Tag Archives: László Puch

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

Népszava, the social democratic daily, is in socialist hands again

Among the many pieces of bad news both inside and outside of Hungary, I am happy to report a good piece of news. It looks as if Népszava, Hungary’s oldest continuously published newspaper, has been saved. The paper was struggling financially because it received practically no advertisement from either government or private sources. The Orbán government systematically punishes independent media outlets, and private companies heavily dependent on the government’s goodwill are afraid to appear as sponsors.

Népszava was originally the official paper of the Magyarországi Szociáldemokrata Párt (MSZDP). After the communist takeover in 1948, it was relegated to being the paper of the Hungarian trade unions. Since 2005 Népszava has described itself as a “social democratic daily.”

Next year Népszava will celebrate its 144th birthday, marking a long but often difficult life. Perhaps the most tragic event in its history was the murder of the paper’s editor-in-chief Béla Somogyi and his young assistant Béla Bacsó by officers of Miklós Horthy’s National Army in the fall of 1919. Between the two world wars the paper was often silenced because of its critical attitude toward the government. But there were also many triumphs. For example, when Endre Ady wrote a poem to the paper titled “Küldöm a frigy-ládát” (I am sending the Ark of the Covenant). Over the years Népszava had working relations with some of Hungary’s greatest writers and poets, like Endre Ady, Attila József, Gyula Juhász, and Mihály Babits. In 2003, when Népszava was 130 years old, Péter Németh, the current-editor-in-chief, put together a brief history of the paper which is available on the internet. It is hard to imagine Hungary without Népszava.

But let’s return to the recent woes of the paper. About four months ago we heard that Népszava had at last found a buyer. The story is complicated, as always seems to be the case with Hungarian business transactions. According to Magyar Nemzet, the publication rights of the paper were to be sold to Marquard Media International, a company headquartered in Switzerland. Marquard is already present in the Hungarian media market as the owner of Joy, Playboy, and Éva Magazin. Péter Németh, the editor-in-chief, was elated. “I know Jürg Marquard from my days at Magyar Hírlap,” Németh said, “and I find it inconceivable that he would purchase Népszava in order to shutter it,” referring, of course, to the demise of Népszabadság.

János Dési, the former deputy editor-in-chief of Népszava, wasn’t that optimistic. He remembered only too well that in the early 1990s Marquand managed to ruin the liberal Magyar Hírlap. According to Dési, for a few months after the purchase all was well, but then Marquard began pressuring the staff to move toward the right. Marquard didn’t seem to know anything about Hungarian politics because, during 1993 and early 1994, it was obvious that the right-of-center government would be very badly beaten at the forthcoming election. Yet Marquard insisted and fired Péter Németh, who was then the editor-in-chief of Magyar Hírlap. Soon after that Marquand sold Magyar Hírlap to János Fenyő, who, according to Dési, was the only good and caring owner of the paper until his murder by an unknown assailant in 1998.

Soon enough the story of the sale changed. It wasn’t Marquard Media that was buying Népszava but XXI Century Invest AG with headquarters in Liechtenstein. In the background, however, one could still find Jürg Marquard who, as it turned out, was one of the owners of the Liechtenstein company. XXI Century was buying not only Népszava but also Vasárnapi Hírek and Szabad Föld, a weekly that is still very popular among farmers. In the eighties it had at least half a million subscribers and, to my astonishment, its paid readership today is close to 130,000. It may reach as many as 400,000 people. Currently, all three papers are owned by Geomedia Kiadói Zrt.

Months went by. With the exception of the brief news item about the purchase by XXI Century nothing more was heard about the deal until today, when a statement appeared on Vasárnapi Hírek’s website. It announced that “in order to preserve the spirit of the remaining independent newspapers” the earlier contract with XXI Century Invest had been broken due to non-payment. Instead, the three papers were sold to Horizont Handels und Industrie AG with headquarters in Vienna. Horizont is owned by László Puch and Dénes Simon.

Puch’s name is well known because of the important positions he held in MSZP ever since 1992. He was the party’s strongman in Baranya County, he was a member of parliament between 1994 and 2014, and he became notorious as the treasurer of MSZP. Since political parties are inadequately funded in Hungary, a lot of most likely illegal funds flow into party coffers. In MSZP these funds were handled by Puch. About Dénes Simon I know only that he is a businessman who earlier worked as a “political expert” for MSZP. He is a very good friend and close business partner of Puch.

According to Antónia Rádai of Átlátszó, Geomedia discovered that XXI Century Invest’s lawyer is also the lawyer of András Tombor, who “lent” the money to Árpád Habony to start his Modern Media Group, which publishes 888.hu and Riposzt. That discovery must have frightened the few socialists with money. They decided to rescue the three publications, which as a package might actually be profitable because of Szabad Föld. Puch announced that the supervision of the company will remain in the hands of the current management of Geomedia. Otherwise, he is hoping that Népszava, by now the only left-wing daily in Hungary, will be able to expand its staff in the future, giving job opportunities to some of those unemployed journalists from the defunct Népszabadság.

This must be a nice Christmas present for the staffs of Népszava and Vasárnapi Hírek. Let’s hope that Népszava’s troubles are over for a while. At least one doesn’t have to worry about some Orbán stróman buying the paper for the sole purpose of destroying it.

December 20, 2016