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.

 

Another corrupt official: The minister of national development and his “businesses”

Today’s scandal involves the newly appointed minister of national development. In case you get confused with all the “national” stuff, this is the ministry that was led in the last couple of years by the mysterious Mrs. László Németh. The one nobody had heard of before and the one who had only a high school education.

In 2010 when the ministry was created it looked as if the minister initially appointed to head this new ministry was destined to play a major role in the affairs of the Orbán government. Viktor Orbán appointed his former professor and senior adviser Tamás Fellegi to the post. Fellegi, especially at the beginning, traveled madly back and forth between Beijing, Moscow, and Budapest. It was also this ministry that was supposed to handle the subsidies coming from the European Union. After a few months, however, Fellegi’s job of dealing with China and Russia was taken over by the prime minister himself and Péter Szijjártó, the young “genius” of Orbán’s inner circle. Fellegi resigned or was let go. Then came Mrs. Németh and with her a total lack of transparency about the activities of the department. She was presumably unable to handle such a high position in a “key ministry.” She was the only minister whose tenure Orbán decided to terminate this year.

The new minister is Miklós Seszták , a member of the Christian Democratic People’s Party (KDNP). The appointment raised some eyebrows for at least two reasons. One was Seszták’s lack of any background in economics, finance, or administration. He is a small-town lawyer. Actually the only one in his hometown, Kisvárda (pop. 16,000), 22 km from the Ukrainian-Hungarian border. And the second problem was Seszták’s less than sterling record as a lawyer; he has been linked to some very shady business ventures.

Viktor Orbán had to be aware of Seszták’s participation in suspected corruption cases because at least since January 2013 his name had been all over the newspapers. Miklós Seszták was involved with an EU financed venture which the European Commission’s European Anti-Fraud Office (OLAF) found fraudulent. This was not the first time that the EU questioned the allocation of grants, but the Hungarian government normally protested or at least tried to explain them away. This time there was no question and the Orbán government did not contest the allegations.

The story goes as follows. There were five companies that received 21.25 billion forints from the EU to develop broadband internet access. But there was a bit of a problem. All five companies were established only a couple of weeks before they applied for the grant and some of the owners overlapped. In addition, Seszták happened to be a member of the board of one of these companies, Enternet Invest Zrt.

Miklós Seszták / Photo MTI

Miklós Seszták has considerable experience in establishing companies; as it turned out, his services were used to set up over 800 bogus companies in the last decade. The story goes back to 2005 when Figyelő, a respectable paper dealing with business and finance, reported that these companies were all registered under two addresses in Kisvárda where Miklós Seszták had his law office. When the reporter visited the two family houses, they found a middle-aged woman, Erzsébet Kovács, who hailed from Ukraine. When asked, Kovács announced that she is handling an international business venture that concentrates on direct marketing. The business has partners in ninety different countries and for easier communication and flow of goods it was necessary to register these foreign nationals in Hungary just as the Hungarian companies are registered in those countries where they have business interests. When the reporter inquired from APEH, the tax office, he was told that everything was in perfect order with these companies. Nothing illegal was going on. It seems that APEH did not find it odd that all the owners of these companies were citizens of countries outside the European Union. Russians and Ukrainians.

By 2009 Index found that the largest “company cemetery” was in Kisvárda. Why are they called “company cemeteries”? Because not long after their establishment and registration they disappear. In one of the Kisvárda addresses four-fifths of the 550 companies were already liquidated while at the other address three-fourths of the 201 companies were gone.

According to Index‘s updated account, 700-800 companies were registered at three different addresses in Kisvárda. Index claims that the “company cemeteries” were still functioning between 2007 and 2009, by which time four-fifths of them were liquidated, leaving substantial debts behind. All three buildings belong to Miklós Seszták. In one of them, in addition to the phony businesses, one could find until recently the local Fidesz office.

Establishing phony companies must have been a lucrative business. At least Seszták did very well financially in the last decade or so. It was only in 1996 that he opened his law office in Kisvárda, and he couldn’t have amassed a fortune from an ordinary small-town practice. Yet today he is one of the richest members of parliament.

LMP, Együtt-PM, DK, and Jobbik are demanding Seszták’s resignation. MSZP has said nothing as yet. What will happen? I assume what normally happens when a Fidesz scandal hits the newsstands. Fidesz acts if nothing has happened. They are sure that eventually the noise will die down and everything will go on its merry way, including Seszták’s appointment. And they are right. In any other country such scandals would have brought down the government years ago. But not in Orbán’s Hungary. I don’t know what is needed for the Hungarian people to wake up and say: no more!

Brussels’ suspension of payments for most of Hungary’s cohesion projects

It was on May 1 that I first reported that 444.hu, a new Internet website, published an article according to which sometime during the summer of 2012 the European Union suspended payment for cohesion fund projects. The apparent reason was that Brussels discovered that there was discrimination against foreign engineers. Only engineers who belong to the Hungarian Society of Engineers could be hired.

I expressed my doubt that the only reason for the suspension of billions of euros was discrimination against foreign engineers, although I do know that such discrimination within the EU is strictly forbidden. I suspected that Ferenc Gyurcsány’s Demokratikus Koalíció, which had brought Lajos Simicska’s Közgép to the attention of the European Anti-Fraud Office (OLAF) , might have had something to do with the suspension of funds.

At that time the government offered only a couple of soothing assurances that all was well. One government official even insisted that the requisite membership in the Hungarian Society of Engineers was not really discriminatory because, after all, foreign engineers could join the society. The Hungarian government seemed to be quite sure of itself.

By now, however, the Orbán government seems to be in a total panic. There is still no resolution of the European Union’s suspension of payments for 13 of the 15 operative programs financed from Brussels, and in the worst case scenario Hungary might lose somewhere between two and four billion euros in EU grant money.

Let’s look at a few of the details. I should note here that I feel sorry for those journalists who don’t speak Hungarian and have to rely on information that is available on government sites because very often the English version of the press releases bears no resemblance even to the government doctored news in Hungarian. The August 12 press release on “Action plan to avoid losing EU funds” is a good example of this practice because it says not a word about the suspended funds. The Hungarian version published on the Office of the Prime Minister’s site is more informative.  János Lázár, the new head of the Nemzeti Fejlesztési Felügyelet (NFÜ, National Development Agency), announced at his press conference that “the European Union raised concerns with several large development programmes” and that  Lázár “has already asked European Commissioner for Regional Policy Johannes Hahn to assure completion of related negotiations at the earliest opportunity so that Hungary may utilise the maximum amount of funds available within the 2007-2013 programming period.” This, however, is still not the whole truth.

Lázár actually said that of the 20 billion euros allocated to Hungary for 2007 through 2013 there is a good possibility of losing about 2 billion euros if no agreement is reached before the end of the year. He didn’t dwell on the reasons for the suspension of funds but showed himself eager to “close the disputes between Hungary and the European Union.” The Hungarian government is ready to pay the fines that will most likely be forthcoming without turning to the European Court of Justice because of the urgency. He indicated that he would be happy if Hungary had to pay only 50-70 billion Hungarian forints.

János Lázár at his press conference / Photo Károly Árvai

This withholding of funds is only one of the problems. The other is that Hungary has only a few more months to utilize the remaining grant money, about 1 billion euros, that until now has not been allocated.

What happened? In 2010 the Orbán government completely reorganized NFÜ, which entailed firing 170 of the 210 employees of the agency. Brussels was apparently stunned. They may also have considered Viktor Orbán’s “reorganization” illegal because the Hungarian government was supposed to ask approval of these changes from the European Union. Because of the reorganization there was practically no work on projects at the agency. And not a single new project was launched. I might add here that today NFÜ has 600 employees and, as Lázár made clear at his press conference, there is no plan to reduce the size of the staff.

Meanwhile, just as I suspected back in May, concern was raised in Brussels over the alleged widespread corruption in the dispersion of funds, currently being investigated by the police. Most of the corruption that is under investigation happened when the Hungarian government tried to allocate money to small- and medium-size Hungarian businesses. Then there was the case when NFÜ wanted to decide the winner by lottery, which Brussels gravely objected to and eventually managed to stop. Sometimes grants were handed out without open competition. It is also known that there were occasions when firms with close ties to Fidesz offered assistance (naturally for a fee) to smaller companies without political connections. As far as I know, Közgép, the largest recipient of EU funds and according to some the most tainted, is not under investigation.

The question of the operative project funds was discussed yesterday at the cabinet meeting. As usual, not much can be learned from the press release except that the decision was made to create a new “working group” within NFÜ called “Tervezési Támogatási Munkaszervezet” (Planning and Assisting Working Organization) which is supposed have “functions of direction within the organization units.” Whatever that means.

According to MSZP’s Gábor Harangozó, although Lázár talked about 2 billion euros (500-600 billion forints) that needs to be approved by the European Commission and spent this year, in his opinion the real figure might be as high as 1,500-1,200 billion forints or about 4 billion euros. Right now no money is coming from Brussels, not even for projects that are already under construction. Moreover, it seems that the Hungarian government, which is supposed to be the guarantor of EU subsidies, doesn’t have the resources to pay the companies that are working on these projects.

Harangozó inquired in writing from Viktor Orbán about key details of the case. For example, how long has the Hungarian government known about the European Union’s objections to the government’s handling of the grants? When did Brussels turn off the spigot? Did the European Union complain about government corruption? MSZP also inquired about the situation from the director-general of the European Council.

Today the government, obviously feeling the pinch, reacted to Harangozó’s statements. They countered that Hungary “has lost billions of euros due only to the incompetence of the Gyurcsány-Bajnai governments.” According to the government press release, during Gordon Bajnai’s tenure as the head of NFÜ “76% of the money for development that was spent was not in accordance with rules and regulations.” In any case, one of the first announcements of Lázár after the cabinet meeting yesterday was that the Orbán government will re-examine all projects, including those long since finished, beginning with 2007.

In brief, a new attack on Ferenc Gyurcsány and Gordon Bajnai is in the offing. If they follow their usual pattern they will darkly hint at all sorts of irregularities, fraud, and corruption. Then the police and the prosecutors will madly search for evidence while Magyar Nemzet reports on lurid details of the investigation that they gleaned from reliable sources. The whole circus will last at least until the elections. A tried and true campaign strategy.