How do European Union funds end up in the hands of the Orbán family?

The European Union has been, wittingly or unwittingly, enriching members of the Orbán family. Today, in what is undoubtedly only one story of many, I’ll focus on Viktor Orbán’s eldest daughter, Ráhel.

The last time Ráhel, Rasi to her family and friends, was in the news was more than a year ago when she got married with great fanfare to István Tiborcz, a 27-year-old businessman with a law degree. In 2008 Tiborcz and a friend started a small business dealing with electrical and energy supplies. In 2009 the business had a modest profit of 8 million forints on which they paid 2 million in taxes. Two years later the annual profits of the groom’s business were over 2.5 billion forints.

Ráhel is in the news again. This time on account of her spending a year at the École Hôtelière de Lausanne in Switzerland where she is working toward “an Executive MBA in Hospitality Administration.” Why the interest in Ráhel’s studies? The reason for all the fuss is the high tuition fee she has to pay for the two semesters she is spending in Lausanne. The cost is 60,000 Swiss francs or 15 million Hungarian forints. Because of the recent focus on alleged widespread corruption among Hungarian politicians, this tuition fee prompted questions about the source of the money. Journalists pointed the finger at Rasi’s father, Prime Minister Viktor Orbán. How can he plop down 60,000 Swiss francs?

I, who followed the research done by Atlatszlo.hu at the time of the wedding and reported about the sudden enrichment of István Tiborcz, couldn’t quite understand why Hungarian journalists assumed that it had to be Orbán who footed the bill when Rasi has been married for over a year to a young man who since 2010 has become quite wealthy.

Ráhel became tired of all the questions and accusations and decided to speak up on her Facebook page. She said that she and her husband are paying her tuition, not her father. I’ll bet she regrets that decision now because her Facebook note prompted Atlatszlo.hu to look into Tiborcz’s more recent business affairs. And what they found is not pretty.

The happy couple

Of course there is nothing wrong with being a successful businessman, but István Tiborcz’s success most likely has nothing to do with his business acumen. Before Viktor Orbán became prime minister he owned a very modest business. The meteoric rise in his fortunes can be compared only to that of Lőrinc Mészáros: from 8 million in revenues in 2009 to 3 billion in 2011.

How did he achieve this incredible feat? In 2010 one of Közgép’s divisions purchased the majority of shares in Tiborcz’s business and used it as yet another of its conduits for EU cohesion funds. The customers of E-Os Innovatív Zrt., as the business was renamed, were almost exclusively municipal governments with Fidesz mayors. They contracted with E-Os to do work that was funded by cohesion funds from Brussels.

For reasons that are unclear, in 2012, according to publicly available information, Tiborcz’s business was renamed Elios Innovatív Zrt. and Közgép no longer had a majority stake. Two companies bought out Közgép, one of which, Green Investments, was owned by a former partner of István Tiborcz, Endre Hamar. The change in ownership had a decidedly negative impact on the company’s revenues. In 2012 Elios Innovatív Zrt. grossed only 20 million forints. Three weeks after the 2014 national election, however, Tiborcz bought out his former partner Endre Hamar, and from there on business boomed.

Tiborcz’s firm installs street lighting. Atlatszo.hu lists 2.9 billion forints worth of contracts with different municipalities: Hévíz, Balatonfüred, Kecskemét, Szekszárd, Dunaújváros, Sopron, Hatvan, Kalocsa, Bicske, just to mention a few. Most of these revenues (2.1 billion) were the result of a tender issued by the Nemzeti Fejlesztési Ügynökség (National Development Agency) and financed by the European Union. Local governments could apply for grants to reduce their energy costs; if successful, they received large sums of money to have the appropriate work done.

There are strict EU guidelines that the Hungarian authorities must follow. The most important rule is that the firm that prepares the technical details must not in any way be connected with the successful bidder. However, as Atlatszo.hu discovered, most of the tenders Tiborcz’s firm won were prepared by his former partner, Endre Hamar, who owned another company called Sistrade Kft. It is likely that Hamar and Tiborcz acted in collusion, making Tiborcz’s bid fraudulent. In fact, Atlatszo.hu notes that the arrangement was so bizarre, and presumably illegal, that Hamar was still an owner of Elios Innovatív Zrt. at the end of April 2014 when the firm signed the contract with the city of Héviz.

Atlatszo.hu did a yeoman’s job in trying to make sense of the company’s shifting identity and ownership structure. Unfortunately, many questions remain. One that baffles me is the role of Simicska’s Közgép. I find it more than a little odd that Simicska’s Közgép shows up to support the fledgling business of István Tiborcz, already known to be Ráhel’s boyfriend, only to withdraw from the firm after its spectacular growth. Közgép is not, as far as I know, active in venture capital or private equity. And, as the next year’s revenues showed, Tiborcz’s company was not ready to stand on its own.

I think it would be high time for Brussels to take a harder look at some of the businesses–and individuals–that profit from its largesse. Let’s not forget that in this case we are talking about the daughter and son-in-law of the prime minister. Surely, the goal of the EU convergence program is not to make the Orbán family rich.

Another look at the Hungarian-Swiss connection

Ever since yesterday I have been mulling over the mysterious Swiss visits of Prime Minister Viktor Orbán and János Lázár, his chief of staff. As I mentioned yesterday, Demokratikus Koalíció suspects that Viktor Orbán’s recent trip to Switzerland and his stopover in Zurich between Lausanne and Budapest had something to do with banking, perhaps of a private nature. However, we know for sure, thanks to the information released by the prime minister’s office, that János Lázár’s trip to Switzerland at the end of March 2013 was undertaken in order “to have talks with a German citizen” and that the topic of the conversation was “Hungarian-German and Hungarian-Russian relations.” This led me to another angle: the large presence of Gazprom in Switzerland.

Just in Zug, a tax haven south of Zurich, three Gazprom companies have their headquarters, or to be more precise it is in Zug that they are incorporated: Gazprom Marketing & Trading AG at 19 Dammstrasse, the Nord Stream AG at 18 Industriestrasse, and the joint Russian-Ukrainian RosUkrEnergo AG at 7 Bahnhofstrasse. There are hundreds of Gazprom subsidiaries, and it is instructive to take a look at them collected in one place. I went to a few of their official websites. Gazprom Marketing & Trading AG opened for business in February 2012 “aiming to support Gazprom’s international development strategy.” They “trade natural gas, power, liquefied natural gas, liquefied petroleum gas, clean energy and carbon, and oil.” The Gazprom subsidiary Nord Stream AG is an international consortium of five major companies.

And let’s not forget about the Zurich based Gazprom Group, which has several subsidiaries, of which “the most spectacular company is Gazprom Switzerland AG.” The company is situated in the heart of Zurich’s financial district and deals in natural gas from Central Asia. Gazprom Switzerland is a wholly owned subsidiary of Gazprom Germany (Gazprom Germania), which is itself a wholly owned subsidiary of Gazprom Export, Russia. According to TagesAnzeiger of Zurich, this company has about two dozen employees yet in 2012 it generated sales of CHF 7.3 billion and a profit of 76.1 million.

Here we arrive at an intriguing piece of information. The chairman of Gazprom Switzerland is Matthias Warnig, formerly head of the Russian division of Germany’s Dresdner Bank AG, who in his earlier life in the German Democratic Republic worked for the Stasi. Back in 2005 The Wall Street Journal found documents that proved that as a major in the East German intelligence service he developed a close friendship with Vladimir Putin during the time that he worked in East Germany as a KGB agent. Apparently Warnig helped him recruit spies in the West. Warnig is not just the chairman of Gazprom Switzerland but also a director of Nord Stream with headquarters in Zug.

Old friends from Stasi and KGB days: Vladimir Putin and Matthias Warnig
Source http://www.powerpolitics.ro

Warnig is a very powerful man indeed, but the Ukrainian crisis is having a negative effect on his network. He is a member of the board of directors of several Russian banks, including the Bank of Rossiya and VTB Bank, whose assets have been frozen by the United States. Warnig is also a board member of the energy company Rosneft and of Rusal, an aluminium producer. Both are the largest companies in their field in the world. An excellent summary of the history of Warnig’s friendship with Putin can be found in The Guardian (August 13, 2014).

Is it possible that János Lázár talked with Warnig, the “German citizen”? Warnig would have had the clout to deal not only with energy supplies but also with inter-country friendship. It’s possible that Lázár solicited Warnig’s assistance in reaching out to Putin about the future of Russian-Hungarian relations and Paks. The reference to “Hungarian-Russian relations” points in this direction.

The August 2014 trip of Orbán and Lázár in the company of their wives might have had something to do with Gazprom affairs. Someone spotted them on a flight to Zurich on Thursday, August 21. According to Orbán, they spent Thursday night with friends in Germany, but even if this was the case, there was a whole Friday during which the two men could have conducted business with Gazprom officials. Zurich, as we have learned, is the perfect place for such transactions.

Viktor Orbán’s most recent trip to Switzerland followed a different pattern. No serious business can be conducted in a train station during a quick stopover, especially not on such serious matters as Russian-Hungarian relations or energy supplies by Gazprom. Demokratikus Koalíció might be on the right track: it’s possible that Orbán was conducting a different kind of business, very possibly of a private nature.

All this is thoroughly speculative. Perhaps someone with better access to Hungarian and Russian energy providers or government “travel planners” will ferret out the truth.

Mysterious trips of Viktor Orbán and János Lázár to Switzerland

Today I will have to pull up my socks if I want to give even a semi-coherent summary of the growing scandal surrounding a company called MET Holding A.G. with headquarters in Switzerland. The holding company, established only a couple of years ago, is partially owned by MOL (40%) and partially by Hungarian individuals–people formerly employed by MOL and businessmen with close ties to Viktor Orbán.

First of all, it’s hard to decipher the company’s structure which is, as is often the case with enterprises like MET Holding, extremely complicated. Second, since it is likely that MET Holding, in addition to its regular activities, also serves as a money laundering operation for Fidesz as well as Viktor Orbán and his friends, those involved do everything in their power to conceal the company’s business activities, ownership, financials, and so on.

I should go back a few years to February 2010, only a month before the national election and the birth of the two-thirds majority, when the U.S. Embassy in Budapest compiled a report entitled “Allegations of political corruption surround unbundling law.” From the lengthy report we learn that “it is an open secret in Hungary that MVM and MOL provide significant funding to the two main political parties, with MVM rumored to favor the Socialists and MOL favoring Fidesz.”

MET Group predated this U.S. report. According to its promotional material, it began operating in 2007 “in the natural gas retail and wholesale sector benefiting from the market liberalization starting in 2004.” Currently it is active in wholesale gas trading in the European market as well as in the retail sale of natural gas to industrial customers in Hungary, Slovakia, Romania, and Croatia. Five years later, in 2012 MET Holding was established with the objective of being “a central holding organization to manage and support all the subsidiaries of MET Group.” (If you want to know why MET Holding might have been layered on top of MET Group, I suggest you take a look at “How a Holding Company Works.”)

Shortly after the election in 2010 Orbán promised cheaper energy to consumers. In order to lower prices the state-owned MVM (Magyar Villamossági Művek) was allowed to dip into its gas reserves which it could then replenish with cheaper gas from the open market. MVM could have bought the necessary gas directly from Austria, but instead it purchased gas through MET. According to the figures that are available about the transaction, MVM gained little while MET made about 50 billion forints on the deal.

The owners of MET, in addition to MOL, are István Garancsi, a personal friend of Viktor Orbán and owner of Orbán’s favorite football team, Videoton, and György Nagy, one of the founders of Wallis Asset Management Co., a private equity/venture capital firm. Both men have close ties to Zsolt Hernádi, the beleagured CEO of MOL who is accused of bribery in Croatia, and to Sándor Csányi, his deputy and the CEO of OTP, Hungary’s largest bank. Heading MET Holding is Benjamin Lakatos. He expects sales this year to total some 3.8 billion euros.

Most likely nobody would have cared about this Hungarian company with headquarters in Zug, Switzerland, if Hungary’s prime minister hadn’t been so involved in negotiations with Putin as well as with Russian energy companies, in particular Gazprom and Rossatom, the Russian company that specializes in building nuclear power plants. Rossatom was chosen to construct two extra reactors at the Paks power plant. Given the widespread concern over Viktor Orbán’s dealings with the Russian autocrat, Swiss journalists started probing into this mysterious MET. A  well researched article appeared on November 3 in TagesAnzeiger, which was later reprinted in Basler Zeitung. According to the Swiss paper, MET Power, MET Marketing, MET International, and MET Holding all share the same Zug address. Benjamin Lakatos is the CEO of all of them. Zug, by the way, is about 20 km south of Zurich.

I understand that the company’s management is made up of former MOL employees who know the energy business inside out but who found greater opportunities outside of MOL. Lakatos is very proud of his achievement of building MET Holding in two years from practically nothing to a sizable player in the energy business, though one cannot help but be suspicious of a such a sudden rise in fortune. Moreover, given the cozy relationship in the past between MOL and Fidesz, one wonders what role MET may play in the possibly continued reliance of Fidesz and Viktor Orbán on MOL as a source of illicit money. With István Garancsi’s name in the cast of characters, one becomes doubly suspicious since he is often portrayed in the Hungarian press as Orbán’s front man.

Source: http://www.tagesanzeiger.ch

And now let’s move to more recent events that might have something to do with MET Holding. I’m patching the story together from several sources. You may recall that the editor-in-chief of Origo, an online news portal, was dismissed because one of the reporters of the internet site was too curious about a couple of very expensive trips János Lázár, the most important member of the Orbán government after the prime minister, made to Great Britain and Switzerland. Lázár for a long time resisted revealing any details of these trips but eventually after a court order the prime minister’s office released some information. Among the bits and pieces of information that Origo received, there was one item that might be relevant. Origo was informed that János Lázár during his Swiss trip “held conversations with a German citizen about German-Hungarian and Russian-Hungarian relations.”

More than a year later there was another trip to Switzerland. This time it was a private affair. Viktor Orbán and his wife and János Lázár and his wife spent a weekend in Zurich. First they stopped in Germany to visit a “family friend” and then off they went to Zurich, allegedly to attend a concert given by a children’s choir from the Szekler areas of Romania. Quite a lame excuse for traveling to Zurich because earlier this same group gave three concerts in the Hungarian Parliament in Budapest. There was also a side trip to visit a friend in Germany. Is he perhaps the same man Lázár held talks with in March 2012?

About a week ago Viktor Orbán made another trip to Switzerland. This time the occasion was a family visit (including his wife and their two youngest daughters) with Rachel, who is enrolled in a fancy, expensive hotel management course in Lausanne. Since, again, this was a private visit, the prime minister’s office refused to release any information about the trip. However, thanks to an eagle-eyed person, Orbán was spotted at the  Zurich railroad station having a beer with an unidentified man. Since the Orbáns decided to travel back to Hungary by train, a stopover in Zurich was unavoidable since there is no direct train from Geneva, a forty-minute train ride from Lausanne. But why did he choose to go by train from Lausanne all the way to Budapest, a trip that takes altogether 16 hours and 22 minutes? He said that wanted to spend more time with his children. Well, I could imagine many more pleasant ways of spending time with my family than sitting in a second-class train compartment. Suspicious Hungarians already have their own theory: for one reason or other, Orbán chose to travel by train because there is no inspection of either persons or luggage on trains. I find that difficult to believe. I hope that we are not at a point that the country’s prime minister is carrying millions of euros in his suitcase.

Although one can probably discard such speculation, one should take more seriously the information received by the Demokratikus Koalíció that while in Zurich Orbán met representatives of Credit Suisse and Pictet Bank. Pictet is a private bank which in 2012 was the target of a U.S. probe into the use of foreign banks by wealthy Americans seeking to avoid paying taxes. Pictet specializes in “wealth management.” As for Credit Suisse, which is one of the most powerful banks in the world, it also had its problems with the law. In July 2014 Credit Suisse reported a loss of $779 million because of the settlement of a tax evasion case in the United States. Zsolt Gréczy, the spokesman for DK, emphasized that they are not accusing Orbán of anything; they simply want to know whether he met with representatives of these two banks as the prime minister of Hungary or as a private individual.

All in all, the picture that emerges from the few pieces of information we have is not pretty. Orbán has enough trouble as it is. Tonight another 10,000 people demanded Ildikó Vida’s resignation–and his as well.

Another corruption case and the news of the day

Yesterday I promised to write about another scandalous affair, this time involving a close friend and business partner of Viktor Orbán, István Garancsi. This morning after I read a number of articles on the subject I almost gave up on the idea. The case is so complicated–surely for good reason–that it takes some doing to figure out exactly what happened. Here is what I managed to put together. I’m waiting for more input from readers.

Shortly after Viktor Orbán won the election, companies dealing with distance heating wanted to raise their prices, a move that would not have been popular and something the new government wanted to avoid. So the government instructed the state-owned MVMP Partner Energiakereskedelmi Zrt. to supply gas to these providers from its reserves at a lower rate. In return, the government made sure that MVMP would receive cheaper western gas by way of compensation. In fact, the government bought a great deal more gas than was necessary to replenish the reserves. The extra, which was in fact the bulk of the purchases, was sold by MVMP to a company called MET. It then sold the inexpensive gas at a handsome profit.

MET has its headquarters in Switzerland, but some of its subsidiaries are in Cyprus, the British Virgin Islands, and the Cayman Islands. Behind its complex business structure are two Hungarians:  György Nagy and István Garancsai.  György Nagy was the founder of Wallis Rt., an investment company, whose CEO between 2000 and 2006 was Gordon Bajnai. Subsequent to Wallis Nagy was involved in several successful business ventures. István Garancsai is the owner of Viktor Orbán’s favorite soccer team, Videoton. He also owns a small credit union, Duna Takarék, which miraculously was not nationalized when all others were. It turned out that it was Duna Takarék that gave a loan of 600 million forints to Viktor Orbán’s soccer foundation in Felcsút.

These offshore companies got inexpensive gas thanks to the largesse of the Hungarian government. They then sold it at the going market price in Hungary. According to estimates, their profit was 50 billion forints in 2012 alone.

Those of you who are interested in the extremely complicated details should read the two articles published by atlatszo.hu on January 28 and February 3.

Just a taste of the complexity of the businesses involved / Source: atlatszo.hu

And now let’s move on to some important news of the day. Early in the morning it became known that although the Hungarian government claimed that the European Commission supported its agreement with Russia concerning Paks, the claim is not true. Of course, that doesn’t surprise me because members of the Orbán government are not known for their truthfulness. On Monday, for example, Viktor Orbán delivered a twenty-five-minute speech in parliament in which there was not one truthful statement about the real state of affairs. At any event, when the government initially made its claim that the EU was on board with the Paks deal,  HVG was skeptical and inquired from the commissioner for energy about the case. The reporter was told that the commissioner hadn’t received detailed information and that they were waiting until they had it in hand. Today came the news that the European Commission will investigate the case very soon.

And in a blow to the Hungarian government’s tax policy, the European Court of Justice ruled that

Articles 49 TFEU and 54 TFEU must be interpreted as precluding legislation of a Member State relating to tax on the turnover of store retail trade which obliges taxable legal persons constituting, within a group, ‘linked undertakings’ within the meaning of that legislation, to aggregate their turnover for the purpose of the application of a steeply progressive rate, and then to divide the resulting amount of tax among them in proportion to their actual turnover, if – and it is for the referring court to determine whether this is the case – the taxable persons covered by the highest band of the special tax are ‘linked’, in the majority of cases, to companies which have their registered office in another Member State.

To translate this convoluted sentence into plain English, the extra tax that foreign-based retail chains had to pay since 2011 is discriminatory. The judges instructed the Hungarian courts to make a ruling in accordance with EU laws in those cases where foreign companies suffered financial discrimination. Apparently the contested tax revenues amounted to about 90 billion forints. According to legal experts, it is likely that the Hungarian government will end up paying a great deal more compensation to these companies.

As for a resolution on the fate of the “Gabriel” monument, the suspense remains. Tomorrow János Lázár will have a meeting with various Jewish organizations. A leak published by Népszabadság claimed that the erection of the monument has been “postponed,” a statement that was promptly denied by Antal Rogán. Meanwhile one Jewish organization after the other is returning the money received from the government for the events of the Holocaust Memorial Year. In brief, it is a mess. But Viktor Orbán doesn’t like to admit defeat, and therefore there is a good possibility that he will go ahead with the project. Let’s hope that he realizes the gravity of such a decision given the general climate both within and outside Hungary.

Two days, two speeches: Viktor Orbán on a very wrong track

There are always a few people who phone into György Bolgár’s popular talk show on Klubrádió inquiring why he spends so much time on Viktor Orbán. The answer is simple. Orbán controls the country’s political, economic, and social agendas. Lately he has been busily promoting his ideas on topics ranging from religion to re-industrialization. Just in the last two days he made two speeches and gave his usual Friday morning interview to Magyar Rádió (which lately I’ve noticed French and German journalists correctly call state radio instead of public radio). And today the Spanish  El Mundo published an interview with Orbán on Christianity’s blessings for everyone, including nonbelievers.

Here I will tackle only the two speeches he delivered on April 18 and 19. The first was occasioned by an addition to the Stadler Rail Group’s plant near Szolnok. Stadler Rail is a Swiss company. The second also marked a plant expansion, this time by the Danish Lego Group at its Nyíregyháza facilities. There are practically no foreign companies that want to establish new factories in Hungary, so Orbán must be satisfied with even modest expansions of existing ones. Both Lego and Stadler have been operating in Hungary for a number of years. They came during the Gyurcsány and Bajnai governments.

Years ago, during his first premiership, Orbán made a since oft-quoted statement: “There is life outside the European Union.” In the last ten years or so he didn’t want to call attention to that much criticized sentence. At least not until two days ago when he said in his Szolnok speech: “I find it very important that the company that invests in Hungary is Swiss. Hungarians have always admired the Swiss and I am especially pleased that the Ambassador of Switzerland is also here. As school children we learned that Switzerland is a freedom loving country that has never given up its independence, horribile dictu didn’t even join the European Union. Switzerland is a good example that there is life outside the Union, so no one should be scared.” Well, that’s quite something although I doubt that Orbán actually wants to withdraw from the EU. He knows only too well that a financial collapse would follow secession.

There can be no better place to talk about the re-industrialization of the country than in a plant that manufactures railway vehicles and streetcars. The site gave Orbán an opportunity to repeat one of his favorite themes: that only industrial “production” constitutes real work. He will transform Hungary from a service-oriented society to one that is “work-based.” Any other kind of human activity is worthless. In fact, more than worthless. It leads straight to failure. Let’s see just what he has in mind. “Someone who works, produces will stay successful, the one who speculates on the financial market will fail; the one who is in the service industry cannot stand on his own feet.” I haven’t heard such stupidity for a very long time. Try to explain that to the Rothschilds or to Conrad Hilton. On the other hand, there is no guarantee whatsoever that someone producing industrial goods will succeed. Just think of all those companies that have died or that are struggling to keep their heads above water.

But wait, there’s more! According to Viktor Orbán, “we don’t live off others. We don’t live from the dole of the IMF or the European Union. The country is standing on its own feet because of  its economic accomplishments.” I can’t find words!

The next day it was time to visit Nyíregyháza where the Danish Lego Group is expanding its facilities. Here we found out from the Hungarian prime minister why Lego products are so popular. He has, he said, spent some time pondering over this puzzle and came up with the following hypothesis: “These toys are the expressions of the modern age, the world in which we live. In them we can find the greatest challenge of globalization. That challenge is how we can build separate worlds from almost practically identical components. … In 2010 we began exactly that kind of enterprise, which is not at all a game but which demands at least as much inventiveness and fantasy as building our own world from Lego comp0nents…. We Hungarians had to undertake the task of rebuilding a Hungary that is different from all other countries from components at our disposal in the twenty-first century…. We followed the spirit of Lego. We didn’t follow the well known path but started on our own, trying to remove the debris of the past.” And he went on and praised the inventiveness and creativity of Hungarians.

Let’s build a country
DecoJim’s photostream / Flickr

Well, we know that the inventiveness and fantasy exhibited by György Matolcsy produced mighty few positive results. On the contrary, his unorthodox economic moves managed to send the Hungarian economy into recession. One mustn’t forget, although Orbán et al keep trying to rewrite history, that the Hungarian economy was on the rebound when he took office in 2010.

To build a separate Hungarian world today is impossible, and I suspect it was always impossible. Globalization is not a new phenomenon. I would also advise Orbán not to mix up Switzerland with Hungary.