Tag Archives: fraud

The latest revelations in the Roland Mengyi case

People unfamiliar with Viktor Orbán’s Hungary might think that I’m spending far too much time on the case of Roland Mengyi, a Fidesz MP. So what, they might say. They caught a politician who is a crook. Happens in the best of countries. What’s the big fuss?

Well, that’s not how things work in Hungary. The Orbán government has been in power for more than six years, during which the independent media reported on a raft of suspicious cases. Not once did the “independent” prosecutor’s office ask the president of the parliament to initiate proceedings to suspend a Fidesz MP’s immunity, even when such a request was warranted.

Yes, Hungary’s chief prosecutor is independent in the sense that he and his office are not subordinated to the ministry of justice, unlike in most European countries or the United States. That was not the case between 1867 and 1949. The prosecutor’s office was the judicial arm of the state. After 1990 a restoration of the old system was briefly discussed and rejected, for fear of government interference in the judiciary. Thus, Chief Prosecutor Péter Polt, an important ally of Viktor Orbán, is responsible to no one except, of course unofficially, the prime minister. He is a man of immense responsibility and power. He could theoretically topple Orbán’s corrupt regime or, being a faithful servant, keep it in power by burying all the embarrassing and even politically lethal cases.

Very often the prosecutor’s office doesn’t even start an investigation of cases reported to the police. In a few bigger cases they begin an investigation but the prosecutors find the cases too weak to go any further and drop them. Then, there are those cases when the prosecutor’s allegations are so poorly worded that the judges have no recourse but to acquit the accused.

The Mengyi case is testing the “see no evil” prosecutorial system. Péter Polt was forced to act. He had no choice once 168 Óra released the third installment of the story of Roland Mengyi and his accomplices. It reported that the National Tax and Customs Administration has a video on which one can see two of the accused men handing Mengyi a small plastic bag that might have contained the 5 million forints Mengyi demanded from them. An hour after this information hit the newsstands Polt wrote to László Kövér requesting that Mengyi’s immunity be lifted.

Mama Rosa, Italian restaurant, where the Roland Mengyi allegedly received the money

Mama Rosa, the Italian restaurant in Tiszaújváros, where Roland Mengyi allegedly received 5 million forints in cash

In this post I will concentrate on what we learned from the third installment of Attila Rajnai’s series on the Mengyi case, but before that I will try to clarify why the National Tax and Customs Administration/NAV is involved in this case since it has nothing whatsoever to do with tax fraud.

Initially, NAV was not investigating Mengyi but Márta F. of Tiszaújváros, an accountant whom the NAV investigators suspected of being involved in tax fraud by gaming the special tax status of employees of social cooperatives. These employees, who are disadvantaged, pay lower taxes and have lower social benefits payroll deductions than employees of ordinary businesses. Márta F.’s scheme was to change the status of employees of ordinary businesses to social cooperative employees. The scheme worked this way. The worker was let go by his employer and immediately hired by one of the social cooperatives, but in reality he worked in his old workplace except that his employer now hired him as a social cooperative worker with a reduced tax burden. Márta F. was apparently arranging these switches in status in such huge numbers that NAV investigators became suspicious and began their surveillance of her activities. Mengyi’s bad luck was that Tibor B. and Zsolt E., the two friends who turned to Mengyi for help, got in touch with Márta F., who was known as an expert in setting up social cooperatives. Thus their conversations with Márta F. were also recorded. These conversations prompted a second investigation that led to Mengyi.

So, what did the public learn from 168 Óra’s third installment? Plenty. One important piece of information is that if NAV investigators find a political thread in the course of their investigation, they have to report the case immediately to the prosecutor’s office. The prosecutor’s office can then, if the chief prosecutor so desires, stop the investigation altogether. In fact, Rajnai is aware of an earlier case where an important business partner of one of Viktor Orbán’s oligarchs was in trouble with NAV but the prosecutor’s office stopped the investigation. It is quite possible that the same thing happened in the Mengyi case because just when the investigators were ready to arrest the Fidesz MP, their superiors refused to give them permission to proceed.

Of course, the newly appointed NAV president, András Tállai, might have put an end to the investigation, especially since in one of the conversations Péter K., the middle man between Mengyi and the two applicants for the grant, tries to quell their fears by telling them not to worry because András Tállai and Roland Mengyi are “on very good terms.”

The other revelation of this third installment is that last fall someone in the ministry of human resources told Péter K. that NAV investigators had paid a visit to the ministry and that they should be careful because their telephone calls are being monitored. At the moment we don’t know who that person was, but Rajnai suspects that his name is known to the prosecutors. Because revealing such information to subjects of an investigation is a crime, this person is probably also in trouble.

As the network of corruption expands, another possible culprit is the owner of Public Sector Consulting Kft. (KSC), Sándor Holbok, whom I described earlier as an “ősfideszes” or “primordial member” of the party. Although at the moment only Szilvia B., an employee of the company, is in jail, Holbok was most likely fully aware of what was going on in the firm. In one of the conversations one can hear that Mengyi is in negotiation with the owner of KSC, discussing the financial details, meaning who will receive what portion of the 600 million.

Whoever interfered at the level of the ministry saved Mengyi from a much more serious charge. The tender was rewritten, and therefore the deal couldn’t proceed. As it stands, Mengyi and his co-conspirators are accused only of attempted fraud.

Now it is up to Péter Polt to contain the investigation to the smallest possible circle. If the investigation goes much further, it could reach high officials in the ministry of human resources and perhaps even in the prime minister’s office. After all, there are rumors that even undersecretaries might be part of the conspiracy to illegally acquire EU money. Szilvia B. talked about her close relationship with Nándor Csepreghy, deputy of János Lázár. I’m sure that Polt will do his best as usual. Maybe the whole thing will peter out and Roland Mengyi will be the only one who is charged. And if Mengyi is deemed to be critically important to the party, the prosecutor’s office will probably prepare a case so full of holes that he will get off.

August 20, 2016

The leader of the Hungarian Roma community under scrutiny

In the last few days several investigative articles have appeared about the growing scandal at the Országos Roma Önkormányzat (ORÖ), the representative of the Hungarian Roma minority. Although Ákos Hadházy of LMP called attention to corruption in one of the programs under the supervision of ORÖ in early February, the prosecutors didn’t find sufficient cause to investigate. After a while, however, it was impossible to ignore the case because the evidence of wrongdoing was overwhelming. At last an investigation began in early May. NAV, the tax authority, appeared at the headquarters of ORÖ and began collecting documents and computers.

Back in February I wrote about the case and wondered whether the former head of ORÖ, Flórián Farkas, would be investigated this time and whether, if found guilty, he would finally be punished. Until now he has always managed to avoid prosecution. In that post I very briefly outlined Farkas’s run-ins with the law. Here I would like to concentrate on his shady political career.

Flórián Farkas has had assistance from both the left and the right. Currently, he is one of the signatories of the Fidesz-Lungo Drom Alliance; the other signatory is Viktor Orbán. But he also had excellent relations with MSZP during the 1994-1998 period when an MSZP-SZDSZ coalition was in power. It seems that both Gyula Horn of MSZP and Viktor Orbán of Fidesz overlooked Farkas’s misdeeds since, for some strange reason, both thought that he could deliver the Roma vote. Whether he did or not nobody knows.

In every regime, under all governments, Farkas managed not only to survive but to ascend the political hierarchy. According to an article that appeared recently in Népszabadság, he was already active in Roma organizations during the Kádár period, but it was only in the early 1990s that he established Lungo Drom, which eventually became the favorite Roma organization of the Antall government as opposed to the Roma Parliament, which József Antall considered to be too radical. By 1993, among the various Roma organizations, Lungo Drom received the most financial assistance from the government.

Although there had been questions even at that stage about the finances of Lungo Drom, it received the support of the Horn government after 1994. Over the next four years Farkas got into all sorts of scrapes, which an ambitious investigative journalist, Attila B. Hidvégi, tried to learn more about. When Hidvégi was working on a 1995 case involving Farkas, two associates of the Hungarian secret service visited him and told him to stop digging around. He gave up. Farkas obviously had important friends in high places. Another time, when it looked as if his case would end up in the courts, President Árpád Göncz got a phone call from the ministry of justice more or less instructing him to grant Farkas clemency, which meant that the case never went to trial. Moreover, documents pertaining to the affair were declared to be top secret for 30 years.

Before the 1998 election Farkas managed to convince Gyula Horn that he would be able to deliver the Gypsy vote at the forthcoming election. Horn was certainly courting Lungo Drom. He attended its congress in January 1998 where he delivered a speech, which he included in his book Azok a kilencvenes évek… (Those 1990s). In it Horn told his audience that the Roma community has to shape up and do its share in changing the situation of the Gypsy community. Some other Roma communities criticized the prime minister but, as Horn put it in 1999 when the book was written, “Flórián Farkas and I continued to work to realize the programs that had been started.” (p. 472)

Great was the surprise within MSZP when at the end of 2001 Fidesz and Lungo Drom signed an agreement to cooperate politically. This time Farkas misjudged the situation, which was not at all surprising because almost all the opinion polls predicted an overwhelming Fidesz victory. Fidesz lost but Viktor Orbán made sure that Farkas’s name was placed high enough on the party list that he would easily become a member of parliament, where he served for two terms as a member of the Fidesz caucus.

Since 2010 Farkas’s influence has grown considerably, especially after he signed a formal alliance with the government to craft the country’s Roma strategy.

Signing the alliance between the government and Lungo Drom, May 2011

Signing the alliance between the government and Lungo Drom, May 2011

A few days ago, Magyar Nemzet suggested that perhaps the greatest task Hungary has to undertake in the coming years is to find a solution to the problems of the Hungarian Roma community. The author of the article estimated that 20% of all Hungarian children under the age of five are Roma. If this new generation cannot be rescued from the kind of poverty and low educational attainment the Roma community currently experiences, the future of the Hungarian economy will be in serious jeopardy. The article accused the so-called Roma elite of betraying their own people. But in the final analysis, I believe, Hungarian politicians, past and present, are perhaps even more responsible for the prevailing situation. They were the ones who handed over billions and billions of forints coming from the European Union to corrupt Roma leaders.

The Roma politicians around Fidesz have their own enablers in the Orbán government. Index learned that Tamás Köpeczi-Bócz, an assistant undersecretary in the ministry of human resources, is a suspect in the case involving the financial manipulations of ORÖ. He is in charge of the coordination of EU funds, including a sizable amount of money for Roma affairs. Apparently, it is thanks to him that no investigation of the affairs of ORÖ took place until now because he informed the prosecutors that all expenses were absolutely legitimate. In brief, it seems he is part and parcel of the fraud that has been perpetrated for years.

Magyar Nemzet learned that Farkas has the exclusive right to choose Roma politicians to fill certain government positions. That’s why, claims the paper, Lívia Járóka, a former member of the EU Parliament, was dropped by Viktor Orbán. Indeed, take a look at her biography in Wikipedia. One has to wonder why she was shipped off to Brussels in the first place. And why, after two terms, did she disappear into nothingness? The Wikipedia article ends with this sentence: “As of September 2014 she is no longer listed on the European Parliament site as an MEP.” Can Hungary afford to dispense with a Roma politician of this caliber? Viktor Orbán obviously believes that it can.

Commentators think that Flórián Farkas has never been closer to being indicted, especially since there are signs that the Orbán government might stop shielding him. János Lázár announced that if Farkas cannot clear his name, the prime minister will withdraw confidence in him. Népszabadság noted that Lungo Drom is no longer mentioned as an ally on Fidesz’s website. But who will come after  him? Offhand, I don’t see any serious, reliable candidate for the job.

American-Hungarian relations are crumbling

Let me summarize what we know so far about the U.S. action against certain Hungarian businessmen and government employees.

Initially it was reported that ten people were banned from entering the United States, but by now that number has been reduced to six. We definitely know of one businessman who reported on his fate to ATV. It was he who mentioned three employees of the Office of Taxation and Customs (NAV). One of the three was allegedly the president of NAV, Anikó Vida. The spokesman for the tax office did not deny the charge. If the number six is correct, there are still two people about whom we know nothing.

Although the Hungarian government feigns total ignorance of the details and keeps repeating that it is unable to move against the corrupt officials, in fact they have known for two weeks about the American resolve to pursue those Hungarians who have been trying to blackmail American firms and extort kickbacks of billions of forints from them.

M. André Goodfriend, chargé d’affaires of the U.S. Embassy in Budapest, sketched the timeline of events this afternoon. According to him, on October 6 he had a talk with Levente Magyar, one of the undersecretaries in the Ministry of Foreign Affairs and Trade. During the meeting Goodfriend explained the significance of Proclamation 7750, which is an executive order signed by George W. Bush in 2004. The Proclamation gives the State Department power to ban corrupt individuals and their families from entering the United States. Such a ban can be imposed only by the undersecretary for political affairs–in our case by Wendy Sherman, who is the department’s fourth-ranking official. (Here is a handy chart of the structure of the State Department.)

Levente Magyar must have understood the gravity of the situation because a subsequent meeting was arranged at the request of the Hungarian foreign ministry between Péter Szijjártó and André Goodfriend. This meeting took place on October 13. The American chargé repeated everything he had already told Magyar. Szijjártó then insisted that he reveal the names of those would be affected by the ban. Goodfriend in turn explained that the American government never reveals names in cases connected to Proclamation 7750. What the U.S. expects is swift action against the culprits.

Let’s stop here for a minute. I assume that Viktor Orbán was notified immediately after the encounter between Magyar and Goodfriend on October 6, and I also suspect that the prime minister’s advice was to insist on “proof” from the Americans. When that failed, in typical Orbán fashion the decision was made to launch a counterattack. NAV leaked information to Napi Gazdaság, a financial paper owned by Századvég, a consulting firm and think tank close to Fidesz, that the United States is contemplating evoking Proclamation 7750 against certain Hungarian businessmen in retaliation for NAV’s tax probes against certain American firms. If the Hungarian government hadn’t decided on this counterattack, we perhaps would never have found out about the travel ban on the six, still unnamed individuals. Colossally stupid move, but I think it is typical. Viktor Orbán always has to have the last word.

Since October 16, the day that Napi Gazdaság published its article containing the disinformation concocted by the Hungarian government, the controversy between the United States and Hungary has been escalating rapidly. The Hungarians kept insisting on “creditable proof” while the Americans steadfastly refused to fall into the trap. Moreover, while at the beginning the controversy seemed to be connected only to widespread corruption in Hungary, as time went by it became obvious that the United States might also take action against the Orbán government’s increasingly anti-democratic behavior. A day after the appearance of the accusations against American businesses in Napi Gazdaság, an article was published in Foreign Policy magazine from which we learned that “at a meeting last month, the Community [of Democracies] set in motion a process that could result in Hungary’s removal from the council and withdrawal from the Community. If Hungary leaves, it will be an international acknowledgment  that the nation has ceased to be a democracy.”

What is the Community of Democracies? It is a global intergovernmental coalition of states founded in 2000 at the common initiative of Madeleine Albright and Polish foreign minister Bronislaw Geremek. The organization is headed by a Governing Council consisting of 26 countries, among them Hungary. Apparently it was the United States that suggested that Hungary be removed from the Council and perhaps even from the organization. Or perhaps Hungary might consider a voluntary withdrawal from the Community in order to avoid embarrassment. The likelihood of an American initiative in this case was reinforced by André Goodfriend’s observation that such a move might be warranted under the circumstances.

M. André Goodfriend at one of his press conferences

M. André Goodfriend at one of his press conferences

While the Hungarian government is stonewalling, the U.S. chargé d’affaires in Budapest, most likely following instructions from the State Department, is delivering tougher and tougher messages to the Hungarian government during fairly frequent press conferences at the embassy. Perhaps the strongest language could be heard this afternoon when Goodfriend explained the reason for American action. In Hungary prior to 2010 the level of democracy and transparency, especially in comparison to some other post-socialist countries, was high. But while in other countries the trend is toward greater democracy and transparency, in Hungary the opposite is true. “If that trend continues it may reach a level where the United States can no longer cooperate with Hungary as an ally.” Clearly, the United States is not joking–as Antal Rogán assumed only yesterday during an interview.

Let’s return briefly to the three high officials of the Hungarian tax office who most likely are implicated in the case. In what way can they engage in fraud and corruption? Here is an explanation offered by Dávid Jancsics, who is currently conducting research at the City University of New York. His expertise is corruption. He learned from two independent sources that the NAV employees demanded kickbacks from two American companies in exchange for tax breaks and a lower VAT. Apparently they demanded 2 billion forints in exchange for these favors, money that the American companies were supposed to pay to a foundation associated with Fidesz for purposes of “research and analysis.” In addition, the NAV officials promised heavy fines on the American firms’ competitors. When the Americans didn’t bite, the NAV officials began threatening them with tax probes. It was at this point that the firms turned to the American embassy and reported the bribery attempts. The implication of this analysis, if it is accurate, is frightening because in this case the tax office is part and parcel of a corruption scheme that appears to be centrally organized.

This takes us back to an old story about a whistleblower at NAV who claimed that high NAV officials refused to investigate obvious fraud cases. András Horváth, the whistleblower, said that he was mostly involved in investigating companies that dealt in agricultural products. Index came to the conclusion that one of the two American companies in question was Bunge, a leading agribusiness and food company. It is a global firm with 35,000 employees in forty countries, including Hungary. They produce among many other things cooking oil sold in Hungary under the label Vénusz. It was well known that the management of Bunge was very unhappy about the VAT fraud and that their efforts to enlist the help of NAV were fruitless. It is possible that after a lot of complaints from the Bunge management NAV officials offered to do something about the competition’s fraudulent business practices but only at a price.

Hungarian journalists in the last few days have asked several business groups, like the German-Hungarian Chamber of Commerce, about the extent of corruption in Hungary. The answer is that foreign companies have known for years about corruption involving billions. “Hungary is a part of the Balkans” by now, and the situation is only becoming worse. According to foreign business leaders, Hungarian business life is corrupt through and through. Healthy competition is impossible under such circumstances.

Péter Szijjártó is leaving Budapest for Washington tomorrow to meet Victoria Nuland. I wouldn’t like to be in his shoes.