The Hungarian National Bank chief and Cyprus

András Simor's troubles started on May 26 when Viktor Orbán said during one of his interviews (InfoRádió) that he was "sick and tired of the present situation" where the head of the Hungarian National Bank, the prime minister, and the finance minister have all managed to stash their wealth in off-shore companies. To make a really big splash he added that while in Berlin he asked for German Chancellor Angela's Merkel help in investigating the question of off-shore companies. According to Orbán the Christian Democratic Union (CDU) has lots of experience in such matters. Now one doesn't have to be terribly skeptical to suspect that the CDU has no greater knowledge of monies ending up in off-shore companies than any other party in the European Union, but Berlin provided the opportunity to blacken the names of his political opponents in Hungary.

Bernadett Budai, the government spokeswoman, denied that either Gordon Bajnai or Péter Oszkó had any business interests in off-shore companies. The charges against Bajnai and Oszkó were pretty weak. Bajnai was the CEO of a company between 2000 and 2005 whose business dealings are an open book. Bernadett Budai emphasized that at the time Bajnai decided to enter politics he severed all connections with his former company. Péter Oszkó, the finance minister, before he was drafted a couple of months ago was the CEO of Deloitte Touche Tohmatsu. Deloitte's web site describes the firm's activities: “ 'Deloitte' is the brand under which tens of thousands of dedicated professionals in independent firms throughout the world collaborate to provide audit, consulting, financial advisory, risk management and tax services to selected clients." It is certainly possible that Oszkó advised others to move their companies to places with lower tax rates. However, Oszkó denied any personal financial interest in any off-shore company.

While Bajnai and Oszkó had the good sense not to answer Orbán's charges personally, András Simor, the bank chief, did not. He wrote a letter to Viktor Orbán which was subsequently published in Magyar Nemzet. Simor admitted that he does have a company registered in Cyprus called Trevisol Management Services Ltd. He argues, however, that it is not an off-shore company but a legally registered firm in one of the countries of the European Union. He pays taxes according to the laws of this particular EU country. Moreover, he added, no monies from Hungary were ever transferred to Trevisol. He emphasized that Orbán's insinuations are injurious to his good name and to the reputation of the Hungarian National Bank. Péter Szijjártó, the Fidesz spokesman, answered the bank president in an open letter. He wrote that Orbán's words couldn't possibly be injurious to Simor's "good reputation" because "it is nonexistent." Otherwise, said Szijjártó, it is not Fidesz's duty to decide whether Simor's financial activities in Cyprus are legal or not. It will be decided "by authorities competent to pass judgment" on the case.

A few days went by and diligent investigative journalists began digging. On June 3, HVG came out with the bombshell: from one year to the next 850 million forints disappeared from Simor's yearly financial statement. That's quite a bit of money. The article's author indicated that the answer to the discrepancy lay with Trevisol Management Services registered in Cyprus. Strictly speaking, a company registered in Cyprus hasn't been considered off-shore since the island became part of the European Union in 2004. However, the journalists discovered that Trevisol was originally established as an off-shore company in 1999. In those days the rate of corporate taxation in Cyprus was 4.5%. Today it is higher but still low at 10%. Moreover, Cypriot law allows anonimity of ownership by using a paid cover under contract who is the owner of the company on paper. Trevisol like many other "international business companies" uses such a cover. Her name is Eva Agathaggelou; she is the "owner" of several such companies. A kind of professional cover girl! A quick comparison of Simor's statements of 2007 and 2008 shows that while in the earlier year he had savings of 923 million forints a year later he had only 67 million on hand. The journalists suspect that the missing 850 million ended up in Cyprus.

At the time (2007) of Simor's appointment some people expressed reservations about Ferenc Gyurcsány's choice. Simor was known to be close to some conservative economists who in the last few years also managed to build a pro-Fidesz media empire. That is one reason that some people are surprised today at the vehemence with which Fidesz is attacking Simor. However, Simor's family roots place him firmly in the Kádár political elite. His father, János Simor, was undersecretary in the Ministry of Housing and Public Construction and was considered to be one of the 1,000 most important men and women in MSZMP (1964). He himself was born in 1954 and graduated from Karl Marx University in 1976. Obviously he had good connections because he landed a job right after graduation in the Hungarian National Bank's international department. Three years later he was sent to head up the Hungarian International Bank, an affiliate of the Hungarian National Bank, operating out of London. He returned to Hungary in 1985 and became deputy director of the international department of the Hungarian National Bank. From 1989 to 2007 he held high positions in various brokerage firms and banks. At one point he was the head of the Budapest Stock Exchange. His last position before he was tapped by Ferenc Gyurcsány in 2007 was CEO of Deloitte Touche Tohmatsu.

Defenders of Simor maintain that he did nothing wrong. Within the European Union there is free movement of capital and labor. As long as there is no uniform taxation within the union it is perfectly natural that capital moves to places where taxes are low. Moreover, in Hungary there are no legal restraints on the business activities of politicians and unelected office holders. The first politicians who emerged after the change of regime were intellectuals with no appreciable wealth and therefore such legislation most likely didn't even occur to them. But with the new generation of politicians that is no longer the case. Ferenc Gyurcsány had extensive business dealings prior to entering politics, but he withdrew from participation in his companies after he became involved in politics. The same applies to Gordon Bajnai and Péter Oszkó. All three men did it voluntarily. Yet it is clear that there should be some mandatory regulation to prevent potential conflicts of interest. In the United States people in high political positions must cease all business activities and their wealth must be placed in a "blind trust." Something like that is badly needed in Hungary.

Currently a debate is raging about what Simor should do. According to some he should resign because, even if the law doesn't forbid transferring large sums of money to Cyprus, morally such behavior on the part of the head of the Hungarian National Bank is unacceptable. In theory I agree. However, changing bank presidents in the middle of an economic and financial crisis wouldn't be the smartest move. Moreover, the prime minister can't just fire the head of the bank because he is independent of the government. The only thing he could do is to put pressure on him to resign. If Simor doesn't want to leave, no one can force him to. Finally, if he left, Fidesz's next demand would be the removal of Bajnai and Oszkó. Okay, they themselves don't have off-shore companies but they were once involved with firms that either had off-shore companies or advised others to establish them. Therefore, I don't think that anything will happen except what was already announced: people who have off-shore or on-shore companies outside of the country will also have to pay taxes in Hungary. But that will not be enough for Viktor Orbán. He wants to have the heads of all three men, guilty or not.

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Again, gullibility is at work.
If Simor has accumulated the money in question, after having paid taxes in Hungary, then he was at liberty to do with it as he pleased and spend it or transfer it without any encumbrance.
There is nothing illegal and nothing immoral about that. This whole matter is for generating hysteria.
I heard you speaking about it on the radio and for a moment was inclined to agree that Simor lied.
But a financially sophisticated guy like him can say what he said without equivocation, convinced by its truthfulness, not realizing that the public at large is unable to understand the distinction.
The crucial question is whether he did, or did not pay taxes on that money first, or transferred it out, to evade taxation.
An other matter again is that investing it in Hungary would have yielded income that would have been taxed at a higher rate than if it were invested in Cyprus. In this regard he indeed committed an unpatriotic investment decision. But we have known already that money does not know loyalty.


I almost forgot to congratulate you for the “professional cover girl.” Brilliant!


Not quite!
Simor’s claim was that he is not operating an off-shore company. That was proven to be the case: his parents do. He also claimed that he didn’t transfer any profit to Cyprus. That was true (so far) as well. Now, if he is as “righteous” as he claims to be, he should go to court and sue. The fact that he doesn’t indicates that there is something, even if not what he is accused of, but something that would, or might spill out in the court that he rather keep close to the west.