those criminal elements who through tax fraud unfairly competed against the American company Bunge? Maybe it will work. Mihály Varga, minister of national economy, announced this morning that four of the culprits are already in jail. Very nice, but there is a fly in the ointment. Most likely the U.S. State Department remembers, as I do, that András Horváth, the whistleblower at NAV, months ago gave a detailed description of the ways in which these criminals operated. He asked NAV to investigate and disclose their findings, but the managers of the tax office first fired Horváth and a couple of days later announced that after an internal investigation found everything in perfect order. So I doubt that the Americans will fall for that bogus story.

Yesterday Portfólió asked “how to make the USA more angry with Hungary,” but they “did not have the faintest idea that the government has been holding the best answer to that and it beats every idea [the Portfólió] have ever had.” So, what is it? In order to understand the situation we have to go back to the controversy over Russia’s new pipeline already under construction–the Southern Stream–that would supply Russian gas to Bulgaria, Serbia, Hungary, Austria, Slovenia, Greece, and Italy. The United States and the European Union were never too happy about the project and now, in the middle of the Russian-Ukrainian crisis, they are especially leery of Putin’s plans. In fact, the European Commission asked the Bulgarians to stop the construction of the pipeline in their country. They obliged. The European Union also warned Serbia that they can forget about future membership in the European Union if they agree to support the project right now.

In Hungary construction has not yet begun, but the Orbán government seemed to be afraid that something similar would happen to them what happened to the Bulgarians. They decided to act. Changing the law by now has become a Fidesz pastime. Today Antal Rogán proposed an amendment to a 2008 law on natural gas that will allow any gas company to construct a pipeline. The original law, in harmony with laws of a similar nature in other countries, specified that the company in charge of the construction has to be a certified transmission system operator who must conform to international rules. Since pipelines are transnational projects, the countries involved must coordinate their individual projects. What the Hungarians hope is that as a result of this amendment Hungary will not be bound by any international constraint. Starting the project will depend only on the Hungarian Energy Office, which could give permission to any company it chooses to construct the pipeline. Portfólió suspects that both the European Union and the United States will be “furious” upon hearing this latest Hungarian ruse.

Clever Hungarian lawyers, who seem to specialize in circumventing the letter of the law, might think that this scheme is foolproof, but I suspect that EU lawyers will find the legislation full of holes. Hungarian papers suggest that the Orbán government is playing for time. But the case is settled, they argue; the pipeline will be built. Surely no one will force Hungary to destroy it.

Let’s contemplate another scenario. What if the European Union and the United States in joint action put such pressure on the Hungarian government that the plan must be abandoned? As it is, according to analysts, Budapest is already between a rock and a hard place. When political scientist Gábor Török, who has the annoying habit of sitting on the fence, says that “the Orbán government is in big trouble. It was before but now it is different. It will not fall, surely not now…. But if it does not recognize the fork in the road or if it chooses the wrong road, we will mark the events of today as a definite turning point.” And in an interview this afternoon Ferenc Gyurcsány twice repeated his belief that Hungary is at the verge of leaving the Union and, when it happens, it will not be Viktor Orbán’s choice.

I wouldn’t go that far, but I do predict that the screws will be tightened. Among those who will apply pressure will be Norway since the Hungarian government audit office just came out with its report claiming that Ökotárs, the organization in charge of distributing the Norwegian Civil Funds, has used the money inappropriately. A criminal investigation will be launched.

We know that Barack Obama said that the American government supports NGOs in countries where they are under fire. Today we learned that Veronika Móra, chairman of Ökotárs, was a member of a delegation that visited Washington in late September. During that trip the NGO leaders were received by President Obama in the White House. By contrast, Péter Szijjártó did not get any higher than one of the assistant undersecretaries of the State Department. If I were Viktor Orbán, I would take that as a warning.

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

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.

What do sugar distribution and drag racing have in common? A lot

Perhaps there is hope yet for investigative journalism in Hungary. When in the mid-1990s I first encountered an article that was supposed to uncover corruption in the police force I was appalled. The author didn’t seem to be aware of the most basic rules of what we used to call expository writing. Moreover, she was so sloppy that she didn’t even bother to learn the simplest facts of the case. I decided to write to her, going through her article practically sentence by sentence. As if she had been a student of mine who wrote a very, very bad essay on some historical topic. After I sent off the e-mail I was sure that I had made an enemy for life. But no, I received a very cordial answer in which she thanked me for my thorough critique of her work. We even stayed in touch for a while: I continued to criticize, and she continued to improve.

In general, however, Hungarian investigative journalism didn’t improve. Investigative articles and even books on the mostly dirty business affairs of Hungarian politicians were still sketchy and largely incomprehensible. One got the impression that the authors had only a vague sense of the complicated legal and business connections they were writing about. Mind you, they were trying to untangle business activities that were intentionally designed to be inscrutable.

So I was happy to read an article in Index by Miklós Jenei the other day that seemed to have uncovered more about a company’s questionable business practices in a couple of weeks than the National Tax and Customs Administration of Hungary (NAV) managed to do in years with its 23,000 employees.

Jenei decided to focus on sugar because András Horváth, the whistleblower at the Hungarian tax authority, mentioned sugar as one of the favorite commodities of the VAT scammers who make millions if not billions by reclaiming their non-existent value added taxes. He visited quite a few large supermarkets and compared prices. He found a Slovak-Hungarian brand called Sovereign which cost 20-30 ft less than the others. This particular brand was produced by Sovereign Slovakia s.r.o. and was sold at Tesco, Lidl, and some other outlets. The price of Sovereign sugar is 229 at Tesco and 200 ft at Lidl.

According to their website, the company was established in 2009 and the owner is Majorbiz Inc. (Seychelle Islands). The CEO is Ilona Ollé Agh. The reporter is fairly certain that the sugar actually comes from Hungary but that for one reason or other it is more profitable for the owners of Sovereign to transport the sugar to Okoč/Ekecs in Slovakia, a village which is almost entirely inhabited by Hungarians, for packaging.

Jenei managed to discover the wholesale price of sugar per ton by posing as a CEO of a sugar distributor. As a result, he came to the conclusion that no one can buy sugar from the factory for less than 185 forints per kilogram. The supermarkets refused to reveal the price they pay for Sovereign sugar, but our investigator figures that Tesco most likely pays 180 and Lidl 173 forints per kilogram. So, something doesn’t add up.

It turns out that over the last few years there were several companies with the name Sovereign. Several of them dealt with sugar packaging. All of them also had business interests in the sale of cars. Almost all of them had their share of trouble with the Hungarian tax authorities. And all of them shared the same address on Farkastorki utca in District III in Budapest. It is a small apartment on the ground floor. These various Sovereign businesses came and went after amassing millions in unpaid taxes. The authorities would regularly shutter the delinquent business, but within a few months a new business with a slightly different name would spring up. The CEOs also appeared and disappeared. One such CEO was Szilvia Marisz who claims that she is a bookkeeper; when Index‘s reporter finally got hold of her he could hear a baby crying in the background. Her successor was a 63-year-old fellow who had interests in thirteen companies of different sorts. Most of them are no longer in existence.

Lately a new company was registered at the same apartment on Farkastorki utca: Tull Trade Kereskedelmi és Szolgáltató Kft. Its owner is Sándor Esztocsák, who had earlier connections with Sovereign. Tull’s business was fabulously profitable. In 2010 it grossed 551 million forints, which is not bad for a company run by one man, Esztocsák, who obviously came cheap: he had the modest salary of 282,000 per year.

What is the connection between Tull and the packaging company in Slovakia? The link seems to be Jenő Rujp, head of the Sovereign Racing Team Kft, a company that also has its headquarters in the ground-floor apartment on Farkastorki utca. The company is involved with drag racing and maintains a sailing team as well as a band. The racers were badly behind with their taxes and therefore their business permit was cancelled. But no problem. They changed the name to Sovereign Sugar Hungary and Rujp ostensibly left the company. This last company with a new CEO is the distributor of Sovereign Sugar.

Sovereign at a drag racing meet

Quite a saga! Naturally, Index tried to avoid drawing any conclusions from the findings of Miklós Jenei, but it seems to me that the “sugar business” serves primarily as a vehicle for making enough money–thanks to major funding from the unwitting Hungarian taxpayers–to keep up the expensive habits of some of the characters in the story.

The plight of a Hungarian whistleblower

It was a month ago that András Horváth, a former employee of NAV (Nemzeti Adó- és Vámhivatal/National Office of Taxation and Customs), turned to the prosecutor’s office to report a breach of fiduciary duties committed by the top management of this 23,000-employee office. He claimed that large-scale cheating goes on with fictitious VAT reimbursement payments, especially in the case of large commodity distributors and food chains, both multinational and domestic. The figures Horváth was talking about are staggering. He estimates the loss of revenue at 1.7 trillion forints a year.

Since then András Horváth has been in the news constantly. There has been hardly a day that he wasn’t in the electronic media, and thousands of articles have appeared about what is called the NAV scandal. Some people predicted that this affair might bring down the Orbán government, which I very much doubt. These guys are far too foxy to trip over such a “trifling” item as a 1.7 trillion forint fraud.

On November 19 I reported about the affair in as much detail as was available at the time. Predictably, since then politics entered the fray. The first party that offered assistance to Horváth was András Schiffer’s LMP. Schiffer is a lawyer who made sure that Horváth had good legal counsel. At the same time LMP began an effort to get the 78 signatures necessary to set up a parliamentary committee to investigate Horváth’s allegations. MSZP and DK were reluctant to join forces with Jobbik in calling for the committee, which I think was a mistake. I understand that the overwhelming majority of DK’s membership shared my opinion. Well, by the end they managed to get the 78 signatures without current Jobbik members, but Fidesz boycotted a hearing that was supposed to question Horváth on the details. Later Fidesz thwarted the opposition’s effort to set up the committee, claiming  that the existence of such a committee is illegal when a criminal investigation is already underway. I don’t want to delve into the legal complexities of the issue, but legal experts claim that Fidesz as usual was not exactly on the up and up on this issue. Moreover, as it turned out, Horváth was never informed of the investigation launched against him, and his report to the prosecutor’s office on the wrongdoings of the management of NAV wasn’t followed up with any investigation.

Meanwhile direct evidence was mounting that underscored Horváth’s claims. Economic Minister Mihály Varga, under whose ministry NAV operates, admitted in response to a question posed to him by a couple of LMP MPs that NAV investigated only the distributors, not the food chains themselves. This is exactly what Horváth was talking about.

For two years Horváth tried to call attention to the wholesale tax fraud at NAV. He approached several top Fidesz politicians. For example, Antal Rogán and János Lázár. I don’t know why he didn’t go to the Ministry of National Economy where Gábor Orbán, no relation to Viktor, is the undersecretary in charge of taxes and finance in general. Perhaps he had his reasons, although yesterday he said that it wasn’t the government that put pressure on NAV but influential businessmen, oligarchs as he called them.

Yesterday was no ordinary day for the poor Hungarian whistleblower. Out of the blue, at 7:30 a.m., four detectives arrived at Horváth’s apartment and took his famous green dossier, which he carried everywhere he went, claiming that all the information he has is in that folder. For good measure they also took the hard drive from his computer as well as his notebook with the names and telephone numbers of journalists, politicians, and lawyers with whom he has been in contact lately. The sudden and apparently illegal raid reminded people of the surprise visits from the state security authorities during the Rákosi period. They usually arrived at the crack of dawn to arrest people. Everybody agrees that the aim of yesterday’s raid was intimidation. Indeed, Horváth seemed to be genuinely shaken last night when he talked to Olga Kálmán of ATV, although he promised to fight on.

Source: cherispeak.wordpress.com

It was during during his encounter with the detectives that Horváth learned that a charge had been filed against him: breach of confidentiality. Considering that up to this point Horváth didn’t divulge any details about those companies which were, according to him, purposefully not investigated, it is really questionable whether this charge can be maintained. Later it also became clear that NAV already on December 11 filed a police report against Horváth with the Emergency Police’s National Detective Section, not only in connection with the breach of confidentiality but also with the abrogation of fiduciary duties. They only neglected to inform András Horváth of the charges against him.

A right-wing blog gleefully announced that Horváth might receive a three-year jail term. On the other hand, TASZ, the Hungarian equivalent  of the American Civil Liberties Union, alongside other groups active in the defense of the law like Transparency International, considers the police search most likely illegal. Whistleblowers have appropriate protection in Hungary. According to a 2009 law (Law  CLXIII, Act 21 § (5) “filing for breach of confidentiality cannot be applied unless it was done in bad faith .” That is, if it turns out that Horváth made malicious and unfounded charges. But first his charges must be investigated.

Others rightly compared the case to the UD Zrt. scandal in which the victim, Ibolya Dávid, president of Magyar Demokrata Fórum, a since defunct right-of-center party, ended up being the accused. UD Zrt., most likely at the behest of Fidesz, spied on her and on her party. That was in 2008. By the summer of 2009 she was a defendant, and as of today she still hasn’t been able to clear her name in court. Only recently, after she and her co-defendant Károly Herényi were acquitted, a judge ordered that the whole procedure be started again from the very beginning. Viktor Orbán doesn’t forget easily. He blamed her for his defeat in 2006 when she refused to go along with a joint Fidesz-MDF ticket. But Dávid knew what she was doing. Her experience in a Fidesz-MDF-Smallholders coalition when she was minister of justice taught her a thing or two about how Orbán deals with those whom he needs to acquire power and how he subsequently ruins them.

Viktor Orbán naturally has been fairly quiet on the subject of the possible tax fraud at NAV.  He spent the last two days in Brussels. During the press conference after the meetings he was asked about the scandal. He made no mention of the search and seizure at Horváth’s apartment yesterday morning. Instead he explained why “the state machinery hasn’t moved yet.” He would like “to have answers to three simple questions: who committed what and when.” Can you imagine what would have happened to Horváth if he had obliged and answered these questions? Surely, given how the Hungarian system works, by now he would be in pre-trial detention.

Tax fraud scandal in Hungary

On November 8 a surveyor of taxes, András Horváth, turned to the prosecutor’s office to report a breach of fiduciary duties committed by the top leaders of NAV (Nemzeti Adó- és Vámhivatal/National Office of Taxation and Customs). During his press conference he stood between representatives of two civic groups, Levegő Munkacsoport, an environmental organization, and Vállakozók Érdekvédelmi Szövetsége (VÉSZ), basically a lobby group of small entrepreneurs.

Horváth claimed that large-scale cheating goes on with fictitious VAT reimbursement payments, especially in the case of large multinational and domestic companies. Since Horváth was mostly involved with agricultural products and foodstuffs in general, I assume that the companies he was talking about are mostly large food chains. He claimed that the loss incurred in just this sector of the Hungarian economy amounts to about 1.7 trillion forints per year, more than 10% of the country’s entire yearly budget of 15 trillion forints.

The interest was great at András Horváth’s initial press conference
Photo Ákos Stiller

Horváth seems to be a naive soul because before his revelation he turned in his resignation and was expecting to sever relations with NAV only in two months’ time. I guess you will not be surprised to hear that Horváth was immediately dismissed from NAV and that currently NAV is in the process of pressing charges against him.

When Index asked for details from NAV, they were told that tax fraud is usually committed through complicated layers of phony companies and that therefore it is often impossible to find the culprits despite the concerted efforts of NAV’s employees. The spokesman for NAV emphasized that the more than one thousand large multinational and domestic companies actually provide 42% of all tax revenues. These companies are thoroughly investigated.

Yet NAV, either on its own or because of prodding from above, immediately announced an internal investigation. Keep in mind that NAV has 23,000 employees, and yet over the weekend in only two days’ time (November 9-10) the “investigation” turned up nothing. I have the feeling that the internal probe couldn’t have been too thorough.

On Tuesday, November 12, disappointed by the internal investigation of NAV, Horváth put all his trust in the government, emphasizing that he has no political motivations. He just wants the truth to surface. In fact, he was an early Fidesz party member and has old friends in the party from those days. He indicated that he knows two of the “highest dignitaries of the land.” I think he was talking about János Áder and László Kövér. He also said that he wrote two letters to leading politicians in the Prime Minister’s Office and he definitely knows that one reached the person for whom it was intended. I assume again that this was János Lázár. Exactly when Horváth wrote to the person in the Prime Minister’s Office is not clear, but we definitely know that he wrote a long letter to Antal Rogán, head of the Fidesz parliamentary caucus, back in November 2011.

Rogán didn’t seem to remember any such letter. His only recollection was that somebody stopped him in the corridor of the parliament and exchanged a few words with him. But then Horváth released his long, detailed letter which Átlátszó.hu, an investigative online paper, published in its entirety. At that point Rogán’s memory was jiggled, but he still claimed that the letter contained only generalities. It is true that Horváth didn’t mention any names, but he indicated that some of the high officials of NAV were getting paid off for their “leniency” and that some of them had become quite rich in the process.

The way the fraud was committed does look complicated, but in essence it entails a phantom supplier who gets reimbursed for VAT, which is the highest in the European Union. Thus a product for which the Hungarian company paid 100 forints to, let’s say, a Slovak company cost the Hungarian company only about 80 forints and thus its profit margin is about 20-25% higher than it would have been without the assistance of this phantom company. There is a drawing of the scheme in Index.

Fidesz naturally suspects political motives behind Horváth’s revelations. Mihály Varga, minister of economics, warned Horváth that he as a civil servant is not supposed to engage in political activities. Horváth insists that politics has nothing to do with it and that the law is on his side. After all, he says, the law is supposed to shield those who unveil corruption and fraud. But Horváth is in trouble because so far his case has not been taken up by the prosecutor’s office. They want additional information, which sounds like a diversionary tactic. Knowing the political orientation of the prosecutor’s office, I will be most surprised if Horváth’s case is ever taken up.

Meanwhile, of course, the case became thoroughly politicized. It couldn’t have been otherwise. András Schiffer’s LMP immediately moved into action. Next Friday the party will stage a demonstration for “the purity of the tax office and for the upstanding taxpayers.” At the same time, LMP and József Ángyán, formerly Fidesz but now an independent member of parliament, initiated the process to set up a parliamentary committee to investigate the NAV case.

The establishment of such a committee must be supported by 77 members of parliament. As it turned out, in addition to the seven-member LMP only a few independents, a handful of Együtt-PM, and Jobbik members signed the petition.  And that’s not enough. Without MSZP there can be no committee investigation of the case. DK members also refused to sign. The reason for both MSZP and DK holding back was the signatures of Jobbik members. They refuse to join any parliamentary action in which Jobbik is involved.

It is true that, even if the necessary number of signatures had been obtained, the investigative commission most likely wouldn’t have seen the light of day. Fidesz would have voted it down flat. But at least the charge couldn’t have been leveled against MSZP that they were reluctant to sign because they didn’t want their own part in the tax evasion scheme to be unearthed. Indeed, the reason for their refusal to sign doesn’t sound quite genuine, as some Együtt-PM members point out, because in the last three years MSZP members signed several documents on which one could find Jobbik names as well. Attila Mesterházy’s explanation for MSZP’s action (or lack of action) in this case is that the party decided to boycott Jobbik in parliament and elsewhere only recently.

I’m not sure whether refusing to collaborate with Jobbik in every instance is necessarily a smart political tactic. My feeling is that Mesterházy and others can explain their reasons until they are blue in the face, yet people who are inclined to equate the two parties when it comes to corruption will never believe them. And these are exactly the people whom Gordon Bajnai and Attila Mesterházy want to convince to vote for them. Of course, those who argue that nothing would have come of the investigative committee are right, but at least MSZP could have avoided another reason for labeling them a corrupt party, just as corrupt as the “mafia government” of Fidesz.