The European Anti-Fraud Office is a bit slow: The case of the Heart of Budapest project

Well, we are back in Budapest’s District V, which is known by many names: Lipótváros (Leopoldstadt), Belváros (Downtown), or lately for a little political propaganda “The Heart of Budapest.” At least this was the name of the mega-project undertaken within the boundaries of the district that made the historic district mostly traffic-free and repaved the streets between Kálvin tér and Szabadság tér, stretching 1.7 km, with fancy cobble stones. Like everything else, the project was largely financed by the European Union.

It was Antal Rogán, the newly elected mayor of the district, who came up with the idea of revamping downtown Pest shortly after the municipal election of 2006. He convinced the City Council of Greater Budapest to apply to Brussels for a grant, and it seemed that at least on the surface the SZDSZ-MSZP city and the Fidesz district were of one mind. We mustn’t forget that at this time Antal Rogán was considered to be a moderate and reasonable man. Later the Fidesz media praised him as a truly remarkable Fidesz mayor who managed, despite the fact that the city of Budapest and the government were in SZDSZ-MSZP hands, to receive a huge sum of money for the development of his district. Well, the Heart of Budapest project really was impressive. A good portion of District V became something of a showcase.

The renovated Károly körút – Photo András Földes

As we know, Antal Rogán has had his share of his political trouble ever since Péter Juhász, who was Együtt’s candidate for mayor last October, decided to investigate shady real estate deals during Rogán’s tenure. I wrote about corruption in the district in December and again in January. Juhász, unlike most Hungarian politicians, doesn’t give up. Whether he will succeed in putting Rogán in jail remains to be seen.

What Rogán did not need was another scandal. But he’s under attack yet again, this time in connection with the Heart of Budapest project. The internet site vs.hu reported yesterday that OLAF, the European Anti-Fraud Office working under the aegis of the European Commission, found serious irregularities in connection with Rogán’s project. According to vs.hu, OLAF finished its investigation at the end of last year and called upon the Hungarian Chief Prosecutor’s Office to begin an investigation of the case. Naturally, OLAF’s findings were also sent to the European Commission. The Chief Prosecutor’s Office admitted that they received the documentation that supports OLAF’s case but said that “currently work is being done on the translation of the material.” Knowing the Chief Prosecutor’s Office, they will work on that translation for months if not years. Moreover, some opposition politicians learned that in the last few years the Chief Prosecutor’s Office received several dozen such complaints, but as far as we know Chief Prosecutor Péter Polt’s crew did nothing about them.

This is not the first time that questions have been raised about the project. At the end of 2012 OLAF found that not everything was in order. There was a good possibility that both District V and the city of Budapest would have to pay sizable fines: about 900 million forints each. The charge? The officials of the district and the city who were handling the bidding process demanded such unnecessary qualifications from the applicants that only one combined firm, Reneszánsz Kőfaragó Zrt and Bau Holding 2000, forming the Heart of Budapest Consortium, could possibly undertake the work. The bidding was theoretically open to foreign firms as well, but I doubt that much effort was put into finding non-Hungarian companies for the job.

What kinds of unreasonable demands did the authorities insist on? To qualify, a company had to have references for 1.2 billion forints worth of work on historic buildings even though the new project focused on repaving streets. There was absolutely no restoration of historic buildings. This ploy is commonly used in Hungary to make sure that the “right” company is the successful bidder. In Hungary 40% of all projects end up with a single bidder. Every time such a thing happens we can be pretty sure that corruption is not far away.

In 2012, when this story broke, Rogán and his deputy András Puskás, who has since left the district under the cloud of possible corruption, argued that there was nothing wrong with the project. It was done properly. The problem, they countered, was that the European Commission didn’t like the Orbán government and concocted this case to attack Viktor Orbán and his politics.

Now that OLAF finally got to the point of calling on the Chief Prosecutor, the district is trying to shift the blame to the current opposition. After all, the argument goes, the first phase of the project was finished in 2009 when Gordon Bajnai was prime minister. And Gordon Bajnai was present at the official opening. I guess that, according to the brilliant logic of the editorial offices of Magyar Nemzet, Bajnai had something to do with passing on the job to an earlier designated firm just because he cut the tricolor ribbon at the opening ceremony. For good measure, Magyar Nemzet added that Viktor Szigetvári, co-chair of Együtt and then Bajnai’s chief-of-staff, participated in the negotiations. Szigetvári calls the accusation a lie.

In addition, Magyar Nemzet blames the SZDSZ-MSZP administration of the city of Budapest. “All this happened during the era of Demszky-Hagyó-Steiner.” Pál Steiner was the whip of the MSZP caucus on the city council while Miklós Hagyó was the MSZP deputy mayor. Hagyó was later accused in a vast corruption case, which is still pending. The lurid details of the case tarnished MSZP and helped Fidesz coast to an overwhelming victory, resulting in a two-thirds majority in 2010.

OLAF has been investigating for the last six years. Right now, the Chief Prosecutor’s office is busily, or not so busily, translating. When do you think we will know exactly what happened? If you ask me, never.

 

Property swindle in Budapest’s District V

The revelations that surfaced about NET Holding in the last few days, thanks to 444.hu, exposed an intricate network of affiliated companies and described the complicated international trading in natural gas. The corruption case I will be talking about today is a lot simpler. Admittedly, the loss to the taxpayers is also a lot less, about four to ten billion forints over the last eight years. Small potatoes, you might say. But keep in mind that we are talking about the sale of one-third of all real estate owned by the municipality of District V, where property prices are the highest in the country. Moreover, these shady deals occurred during the mayoralty of Antal Rogán, considered to be the third most important politician in Hungary after Viktor Orbán and János Lázár.

Stories of corruption in District V, downtown Budapest, have been circulating for almost a year. Népszava learned in April 2014 that a city official demanded a bribe from a businessman who had just successfully competed for a site to open a restaurant. The brave man refused and went straight to the police, naming names. As is typical in Fidesz country, the deputy mayor who was most likely implicated in the affair did not end up in court but was simply removed from the scene and transferred to the ministry of foreign affairs where an “urgent” job was waiting for him. His replacement was Péter Szentgyörgyvölgyi, who became the district mayor last October. Soon enough it became known that Szentgyörgyvölgyi himself was a beneficiary of the shady real estate deals of the past few years. Under pressure, he decided to give his apartment back because “he just got tired of all the attacks against him.” Details of these revelations can be found in a post I wrote in December.

The force behind the investigations is Péter Juhász (Együtt), who was Szentgyörgyvölgyi’s opponent in the municipal election and who subsequently became a member of the city council of District V. He thus has access to documents that shed light on the means by which expensive apartments or business sites were passed on to political friends for a fraction of their real value. Juhász is a former human rights activist with vast experience as an investigator of corruption cases.

So, how was it done? The key concept in these transactions is preemption, the right of a tenant to purchase something, especially public property, ahead of anyone else. Ever since the 1990s a law has been on the books that allows the state or the municipality to sell its properties to tenants at a reduced price. The rationale behind this practice was that every year the tenants of these public properties were obligated to pay higher and higher rents and received no equity in return. The price abatement thus assumed a long-standing contract between owners and tenants. Moreover, as Antónia Rádi of Átlátszó.hu pointed out, three persons are needed for such a transaction: the owner, the person who intends to buy the property, and the current tenant. Apparently, in practice this particular rule is often dispensed with. That is, no outside buyer is necessary for the transaction. What happened in District V, however, went beyond both the law as it was written and the law as it was practiced. The transactions were, quite simply, illegal.

Let’s say an apartment or store front became vacant. The city officials notified their friends, political or otherwise, that these sites were available for rent. After a few months the happy tenants announced their desire to buy the property. The price was determined by two “independent” appraisers. One of the appraisal firms was owned in part by György Rubovszky, a Christian Democratic member of parliament and father of Csilla Rubovszky, deputy mayor of District V. In addition, Rubovszky, a lawyer, was employed by the district as an “expert” assisting the committee in dealing with properties owned by the district. The assessed prices were very low. They always agreed with the prices on the district’s books, most likely thanks to inside information by Rubovszky. Then came the bonus: a 30% reduction in the price.

Among the many cases Péter Juhász is pursuing, he found a tenant turned owner who within a few months sold his newly acquired property for double what he had paid for it.

Juhász is not only digging through property files. He also organized a walk through the streets where most of the questionable property transfers took place.

“And how much did Fidesz steal from you?” Péter Juhász leading the walk in District V

Rubovszky is just one of several people with Fidesz or government connections to surface in these real estate swindles. Péter Heim also handled some of the deals. He is now head of Századvég and as such may be on the list of individuals banned from entering the United States because of their involvement in corruption cases affecting U.S. businesses operating in Hungary. András Giró-Szász, undersecretary in the prime minister’s office, is also indirectly involved through his brother-in-law and business partner, Péter Serfőző.

Juhász is convinced that the city officials undertook these real estate deals as part of a private business venture and did so in a conspiratorial manner. Between 2008 and 2013 277 pieces of real estate changed hands in District V. The appraisers low-balled the value of these properties at a half or a third of their real worth. On top of that came the 30% abatement. If Juhász, who since then pressed charges against District V, can prove his claim, the people involved might end up in jail for years. Or, they should but, judging from other earlier cases, they most likely won’t.