Today’s extra: “Observer” on the enrichment of György Matolcsy & family

The corruption cases which grab the public attention are usually the big ones – the Quaestor broker firm with more than HUF 100 billion missing, the MET natural gas deals profits worth approx. HUF 150 billion realized offshore, the Residency State Bond affair with another HUF 130 billion revenue taken offshore, etc.

Corruption in Hungary, however, is so widespread that it is impossible to follow the hundreds of “ordinary” frauds, embezzlements, misappropriations and other corrupt practices flourishing in the Orbán regime. General statements like this are sometimes questioned for the perceived lack of substantiating evidence, although few readers bother to go into any details if such evidence is presented.

Three investigative reporting articles were published in Magyar Narancs (January 19, February 9, and February 23, 2017) and then in English in The Budapest Sentinel (April 25 and April 27, 2017) and offer this resume which condensed the main points from all three articles and set them in chronological order adding some comments.

The articles investigate the dubious affairs of Orbán’s “right hand,” currently deep in the pockets of the Hungarian National Bank as its chairman.

GM started his political career by joining the Hungarian Communist party, MSZMP, but in 1989 immediately jumped onto the conservative bandwagon becoming political undersecretary of the prime minister’s office in 1990. The political “flexibility” of GM proved to be coupled with an even greater moral flexibility.

The TA foundation

“A continuous and central feature in the story of the enrichment Matolcsy and his family … is a mysterious and opaque state-founded foundation, the Tulajdon Alapítvány (TA) … set up in the early days after the change of regime in November 1990 by the Antall government’s privatization agency (ÁVÜ). … GM, who was quickly “kicked out of prime minister József Antall’s inner circle” was instrumental in setting up TA with the help of ÁVÜ and became its secretary and director of the institute it operated.”

Source: mszp.hu

“The foundation accumulated enormous sums of money … [as the state paid them high fees, e.g.] 3.5 million to put together a publication on opportunities in Hungary for foreigners, while writing reports on experience in the privatization of individual state companies for 300,000 forints each. …[when] the average monthly wage in Hungary was 18 000 forints.”

In 1997 TA set up the Privatizációs Kutató Kft firm where GM, Ms Marianna Harczi and Sándor Kopátsy jointly owned a 10% stake, but only Harczi’s name appeared in the Company Registry and she acted on behalf of the trio.

 The Növekedéskutató Intézet Ltd.

 While the TA was well funded by public money GM could not simply pocket it, a fig leaf was needed. In 2001, an year in GM’s tenure as minister]… a 75% stake in Privatizációs Kutató Kft, renamed Növekedéskutató Intézet Kft., was purchased by Ms Gyöngyi László, in fact by Mrs. Matolcsy using her maiden name in an attempt to hide the real owner as there would have been a conflicts of interest. Witness the astonishing – and legally questionable stipulation in the Matolcsys’ matrimonial contract where: “The wife recognizes that the shares representing her ownership according to the company register in reality represent the property and separate assets of the husband.” The above acknowledges her role as an illegal front person, and raises the suspicion of a felony – “committing the falsification of public documents .”

 The golden eggs

 The conditions of the acquisition, the following economic results and the fall after the loss of government are very telling. In December 2000 the TA board of trustees decided to sell its 90% stake in Növekedéskutató, even if the company “had performed particularly well … achieving revenues of HUF 87 million in 1999 and 89 million the following year, with operating profits of [28% and 22%] … respectively.”

The firm was undervalued at HUF 40 million, instead of a more realistic 50 million. Moreover, 13.6 million forints in the firm were subsequently paid out in dividends to the new owners and just in time to cover almost half of the acquisition price.

It seems a very poor deal for the state to sell its 90% share of a very profitable public company for a sum equal to half year revenue or two years profit. On top of that Mrs Matolcsy was given a generous deferment and a 7 million forints of interest-free financing from the seller – TA.

Promptly the Növekedéskutató’s revenue rose by 12%, to 198 million forints in total for 2001 and 2002, but the profits skyrocketed to 118.5 52.5 million – a stunning 62% pre–tax profit. Mrs. Matolcsy received 31.7 million in dividends in the first three years realizing 60% return of on investment, or more with the effects of loan from TA – which let go the goose that laid the golden eggs. The “business” dried up with the fall of the Orbán government in 2002 – revenue crashed to HUF 15 million in 2003 bringing a loss of 20 million.

The Eurotourism Kutató és Tanácsadó Bt. partnership

In spring 2001, when Mrs. Matolcsy acquired Növekedéskutató, two firms were established whose main activity was also sociological research. Both achieved instant and never to be repeated results in 2001 and 2002 during GM’s tenure as minister.

Eurotourism was set up by the same Ms. Harczi and one of her children with starting capital of 100,000 forints. (At the time, Harczi was TA’s secretary and a member of its board of trustees, and co-owner and MD of Növekedéskutató).

In its first, incomplete year, the new firm promptly raked in HUF 42 million in revenue with a 27 million or a dazzling 64% of operating profit, surpass even this in the following two years, raising its revenue to HUF 65.5 million with 53.6 million or a miraculous 81.8% operating profit. All achieved, according to its reports, without employees and hardly any subcontractors, i.e. by Ms. Harczi alone.

With GM’s departure from his ministerial position in May 2002, similarly to Növekedéskutató case, “the firm’s revenue was a flat zero for two years and until 2015 inclusively” the firm had an annual average revenue of 2.4 million with practically no profit.

Despite the miraculous profits in 2001 and 2002 “according to the financial figures, Ms. Harczi never once took a dividend from the firm, while according to the contract she carried out her duties as managing director without remuneration.” In January 2006 Mrs. Matolcsy became “the internal partner with a 90% stake, … In September, Harczi divested her remaining 10% and finally exited, GM’s older son, Máté Huba took her place.”

Incredibly Harczi “divested her share in the firm on both occasions for its nominal value of HUF 100 00 in total, while at the end of 2005. .. Eurotourism’s own capital stood at 51.5 million forints, with total liabilities of half a million … The real value of the partnership was without doubt somewhere around 51 million.” This explains Ms. Harcz’s actions – she was a front for the Matolcsys.

The Eurocon Tanácsadó és Szolgáltató Bt Partnership

The Eurocon case is almost identical with the above described one. The partnership was set up by Dóra Újvári and János Tornallyay in 2001 with initial capital of HUF 80,000. Similarly to Eurotourism, this new firm from nowhere immediately performed outstandingly well: its revenue for 2001-2002 was HUF 62.4 million forints with 25.4 million or 41% operating profit.

Similarly, after the end of GM’s tenure as minister for the economy, the firm’s revenue plunged to an average of 10 million for the period 2003 to 2010.

GM used the same template to gain ownership – the founders were replaced by the twenty-year old son, Ádám Matolcsy, (in December 2006) and Mrs. Matolcsy (in January 2008), who paid only the HUF 150,000 nominal value for the partnership worth close to 15 million at the time. The only difference was that the founders took 16.5 million in dividends before “selling” to the Matolcsys.

Property “migration”

Mrs. Matolcsy et al also bought real estate from the TA foundation which was then run by GM as a director. Under this scheme the foundation bought at least three properties and sold them all in a few years to a family member or interest although the dealings involved a conflict of interest and were certainly illegal, probably criminal.

All properties were in an apartment block built in 1989 close to MOM Park shopping center in Budapest’s District XII:

  • A 52-m2 flat sold to MG’s 17-year-old son Ádám Matolcsy in 2003 (sole owner in 2004), who could hardly have paid for it with his own money.
  • A 65-m2 flat sold to Növekedéskutató in 2003, when the firm’s majority owner was Mrs. Matolcsy.
  • A 106-m2 retail-unit in the same building to Eurotourism Bt, after Mrs Matolcsy became the 90% owner.

 Altogether, according to the articles, GM “had 96 million forints at his disposal at the end of 2002 … the source of this sum dated from the successful years 1998 to 2002. .” As one can imagine, this was times over the total income from his foundation director and ministerial remuneration.

The articles set out other examples from the following years indicating that GM continued to cart out public money, e.g.: “the TA’s revenue between 2005 and 2010 was 180.9 million forints, which came from the party foundation run by GM until 2007, the PMA. The TA – in close cooperation with Matolcsy’s Növekedéskutató – helped Fidesz with its preparations for the election. … and, at least in part, functioned as one of the party’s background institutions … counter to TA’s charter, which prescribes political independence…the state-founded Tulajdon Alapítvány (TA) and the privately owned Növekedéskutató (later MGFI) … operated out of the same registered offices, and even shared telephone and fax numbers.” What a gall!

The Fidesz return to power in 2010 immediately brought to TA “an outstandingly good year – revenue reached 66 million… not a single word about the foundation’s clients, supporters or sources of income… Between 2011 and 2014 the TA board of trustees paid grants totaling 75.5 million forints (there is no data for 2010), but it remained unclear to whom” for studies like those carried out by the Matolcsy companies.

The articles also point out to money flowing in from other sources, e.g. support for the jovokep.hu web site, GM books, etc. Press also reported other petty tricks like claiming inflated car expenses, “renting” an expensive flat owned by a big bank CEO, appointing his confidantes, including his lover to lavishly paid positions, qualifications notwithstanding, e.g. Marianna Harczi was a metallurgical engineer. The participants in all these schemes are the same small circle of individuals, many of them related to each other, not the way a transparent public sector works.

The GM, or I can say Fidesz, schemes invariably involve a state-funded institution – a ministry, a party foundation, a second, closely held, state-owned foundation, a privately owned firm and front companies, all operated by a close circle of confidantes.

One can safely assume what is GM up to as president of the MNB [Hungarian National Bank] setting up the now infamous Pallas Athena [Athéné in Hungarian] – he’s at it again.

This time round there were billions of public forints destined to “lose their public funds nature” after their transfer from MNB to the “independent foundations” where he and his subordinates were trustees. Billions have already been loaned or transferred to GM’s relations, cousins and confidantes masquerading as business partners. After all “why should something that went so well on a small scale not work on a large scale, too?”

Reading through clearly shows that everything GM was involved in reeked of corruption, not to mention the superficial, useless or simply nonsensical of it. A depressing reading anyway.

April 30, 2017
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Guest

Unbelievable!
Corruption at its “best” – now doesn’t M also have a lover involved in this?
And the reaction of his wife?

Thomas
Guest

cool, and I failed miserably! For we studied together for our Marxism Leninism exam at my parent’s house in the late 1970! I must have missed something.

wrfree
Guest

Thank you Observer. A ‘dogged’ essay describing the pecuniary interests of a leader.

Thought for the day after reading the fiscal exploits:
‘What men value in this world is not rights but privileges’
HL Mencken

Observer
Guest

Guy,
I have to apologize for some editing mistakes I didn’t iron out after cutting the material to fit the accepted blog post size.

bimbi
Guest

Presumably, under the current (corrupt) judicial set-up in Hungary the criminal aspects of these dealings will never be investigated, much less come to court.

When anyone does get around to pursuing GM on these examples of brazen theft from the Hungarian public, the ‘statute of limitations’ will have run out and, again, no
prosecution will ensue?

Observer
Guest

Peter Polt, the Fidesz partisan appointed Chief Prosecutor (close to AttorneyGeneral) has been protecting the Orban mafia from criminal prosecution. He has closed all cases which ever reached that stage and has taken over police investigation cases just to close them for whatever reasons.
His actions are certainly criminal as may be proven by the already long enough record and the pattern established.

Observer
Guest

Many of the countless and ongoing cases of the Orban mafia corruption will be covered by limitations, but due to the concurrence rules it matters little if these robberers spent 10+ years in jail and had their property confiscated after being sentenced on three charges or on 13 charges.
I’m convinced there should be no let up on this account if Hungary is to advance, to improve.

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