Metro 4: The largest case of Hungarian fraud and corruption

Now that the complete OLAF report is available online, we can all settle down and try to read 103 pages of dense prose detailing “irregularities, fraud, corruption, and misappropriation of EU funds.” A five-member OLAF group began their investigation in January 2012 after the Court of Auditors and the Directorate General for Regional and Urban Policy of the European Commission contacted OLAF, asking the office to scrutinize the case. During the investigation, the OLAF staff got in touch with only the City of Budapest and Péter Medgyessy, prime minister of Hungary between 2002 and 2004, whose consulting firm worked for Alstom Transport S.A., one of the firms accused of wrongdoing.

The total cost of the project was €1,747,313,606, of which €696,490,000 came from the Cohesion Fund. According to OLAF’s calculation, “the financial impact on the Cohesion Fund is €227,881,690.”

The release of OLAF’s final report put an end to the political game Fidesz and the Orbán government had been playing with the document. János Lázár, head of the prime minister’s office, and his deputy, the honey-tongued Nándor Csepreghy, did their best to get as much political mileage from the affair as possible. Lázár intimated that an international socialist-liberal conspiracy was behind the corruption that occurred at the Metro 4 project. On another occasion, he claimed to have filed charges against Gábor Demszky, mayor of Budapest between 1990 and 2010, Csaba Horváth, deputy mayor between 2006 and 2009, and János Atkári, an adviser to Demszky. Csepreghy must have known that none of these people was mentioned in the document, but in a long interview at 888.hu he intimated that even Ferenc Gyurcsány, prime minister between 2004 and 2009, may have shared responsibility for the misappropriation of funds. A few days later he claimed that other politicians might also be implicated.

All this is just political fluff. What we know from the OLAF report is that the City of Budapest signed a contract in 2004 with Budapesti Közlekedési Vállalat (BKV), the city-owned transit authority, which was commissioned to implement the project. Most likely that was a major mistake, which led to a lot of difficulties later. Any project, especially such a large one as the construction of a metro, needs a general contractor who oversees the project. BKV’s staff was not equipped to coordinate the work, which led to innumerable hiccups during construction.

Throughout the project the Hungarian media, especially the online site Index, reported many suspicious cases of overspending. But these cases were actually small potatoes, like too many consulting firms and lawyers making millions for very little work. Although several such cases are described in the final report, the bulk of the money OLAF would now like to be returned came from serious irregularities during the acquisition of tenders by huge corporations.

According to OLAF, 96% of the “irregularities” occurred in contracts signed by six large firms: Siemens AG, the largest manufacturing and electronics company in Europe; Swietelsky, an Austrian construction company from Linz; Strabag, the largest construction company in Austria, based in Villach; a Hungarian company called Hídépítő Zrt., which as its name indicates builds bridges and roads; the BAMCO consortium (Vinci CGP, Strabag, Hídépítő Zrt); and Alstom, the French multinational company operating worldwide in rail transport, including the manufacture of metro trains.

I left Alstom to last because it was in regard to Alstom that OLAF got in touch with Péter Medgyessy, who received €600,000 in 2007-2008 from Alstom for two years of consulting. This payment occurred after Alstom had won the tender with apparently the worst offer. Medgyessy naturally claims that his consulting firm had nothing to do with the Alstom case, adding that it is a well-known fact that his relationship with Prime Minister Ferenc Gyurcsány and the liberal SZDSZ leadership of the City of Budapest was strained. What his relationship with Gyurcsány had to do with BKV deciding to purchase overpriced Alstom cars is beyond me. I have no idea whether in a court of law Medgyessy would be found innocent or not, but in ethical terms his behavior was highly suspect.

Siemens, the German company which was in charge of electrical works, received 31.7 billion forints (€102,303,730) for the job. Since OLAF claims that Siemens most likely received inside information during the bidding process, the European Union wants the Hungarian government to pay back the whole amount. The same is true of Alstom’s 22.9 billion forint (€73,892,769) tender. BAMCO also won the tender in an irregular manner, and therefore the European Union demands the return of 8 billion forints (€25,817,360). The EU also demands 7.6 billion forints (€24,523,364) from Swietelsky, which was responsible for the interior of the metro stations. Strabag-Hídépítő, in charge of structural work on the station at Baross Square, received 3.7 billion forints for its work but because of procurement irregularities 2.5 billion forints (€8,067,751) should be returned.

Another politician who, although not mentioned by name, was most likely involved in the metro case is László Puch, former financial director of MSZP, whose company Media Magnet Kft. just purchased the ailing Népszava and Vasárnapi Hírek. Media Magnet, according to the OLAF report, received 331 million forints (€1,068,110) from Siemens for advertising. The report notes that “this company was in charge of the campaign of the political party which was in a decision-making position in the case of Metro 4.” In 2010 Index reported that BKV ordered all sorts of superfluous studies from Media Magnet on such things as, for example, the state of the cable television market. There is a strong suspicion that some of this money ended up in MSZP’s coffers.

The biggest culprits will most likely be found among the representatives of the named companies and those BKV officials who were in contact with them. There’s no question that the guilty parties should be punished, but judging from the outcomes of earlier corruption cases I have my doubts that we will ever hear about all the dirt that OLAF unearthed. I’m also pretty sure that Fidesz will try its darndest to drag high-level politicians into the morass around BKV.

I see that Gábor Demszky will be represented by György Magyar, one of the “star lawyers” in the country. On February 3 Magyar announced on ATV that Demszky had signed only three contracts during the many years of construction. One was the contract between the city and the government in which the parties agreed that 79% of the construction cost would be borne by the government and the rest by the City of Budapest. The second contract dealt with a loan the City had to obtain for the project. The third was the contract that gave full authority to BKV for the implementation of the project.

Fidesz naturally wants to have a parliamentary investigation into the case, which will lead to further accusations on both sides. If Hungary had a decent prosecutor’s office and an independent chief prosecutor, it should undertake a speedy, thorough, unbiased investigation of the case. Unfortunately, this is the last thing we can hope for under the present circumstances.

February 6, 2017
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Member

Nobody will be punished from those, who received the bribes, but the citizens will be punished, because they have to pay again, this time the same money as fines.

BMO
Guest

Orban’s smear machine has a yet another communication jackpot on their hands; the material and timing is just perfect to fabricate subterfuge and frame Fidesz as a no-worse no-better party than the ones before.

So let us ALL forget the monolithic corruption and the balkanization of the country, since the previous parties also “did it”.

(Maybe it would be to the benefit of your country to let Fidesz go loose and unhinged; there will come a time when corruption reaches a level that finally reaches up to the digust/distrust threshold of the electorate..)

csárdás
Guest

This level of corruption cannot be upped. It’s maxed out to the hilt.

What we have in Hungary is African style kleptocracy.

wrfree
Guest

Interestng. For the longest time Africa has had to deal with the effects of colonialism impinging on its tribal societies just as Magyarorszag suffered the yoke of invaders who pillaged and robbed the country. And like Africa, Magyarorszag also appears to have a penchant for also substituting one disease in replacement for another. Ranting and stealing from an outside oppressor simply does not stop them from continuing the actions from within their own.

csárdás
Guest

re metro line 4: in most of the potential legal cases the statute of limitations expired.

It may end up being a good political show, however. Everyone’s favorite SZDSZ will be resurrected (via Gabor Demszky), and people will have an opportunity to hate the corrupt communists and liberals.

Observer
Guest

For those not so familiar with the recent Hungarian politics it should be added that:
– Fidesz had the second largest faction in the Budapest City Council in the period when the suspect contracts were signed, which naturally had full knowledge of the deals. No protests or signals about corruption were voiced.
– Fidesz mayor Istvan Tarlos reported some of these contracts/work to the police in 2010, but neither the police, nor the Chief Prosecutor nor the Fidesz dominated parliamentary committees produced any report, or brought any charges.
– During the implementation period, 2007-2015 the Fidesz faction in the City Council, and later the Fidesz government, having full access to the respective materials both in BKV and in the city administration found nothing irregular to voice (except for the Megyessy consulting contract).

Either Fidesz was also on the take (under the 70:30 rule), or there were many mishaps and irregularities in the implementation due to incompetence, which also raised the costs. My bet is: both took place.

Guest

“The total cost of the project was €1,747,313,606, of which €696,490,000 came from the Cohesion Fund. According to OLAF’s calculation, “the financial impact on the Cohesion Fund is €227,881,690.”

The “finacial impact” on the EU money is roughly 33%. Assuming the same impact percentage on the non-EU money the totalt “financial impact” is €577.000.000.

“Finacial impact” is an euphemism.

The big crooks are where the big money is.

Observer
Guest

Jean P
A 33% “impact” would have been a right guess for the current Fidesz regime environment.

But, according to OLAF, 60 contracts worth € 538 million in total are implicated in the areas of: irregularities, fraud, corruption and improper use of EU funds. The Alstom and Swietelsky contracts are implicated in corruption with € 6.5 bribe each. http://index.hu/belfold/2016/04/06/strabag_alstom_bkv_korrupcio_metrotender/

Now, the obligatory Fidesz lying notwithstanding, they want to make this “the biggest”, so Nándor Csepreghy alleged that “€ 535 were stolen” from the € 877 million worth of contracts implicated. In its smearing frenzy the regime didn’t explain by what miracle were those projects completed, if 61% of the funds were stolen and if they often overran the planned costs, as they did. So much for the brazen, if dumb lies.
http://mno.hu/belfold/nyilvanos-a-4-es-metro-korrupcios-jelentese-1384268

webber
Guest

OT –
Slowly, the formerly staunchly anti-Fidesz t.v. channel ATV seems to be turning into a government mouthpiece (this is my personal impression, based on some shows I have recently seen).

pappp
Guest

ATV is the TV channel of a conservative Christian church. A church like Hit Gyüli is obviously extremely hierarchical and Sandor Nemeth the head of the church is now ardently pro-Trump and pro-Orban, and someone who regularly dines with top Fideszniks like Árpád Habony.

Moreover the members of the congregation themselves are strongly anti-liberal. They are fundamentally opposed to the sides taken by liberals in signature issues: gays and Muslims/immigrants.

ATV is now indeed a mouthpiece of the government. An interesting question is how will its viewership change? (My guess is that it doesn’t matter, for as soon as the media will be heavily loss-making Habony will just channel state supported ad revenues to ATV and that will keep ATV afloat.)

That said, this is once again a self-inflicted wound of the leftist opposition. No sane leftist could seriously think that they can freeride a conservative Christian media for ever.

Fidesz had not one but two right-wing TV channels up and running even before Orban got to power in 2010 and several radio channels (let alone print media). The left wing has nothing. Nada. It simply has no ability to reach voters.

webber
Guest

There is still RTL (Klub). The news there is staunchly critical of government. It is also not uncritical of the opposition, and that is fine by me.

BMO
Guest

In other words you are saying that ATV was economically incentivized to attract leftist intellectuals? What changed now is that there is an easier and less controversial way to make a lot more hay?

The more you control the media the larger the chances that you alienate the population. I say that social media is the new refuge – for the <40 electorate… Is that enough to bring home an election? Probably not.

webber
Guest

Good points!

Social media – according to some analysts, tapping into social media is precisely how Trump won.

Does control of media really equal control of politics? If it did, how did the communists fall in any country? How in the world did the revolution break out in Ceausescu’s Romania, if control of the media were enough?

wrfree
Guest

Re: the Trumpster as ‘Tweeter’

Tremendous strategy for keeping POTUS top of mind in the population and around the world. He doesn’t pay a cent for advertising time. 😎 And he’s in ‘prime time all the time’.

And when you write in very simple sentences you get your point out quickly and precisely with an ease of understanding. I’d suggest Trump the Tweeter will spark theses on the role of the tweet in the rise of populism.

pappp
Guest
Social media can’t work in Hungary. Hungarian internet penetration is light years from the US numbers. In reality, that is. I don’t care what numbers the Hungarian mobile companies self-report (they sell an internet based mobile subscription which grandma never uses and they report yet another internet subscriber) rural Hungarians, especially those over 45 don’t use internet and especially not with a computer. This is fact. It’s a totally different media experience to check facebook on a small display once a day and reading articles on a normal desktop or laptop which even average rural pensioners have in Wisconsin. I would say that in (late) 1980’s Hungarians felt freer than they do now. The media was getting gradually freer and more professional (there were no fake news only events about which the media didn’t talk but since communities were in better shape word of mouth worked better), it was certainly a different media environment. The level of fear to act politically openly (that is to do something that might conceivably be interpreted as a political act) is insane. It is very different from the (late) 1980’s. The current political situation is highly misleading in the sense that the system can… Read more »
wrfree
Guest

Re: ‘re Romania, seeing it in recent days, maybe there was a reason why there was a revolution there and not in Hungary’

What do you think? It would appear Romanians aren’t afraid to ‘let it all hang out’. And their prosecutors prosecute. There has been a change of psychology there since the years of that madman Ceacsescu.

Member

Re: ‘re Romania, seeing it in recent days, maybe there was a reason why there was a revolution there and not in Hungary’
Four words: TE IS ERINTETT VAGY!!!

pappp
Guest

Or Hungarians – despite all the complaining – are still having it too good to be really angry.

They think it’s better to keep what they have than to “risk it”.

But without outrage nothing will change.

wrfree
Guest

‘Freedom is the sure possession of those alone who have the courage to defend it’

Pericles

Somewhere along the line Magyars have traded choice, change and uncertainty for ‘three square meals a day’. Two have been arguably taken away from them.
Perhaps it is only with the last that they may understand what they really have
given away as their stamina wilts on.

Guest

Well, my wife, her sister and many of their friends/acquaintances use email, are on facebook etc and read index online, communicate online with their relatives (in Hungary and abroad …) – and many of them are over 60 (my wife and her sister are over 70 years old …). So we/you shouldn’t generalise here.

PS:
Their political spectrum ranges from left/atheist to extreme Christian/Jobbik!

webber
Guest

Keep it up… Defeatism: the worst trait of too many modern-day Hungarians. You don’t spend your time figuring out how a problem might be solved, but arguing that it cannot possibly be solved.
People who think this way call it “realism,” and consider anyone who thinks things might be improved to be a fool.

Observer
Guest

Hear, hear. I have never seen a group/nation so negative. And I have been around.

petofi
Guest

“..precisely how Trump won..”

I doubt it.
The real question is not how Trump beat Hillary–she was very beatable–but how Trump succeeded against 15 others to win the Republican primary. Try and figure that one out…

Guest

Yes, petofi, I still remember how I looked on incrdulously how every other Rep candidate lost against Trump – it was a strange thing which I couldn’t understand at all!

petofi
Guest

The door has been opened for Orban to begin the country’s move out of the EU: “We’re being robbed! The crooks of the EU are trying to bankrupt Hungary by these excessive penalties. We won’t be suckered! We’ll leave the EU….

Member

Dear petofi, it maybe would be better for Hungary to leave the EU and try going their own way of life. Because this kind of behaviour doesn’t fit in the Union and I must say very annoying and expensive.

Observer
Guest

It will be better for the EU, not for H if the latter left and sank into the -Stan status, w.g. Orbniatanm
I believe majority voting, two speed EU or weakening/ disintegration are the options we face.

webber
Guest

Siemens has already been caught several times before paying huge bribes throughout Europe, and has paid enormous fines because of this.

FreeWheeling
Guest

Remember that German corporate tax law had allowed write-offs for such bribery until the late nineties. Such practices still remain ingrained within their executive culture as a way to secure business done to reduce uncertainty. This is not to pick on the Germans, as they are certainly not alone in this practice, but they do have one of world’s largest economies. Some of the reasons for this isn’t necessarily due to their renowned manufacturing and engineering acumen and possibly more so because they do not have a stringent law such as the Foreign Corrupt Practices Act that can be enforced as they have the US which would disallow some of these German companies or their executive “banking” practices that go on in their neighboring countries. (OT: Some of us believe the FCPA could get gutted by the current DJT administration. The typical practice of some administrations, along with the consent of Congressional leadership, is to reduce the budget of enforcement agencies, which effectively reduces enforcement because of strained resources)

Guest

All compnies in Europe used to do this – I was told once by a high ranking manager that you had no chance at all if you weren’t willing to pay bribes. There was a special system built for this and the German tax authorities knew about it – though I don’t remember the details.

A bit OT:
This is of course still going on in Hungary everywhere. The young guy who (re)built my house with his small but very good team told me that he did only private projects (preferrably with foreigners who knew what they wanted …), no government or city projects like roads or buildings because he knew he had no chance: no connections and no way to pay the necessary bribes …

Member

“Now that the complete OLAF report is available online, we can all settle down and try to read 103 pages of dense prose detailing ‘irregularities, fraud, corruption, and misappropriation of EU funds.'”

Eva – Why would we do that when you are going to do it for us for free? 🙂

Guest

Corruption alert!

O’s son in law who bought the Yacht club in Keszthely some time ago is reported on Index to have bought two hotels there too – my wife doesn’t know yet which ones, but it might well be the two derelict ruins (one os called Balaton hotel) near the promenade which are maybe a hundred years old but have been standing empty and rotting away for many years.

So she believes that they might be declared of historic importance and the government will offer large sums of money to renovate these – another licence to print your own money!

PS:
Has it been reported yet that Vajan Andy got a (exclusive?) licence for an online casino in addition to his casino chain?
I can smell billions, no – trillions of HUF coming his way …

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