Transparency International: Systemic government corruption in Hungary

It’s time to recall what U.S. Ambassador Colleen Bell had to say about corruption in her much discussed speech: “Corruption stalls growth, stifles investment, denies people their dignity, and undermines national security…. Wherever systemic corruption has effectively undermined fair governance, it creates an environment ripe for civil unrest, resistance to the government, and even violent extremism.” It looks as if the U.S. government came to the conclusion that corruption in Hungary is no longer the ordinary “garden variety” of corruption where government or municipal officials offer favors for cash but the kind of corruption that affects the entire body politic.

A case in point is the corruption that surrounds the disbursement of European Union subsidies, which the government tolerated and perhaps even encouraged. Or at least this is the conclusion we can draw from the latest Transparency International study titled “Corruption Risks of Union Sources in Hungary.” In this study there is a telling table that lists reports of alleged corruption cases in connection with EU subsidies in 2014. While in Belgium the authorities reported 28 cases of the possible misuse of Union funds (compared to 25 private actions), in Hungary all 28 complaints came from individuals and none from central or municipal governments. Even in the very corrupt Romania there were four instances in which the authorities themselves turned to OLAF, the organization that investigates corruption cases.

burning euros

One of the important findings of the study is that the abundance of money coming from the EU is a major reason for the systemic corruption that exists in Hungary. The second Orbán government in 2010, right after the elections, stopped all projects that were underway and began reorganizing the agency that handled EU funds. As a result, for almost two years nothing happened, even as the country was nearing the end of the seven-year budgetary cycle. The money had to be spent and in a great hurry. As a result, in the 2013-2014 period the government wasn’t terribly fussy about what project would be funded or how much it would cost. The only aim was to spend the money before Hungary lost a large chunk of it. Just to give you an example of the superabundance of money during this period, here is a shocking figure. The amount of money that was spent during 2013-2014 was 10% of the Hungarian GDP. That is an enormous amount of money. Almost three times the amount that Hungary normally receives yearly, which is 3.5% of the GDP.

It is a well-known fact that 95% of all government investment comes from Brussels, without which there would be no economic growth whatsoever. In 2014 the Hungarian government could boast an economic growth of over 4%, which was hailed as a turning point and the beginning of a soaring economy. As if from here on growth would be consistently over 4%. Orbán at times even talked about 5-6% economic growth, which would make Hungary the leading economic power of the region. If you consider, however, that the Union subsidies during that period were 10% of the GDP, then the 4.2% growth is not at all impressive.

This period’s overabundance was unusual, but even the average amount of money that comes from Brussels is substantial. And unfortunately most of it seems to be wasted, at least as far as trying to lay the groundwork for sustained economic growth is concerned. Just to give you an idea of how much money we are talking about, here are a couple of figures. During the budgetary cycle between 2007 and 2013 Hungary received 26 billion euros, a large chunk of which was spent in the final few years. In the next cycle (2014-2020) an additional 19 billion euros can be used. What does Hungary have to show for all this capital infusion? The results are pitiful.

Transparency International found that, on average, companies that win contracts for EU projects overprice their products by 25% and that the authorities know all about the practice but don’t complain. It is considered to be the normal way of doing business. Dickering over price takes time, which the government, in its rush to spend, doesn’t have. Checking on wrongdoings is also time consuming. Of course, the overpricing of products and services can sometimes be staggering. Ákos Hadházy of LMP, the vet from Szekszárd, has ferreted out some such extraordinary cases. In one instance the contractor billed five times the market price for pieces of machinery.

During his research the author of the study, László Kállay of Corvinus University, noticed that the rate of the overpricing doesn’t seem to grow over time. “As if there is some kind of control in the system.” As if there was some kind of understanding between the government and the providers of the services. As long as they are not too greedy and stick to the 25% overpricing, the government will not raise objections.

Meanwhile OLAF is investigating 13 of the 28 complaints coming from individuals. With this number Hungary is in second place in the list of countries whose handling of EU subsidies is suspect. Only Romania has a worse record with 36 questionable cases.

And now a piece of news I spotted in The Financial Times back in September. According to the article twelve EU member states might be in trouble for failing to meet the required standards for public procurement: Bulgaria, the Czech Republic, Greece, Croatia, Italy, Latvia, Hungary, Malta, Poland, Romania, Slovenia, and Slovakia. If EU procurement standards are not met by the end of 2016, the auditors said, “the [European] Commission should use its powers consistently to suspend payments to member states, until such time as they have rectified the shortcomings.” Some of the monies have already been withheld, as was reported by the Hungarian media back in August and September.

Of course, the Prime Minister’s Office simply doesn’t understand what Transparency International is talking about. There may have been problems in the past, but since August 2013 János Lázár himself has been supervising the disbursement of EU subsidies. He has been the foremost advocate of transparency and clean hands. His new deputy, Nándor Csepreghy, announced the other day that there was nothing new in the study published by Transparency International. I’ll bet that most people will disagree with him and will find plenty of new information in László Kállay’s study on systemic corruption in the Orbán government.

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Anna
Guest

Shame on Ilan Mor ambassador of Israel
Again he distributed yad vashem recognition with the racist government’s racist interior minister
http://www.politics.hu/20151030/israel-recognises-hungarians-saving-jewish-people-during-holocaust/

Csaba K. Zoltani
Guest

Corruption may be a real issue but it is a positive sign for any society when its citizens speak up publicly. To combat balkanization of any society requires specifics to be aired. Until then the charge of corruption is at best hearsay, possibly just propaganda against those who hold power.

Tamas E. Szabo
Guest
Mr. Zoltani, excuse me but what you are saying is complete bullshit. Who speaks up in Italy? It’s surely not a dictatorship and it’s not propaganda, yet people fear for their lives, their careers, their family, their present jobs, their mortgage whatever and live together with the mafia (the Sicilian, the Calabrian etc.) and do not speak up. They accept the system as part of life. because they feel helpless. As if people should be blamed why they didn’t rise up against Ceaucescu or Kádár or Honecker? Too bad, suckers, you shoulda staged a revolution earlier. Look, Orban doesn’t kill too many people (although from Tamas Welsz to Andras Varadi we know some very, very suspicious and un-investigated deaths) but who wants to speak up when retaliation is inevitable? In the form of firing your cousin who works at a municipality, the tax authority will immediately descend upon you and you will get into an endless litigation if you deny the charges, the local media will start a slander campaign against you and so on. Orban controls the tax authority, the police, the secret services and the prosecution, the constitutional court, most of the judiciary and most of the media… Read more »
Observer
Guest
Eva, Let me make some corrections – the situation is much worse than suggested: Occurrence. OLAF or TI may be investigating 26 or 38 or xx cases, but what counts is the % of those found to involve corruption. I safely suggest 95% in Hungary, exception being special items like weapons systems, aircraft, hi tech sold by multinationals too big to be extorted. This 95% occurrence includes the cases of awarding contracts to political cronies, relatives and friends without tender, with bogus or rigged ones. E.g. From land lease contracts, tobacco concessions, gambling casinos concessions to the Paks II. nuclear power station. Power and corruption money is what Orban’s regime is all about, e.g. started with his wife’s Tokaj vineyards’ subsidies in 1999 and finishing with his son in law’s HUF 7 to 1 600 million revenue increase last year and half, all on government/local gov. contracts, recently without other bidders. Overpricing is the main tool for syphoning money out . Construction financed by EU cohesion funds are realized at over 30 up to 50% above market price, according to people with long experience in the industry. Back during the first Orban term an official from his coalition partner, the… Read more »
petofi
Guest

The dark scenario looming on the horizon: this situation of constant theft of government monies, will lead to civic unrest, which (I envision) will be led by Jobbik who already have some people under arms, or in the process of arming themselves. Now, if the woebegone, hopeless, country folk get any further disillusioned, they will fall in behind Jobbik, who are already popular in the hinterland.

And, if Jobbik comes to power, than we will really see the shit hit the fan (and not just the piss, as now).

spectator
Guest

Now, as you mention it..!
Somehow I tend to associate revolt with progress and freedom and all of such – just how wrong one can be!
Me, that is.
You are right, I’m afraid!

Istvan
Guest

The fact that Ambassador Bell even bothered to rile against Hungarian governmental corruption is believe it or not a relatively hopeful sign. US State Department diplomatic staff see such vast levels of corruption around the world that they calculate it in as a factor in aid calculations. On average thirty percent of development aid does not reach its final destination owing to corruption on a world scale. So by the fact that the US government even bothers to complain about Fidesz corruption indicates Hungary has not simply been written off.

Hungary really does not make the gold standard for the theft of development aid, the top two nations are Somalia and Afghanistan. My own experiences in Africa simply getting US military aid to the government’s themselves were horrendous and on more than a few occasions I un- holstered my side arm and ordered soldiers guarding shipments to lock and load while on the tarmac at airports to stop theft by police who were supposedly there to provide security. It is also my understanding that Russian corruption is impressive by international standards with even MiG-35 fighters occasionally just disappearing.

BritinBudapest
Guest

To be even comparing Hungary to Somalia and Afghanistan is a sign of how bad it is! Hungary is not a war torn developing country in receipt of development aid. It is a developed and competitive economy which should be meeting the highest standards in terms of governance, democracy and transparency. It is a member of the European Union and I am sure that part of the US concern is that if this kind of flagrant corruption exists within the EU.

Istvan
Guest
I think the idea that Central European states that have become part of the EU ipso facto become advanced democracies with contained corruption that is not systemic is delusional. Many of the nations that were in transition from command economies were well known when admitted to the EU to have systemic corruption. One big problem in EU Cohesion aid for Hungary is that so much of the money is related to infrastructure. The driver is as much the economic interests of the developed economies of the EU to get components made in Hungary rapidly moved for just in time production and for fully finished products produced by low wage workers in Hungary moved to higher consumption markets as the driver is the internal needs of Hungary. Eva has repeatedly discussed the Fidesz connected contractors for these big projects, the corruption is obviously well known in Brussels. Its the cost of doing business in Hungary apparently from the perspective of Germans, Austrians, and others. Within the United States local corruption within the USA is contained by periodic jailing of public officials, for example here in Chicago the Chief Officer of the Chicago Public Schools which has close to a $5 billion… Read more »
Ndy
Guest
The reality of the inappropriate and objectionable methods in the obtainment, and awarding of EU funds in Hungary is far and beyond anything mentioned by any of the individuals or article or material referenced above. The misuse is SO massive it’s totally shameful. Of the money received from the EU, I would guesstimate that perhaps up to 2/3rd (two-third!) is SIPHONED OFF along the way by anyone who gets close to even the trace of windfall or has a hand in the artificial ‘bidding’ process The discrepancies between the realities of what is paid in negligible wages of the individuals doing the nitty-gritty of the work itself and the payments made for the projects by the EU is totally laughable if it wasn’t as pathetically serious as it is! Ditto for the prices charged for the component materials purchased relating to the projects. While the above can and should be intensely critcized and punishments for abuse of confidence meted out in equally substantial measure, the blame also needs to be meeted out to nothing less than the SOURCE of the FUNDS for inappropriate supervision of the PROCESSES. The SOURCE of these funds is the EU administration centralized in bureaucratic administration… Read more »
Observer
Guest

Guys,
Let’s clear something. Mea culpa if my jokingly mentioning Nigeria and Pakistan was misunderstood.
No, Hungary does not qualify for the corruption world cup finals, although they are in the European cup final.
And the corruption in Hungary is not of the total, petty type.
Rather think Sicily in the 50s 60s, where petty crime was low because the mafia made sure there was no competition, or the Middle Asian Kazah and other–stans where various dictators maintain the order of “Only us”.

Ndy . I also have severe criticism about the way EU development funds are distributed, but spare the donors and focus on the thieves.
Change is under, but it is a very difficult process:
– corruption was not an issue amongst the founding EU members,
– the local government control over the process is perceived as national sovereignty issue, and
– this is the main source of illegal party funding and personal enrichment in those countries, which fight or subvert any changes.

Rikard
Guest
Re: ‘the systemic corruption in the Orban government’ It remains to be the seen whether the crass venality existing now in the country will result in a complete takedown of Hungarian society but in the meantime there has to be no question that grave consequences loom because of the drive for favors and favoritism which in turn bring on extortion, bribery and officious patronage for the pursuit of profit. It has to be and must be a sad description for the future Hungarian state’s decline. How can a society function well when laws which purport to protect are in fact nebulous and ambiguous and help to encourage the unethical activities? As Petronius noted in the dismal reign of Nero, ‘What can the laws do when money reigns?’ Like a dripping faucet this corrosive corruption will surely slowly and silently erode Hungarian honor and obligation in its society. The lack of ethics and engaging in the ‘rackets’ by individuals and groups hunting for pure gain at the expense will be a killer train wreck. Amazing how the country walks through this stupor. VO sure picked up shady dealings from Vlad. Add that to the other one which is the old standby….’illiberalism’…..the… Read more »
spectator
Guest

I think, the process what you described already in quite an advanced state, and progressing. What makes it working so efficiently is that it isn’t really some new experience to the most, the learning curve rather mild.
It seems like relapse to the good ol’ times of the pre ’89 era – I rather won’t try to define it – only the names and the color of the flags are different, not much more.

Yeah, and its on a much greater scale.
The sums what get stolen are exponentially higher, the moral that much lower.
Developments, you see.

Hungary is a fast developing country, the speed quite amazing!
Well, only the direction went wrong, but you can’t have it all, can you?

Guest

Re: ‘I think, the process what you described already in quite an advanced state, and progressing’

Such a slow asphyxiating death then if we think about it. How much ‘air’ is left to breathe?

When I view the country today in the light of historical ‘processes’ it appears to me we’re not yet at a say Pannonian ‘476’ where the palaces go into a sleep state but around the early 400’s. There’s no doubt of disintegration. What perhaps is up in the air as you alluded to is the velocity of it all if it is not checked or ameliorated in some way. The system’s disorder arguably has to increase with consequences for the nation.

Margot
Guest

Very OT.
Today, Jeszinszky(ex embassador to Washington and Norway) complained in Klubradio that in the House of Terrors, the photo of Imre Nagy was placed between the pictures of Rakosi, Gerö, Tolbuhin, the criminals of the Gulag. According to Jeszinszky the photo of Imre Nagy has to be taken down immidiately, and they have to apologize to the family and to the nation.

Istvan
Guest

Fidesz attempted to respond to the Transparency International study that Eva wrote about. If you read Hungarian go to: http://nol.hu/belfold/itt-a-legfideszesebb-fidesz-kozlemeny-gyurcsanyek-minden-eu-forrast-elloptak-orban-ota-viszont-nincs-korrupcio-1574305 The title captures the essence of Fidesz’s position “Gyurcsányék mindent elloptak, Orbán óta viszont nincs korrupció”.

The argument is that the Gyurcsány-Bajnai government stole EU development money and as we all should know the Orban government has put an end to this corruption. Fidesz argues that its new Public Procurement Act, will be Europe’s most stringent and the Orban government is rigorously pursuing corruption in Hungary that began apparently with the social democrats who stole everything in Hungary. I am confident everyone on this blog accepts this thoughtful response by the Fidesz faction.

Zorgas
Guest
I agree that the shift in the discussion from simply “corruption” to “systemic corruption” is significant. I think I’m reiterating what many of those familiar with the situation in Hungary have been saying — that corruption under the Socialists was significant, but often of a freelance variety, with individuals seeking to enrich themselves by siphoning off money and accepting bribes. The amount of the bribe required varied from official to official. However, with “systemic corruption,” the system itself provides the channel for bribes and hidden fees. Fidesz officials abide by party discipline and are penalized if they engage in freelance corruption. The amount of the bribe is fixed (about 25%) with no bargaining. The systemic corruption described has been, for example, having a Fidesz henchman ask a company seeking favorable treatment from the government to purchase a useless study for an exorbitant sum from a Fidesz pseudo-think tank. The pseud-think tank then contributes money to a Fidesz cause, with the money never having entered the official budget. Or, a company hoping to stay in good graces contributes to a favored sports charity, where the money can be used for a variety of Fidesz-linked purposes. And, as has been discussed, the… Read more »
Guest

Re: ‘The US has already shown that it is prepared to ban corrupt government officials from the US, now that it is using the word systemic, perhaps it is laying the groundwork to bar additional officials —- unless, as Ambassador Bell said in her speech, Hungary holds it own officials accountable’

Hungary probably will first need exterminators to rid the foxes in the henhouse…;-)..

And we should look for more pushback against the US on endemic corruption. The more heat placed on it by the US arguably the more virulent the response. At this point the country is sitting on a successful takedown of FIFA corruption. Plenty of enmity there already against the US. We can hear the curses globally.

As the US gets closer and closer to the stink the current Hungarian administration will gleefully relish to go on the attack perhaps not so much for the ‘bad cheese’ but rather for disturbing the pure, rarefied and self-satisfied air of the country.

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