Tag Archives: Magyar Fejlesztési Bank

Fidesz as an enabler of financial corruption

It will not be easy to learn the truth in the maze of lies that have been fed to the public about the relationships between prominent politicians of Fidesz and Csaba Tarsoly, owner and CEO of the Quaestor Group.

Here I will concentrate on a single transaction, the loan extended to ETO Park, a subsidiary of the Quaestor Group. On April 4 I wrote a post with the title “The Quaestor scandal and football” in which I expressed my suspicion that Csaba Tarsoly’s ties to the current government had a lot to do with his interest in and support for Viktor Orbán’s mania, football. Today I return to Győr, where the ETO Park and Stadium are located.

Let me stress that the issue of the ETO Park and Stadium is unrelated to the scandal that recently engulfed another Quaestor subsidiary, a brokerage firm. The Orbán government has used ETO Park and Stadium to divert attention from its cozy relationship with Tarsoly. It’s trying to shift the story instead to a loan that was extended to the ETO project during socialist governments.

In my earlier post on the subject I made a fleeting reference to questions about this project that arose in the Magyar Fejlesztési Bank (MFB/Hungarian Development Bank) in 2010, after the newly elected government changed the top management of the bank and ordered an investigation of all loans that had been extended during the socialist period. Today’s post is about this investigation and its aftermath.

Orban hazug

War = Peace; Freedom = Slavery; Ignorance = Strength

On April 8 several papers reported that Kormányellenőrzési Hivatal (KEHI/Government Audit Office), after an investigation, is pressing charges against people involved with the 17 billion forint loan MFB extended to ETO Park in two installments, in 2005 and 2008. The reason for the police action, according to M1 TV, was that KEHI discovered that MFB had accepted a 900 million forint grant as collateral for the loan, which was against the law. We were not told when KEHI found this irregularity. Origo reported earlier that KEHI had already looked into the case back in 2010 and found enough evidence to proceed and that it had asked for a police investigation at the time. So why, then, a second investigation of the same case? And why did neither the Chief Prosecutor’s Office nor the Budapest police know anything about an earlier investigation or police action in the case?

KEHI, which functions under the supervision of the prime minister’s office, has been known to be a willing vehicle of the government’s political interests. It’s enough to think of its move against the Ökotárs Foundation, which is responsible for the distribution of grants from the Norwegian Civic Fund, that resulted in a heavy-handed police action. The police are an equally willing partner when the government wants results, and quickly. So why did the police do nothing after 2010 and swing into action only now? Because this time, in a couple of days the police began hauling in former high officials of MFB as witnesses.

It didn’t take long before an important, new piece of information surfaced regarding the original case. On April 9 Népszava was informed “by certain sources that László Baranyay, the CEO of MFB at the time, wanted to press charges but the Fidesz political leadership prevented him from doing so.” Apparently, the charges included fraud, embezzlement, and breach of fiduciary responsibility.

About a week later, on April 15, Zsolt Gréczy, spokesman of the Demokratikus Koalíció, gave a press conference with two documents in hand which were allegedly proof that KEHI in March 2012 stopped the investigation of the case by the new management of MFB. According to the first document, the investigation was supposed to have been conducted between July and September 2011, after which the MFB management would have gone to Győr to take a look at the project, which at that point wasn’t quite finished. The final report was to be ready by October 31, 2011. Gréczy also had a letter in which KEHI informed Deputy CEO Zoltán Urbán that the office had suspended the investigation into the circumstances of the loan to ETO Park.

Index on the very same day learned a few more tidbits about the case. During the 2011 investigation KEHI talked to practically all former top officials of the bank, in addition to lower-level officers who had anything to do with the case. There was one man, however, whom they never contacted: Csaba Tarsoly, CEO of Quaestor. One informant told Index that during the procedure “in an informal way Tarsoly was being told about the details of the investigation.”

So far we can piece together a pretty coherent story, but KEHI is working hard to muddle it. When HírTV first asked KEHI about the details of the earlier investigation of MFB and ETO Park, they were told that KEHI had pressed charges on six accounts. Later KEHI changed the story: no, they didn’t do anything except investigate. That investigation had to be darned thorough because they began it in 2010 and only five years later did they have enough evidence to proceed. After Zsolt Gréczy’s revelations, KEHI denied outright that it ever stopped the investigation.

And finally, here is the latest explanation of what happened in 2011 and 2012, this time from János Lázár. As far as he knows, “KEHI didn’t stop the investigation; it only interrupted [megszakította] it.” Moreover, KEHI asked MFB to change the contract with ETO Park in order to safeguard the interests of the bank. But if the government was aware of the precarious state of Tarsoly’s financial empire, why did it make a gift of 250 million forints for the ETO Park project? Lázár’s surprising answer was: “It was not our job to make the loan unpayable.” In brief, the government helped out the ailing Quaestor as early as 2011, hoping to avoid the firm’s collapse.

The bankruptcy of Quaestor’s brokerage firm is a separate issue from the ETO Park project, which admittedly was not exactly a success story but was not responsible for the brokerage firm’s collapse. On the contrary, one can read stories about contractors working on the project in Győr who often didn’t receive payment on time. The management blamed MFB for not releasing the necessary amount of money at specified intervals. As it turned out, this was a lie. Tarsoly was simply using the loan to cover his tracks in his pyramid scheme.

If the Orbán government had wanted to point the finger at Ferenc Gyurcsány and Gordon Bajnai for not properly vetting the loan for the ETO Park project, it could have done so in 2010 or 2011. Instead, it stopped the investigation and kept trying to prop up Quaestor’s business ventures. It became an enabler of financial corruption.

The Quaestor scandal and football

Perhaps if Prime Minister Viktor Orbán were not a crazed football fan his government wouldn’t be in such a pickle today. What does football have to do with the Quaestor scandal? A lot. Although the Orbán government is desperately trying to blame the socialist-liberal governments (2002-2010) for the collapse of Quaestor, the close relationship between Fidesz and Csaba Tarsoly, the CEO of Quaestor, dates back to 2001, during the first Orbán administration. And it was all about football.

In 2001 Tarsoly purchased the Győr football stadium and 17 acres of land for 650 million forints from Rába Rt. While he was at it, he also bought the ETO FC football team. With the purchases he assumed their heavy debt load, plus the stadium was no longer up to snuff. He needed cash and, knowing  the boundless interest in football among the Fidesz leadership, he approached Tamás Deutsch, then sports minister, who promised him 900 million forints. He also went to the socialist mayor of Győr for additional funds and got a promise of 500 million. The people of the city were thrilled that someone had bought the financially ailing football team that had seen better days, and therefore the mayor gladly offered help. Moreover, when Fidesz lost the election in 2002 he himself made sure that the new socialist-liberal government would fulfill the Fidesz government’s promise of financial help.

Back in 2001 Tarsoly had the support not only of the mayor but also of two Fidesz members of the city council, one of whom was the young political hopeful, Péter Szijjártó. Tarsoly may have been counting on a Fidesz victory in 2002 because three weeks before the election, in the presence of the Fidesz members of the city council, he laid the cornerstone of the new stadium although there was no valid building permit yet. I suspect that the cornerstone-laying ceremony was designed to help the Fidesz election campaign.

Fidesz’s loss at the national election must have been a blow to Tarsoly because he had only verbal promises of financial help, no cash in hand. So he rushed back to the socialist mayor asking for his continuing support, which he got. Moreover, the mayor promised to lobby on his behalf with the new sports minister, Ferenc Dénes, and later with Ferenc Gyurcsány, who held the post between May 2003 and September 2004.

Of course, the money that had been pledged was nowhere near enough to build a stadium that could seat 16,000 people. Moreover, as time went on, Tarsoly’s ambitions grew. He also wanted to have a hotel, a plaza, and a high school for the students of the football academy run by ETO FC. So, at the same time, Tarsoly applied for a series of loans from the state-owned Magyar Fejlesztési Bank [MFB] (Hungarian Development Bank), which eventually amounted to 16.9 billion forints. The actual construction and its financing had some setbacks, especially given the 2008 economic crisis, but the stadium and the plaza were finished in 2009. The hotel opened only in 2012.

Photo by Sándor H. Szabó

Photo by Sándor H. Szabó

Already in 2009, that is under socialist stewardship, MFB had worries about the way Quaestor was handling the project and two years later, when the Fidesz-appointed president took over the bank, he also considered the project to be one of twelve that were risky. He even asked for a police investigation, but the police or the prosecutors didn’t follow through. 444.hu suspects that the Orbán government didn’t want to make a fuss because of Tarsoly’s generous support of football. In fact, as time went on, both Viktor Orbán and Péter Szijjártó praised Tarsoly and his project at every turn. Orbán often visited the ETO Park in Győr, and the team became one of his favorites, especially since his own son was a member of ETO FC for a while. Apparently, when Audi moved its factory to Győr, Orbán’s only request in exchange for the generous government support extended to the German manufacturer was sponsorship of ETO FC. Indeed until a few days ago Audi gave 300 million forints every year to the local team.

Of course, Szijjártó, a Győr native, was thrilled. In 2012 when the four-star hotel opened, Szijjártó praised the project as the most modern sports complex in Central Europe. He went on and on about the “family-friendly plaza”and the stadium itself, which in his opinion is “the most precious gem” of all stadiums. Of course, this was before the tsunami of football stadiums thanks to Viktor Orbán’s insatiable appetite. The Győr stadium seats 16,000. A week ago only 3,800 fans were present.

As far as the plaza is concerned, it is an unmitigated disaster. It turned out that there was no need for a third shopping center in Győr. At present 44 stores out of a total of 80 are empty. The mall reminds people of the plaza in the film “Dawn of the Dead” except “not even the zombies come here.”

Some commentators speculated that the reason Tarsoly was optimistic about getting financial assistance from the government in early March was Viktor Orbán’s passion for football. Judging from the short note the prime minister sent to Tarsoly on March 9th, there might still have been a glimmer of hope as far as the owner of ETO FC was concerned. Orbán was ready to talk about Tarsoly’s proposal even at that late stage of the crisis. Of course, we have no idea what transpired in the afternoon of March 9th and the morning of the 10th when Mihály Varga’s deputy had a chat with Tarsoly, but it looks as if Orbán was unable to convince the ministry of national economy that saving Quaestor was economically and politically feasible. Even if Tarsoly owns ETO FC, Orbán’s favorite team.

The Fidesz robber barons. Part II

Today I’m continuing the story of Fidesz’s mafia methods as perfected by Lajos Simicska, the financial wizard of the party. I will pick up the story at the time of the campaign that preceded the election of 1998, which Viktor Orbán with the help of József Torgyán, chairman of the Smallholders Party, won.

For the campaign Fidesz needed money. Lots of money. Enter Gábor Princz, chairman of Postabank, which was a state-run bank. The name of the bank accurately reflected its structure. Its branches operated at post offices and thus could reach a wide clientele. Princz ran the bank in a totally irresponsible manner and handsomely paid politicians on both sides for expected favors. He was also very generous when it came to support of the media and organizations connected to culture. Eventually, Postabank went bankrupt, but before that happened Princz used his bank’s assets to support Fidesz’s election campaign. Gábor Kuncze, chairman of the liberal SZDSZ, calculated that Postabank lent and/or gave 800 million forints to Fidesz. Since a few months later there was no Postabank, it is unlikely that Fidesz ever had to pay this money back.

If Princz thought that his generosity toward Fidesz would save him, he was wrong. One of the very first moves of the Orbán government was to remove him from his post as head of the bank. Princz moved to Austria for a while where he felt a great deal safer. Meanwhile, the government began to take care of the immense debts that Postbank had managed to accumulate. Eventually, they calculated the amount of money which according to their experts was needed to put things in order: 152 billion forints. Naturally, Princz himself doubted this figure, which was not surprising. But even people like Imre Tarafás, at the time head of the Állami Pénz- és Tőkepiaci Felügyelet, the organization that supervised bank and monetary transactions, in his report for the year 1999 claimed that the government spent far too much money trying to straighten out Postabank’s accounts. Tarafás was asked by Orbán to resign. When he declined, the government created a new office with a similar mandate and abolished Tarafás’s organization. Tarafás was not the only one who had doubts about the financial needs of Postabank. In 2006 it came to light that at the time KEHI, the government financial supervisory body, also noticed several very shady real estate deals in connection with the consolidation of Postabank. However, István Stumpf, head of the prime minister’s office, suspended any further probe into the matter. But it looks as if about 50 billion forints disappeared in the process of cleaning up the books of Postabank.

Once Fidesz won the election Viktor Orbán began building his political and financial power base. Corruption now became systemic and centralized. The Fidesz government established a number of entities that siphoned large sums of money from the public coffers. First, they set up something called Országimázs Központ (Country Image Center) whose duty it was to conduct a propaganda campaign lauding the outstanding performance of the country under Fidesz leadership. The man in charge was István Stumpf. This body handed out large contracts to two business ventures, Happy End Kft. and Ezüsthajó Kft. (Silver Ship), to stage large state events. One must keep in mind that the new millennium and the Hungarian Kingdom’s 1,000-year anniversary gave plenty of opportunity for lavish celebrations. Just the New Year’s Eve extravaganza, which by the way was a flop, cost, at least on paper, 3.75 billion forints.  Several more billions were spent on celebrations all across the country, including the smallest villages, during the Hungarian millennium year. It seems that altogether the Országimázs Központ spent almost 13 billion forints on such events, and more than 90% of that amount was received by Happy End and Ezüsthajó.

Hyde and Hyde

Hyde and Hyde / varanus.blog.hu

It would be too long to list all the phony overpaid providers who were naturally members of the Fidesz inner circle or at least people with close connections to Fidesz. It is almost certain that some of the money paid out to these firms ended up in Fidesz coffers handled by Lajos Simicska.

The really big corruption cases, however, were connected to government investments, especially highway construction. Here the key organization was a state investment bank called Magyar Fejlesztési Bank (MFB, Hungarian Development Bank). The bank was supposed to give out loans for promising business ventures.

When Lajos Simicska left APEH, he got a job at this state investment bank and came up with a fiendishly clever scheme. Road construction was not handled directly by the government but by a company called Nemzeti Autópálya Rt., which was created by MFB specifically for this purpose. The beauty of the arrangement was that the rules and regulations that applied to projects financed by public money were not applicable here. For example, no competitive bidding was necessary. The next step was to designate a company to be the beneficiary of government orders. The chosen company was a leftover from the Kádár years called Vegyépszer. The name is typical of the many state companies that existed in the socialist period. But the name of this company indicates that it didn’t have anything to do with construction. Judging from its name, once upon a time it had something to do with chemicals. But that really didn’t matter because it wasn’t Vegyépszer that was going to do the work but hired subcontractors. Suddenly Vegyépszer received orders to the tune of 600 billion forints. From nothing it became as important a company between 1998 and 2002 as Lajos Simicska’s Közgép is today. I might add that Vegyépszer went bankrupt last year.

The question is how much of that money was returned to Fidesz. After the defeat of Fidesz in 2002, an old high school friend of Orbán, Simicska, and Varga told Debreczeni that the reason for Orbán’s electoral defeat was that “the boys were not satisfied with the customary 10%, they wanted 20% of everything.”

Of course, this is a very brief summary of exceedingly complicated financial transactions. I suggest that those who know Hungarian read the book. It is full of details about the functioning of MFB, which acted as a never ending source of government funds and also was involved in selling state properties to friends of Fidesz politicians under highly questionable circumstances. Some of the beneficiaries of these unsavory deals involving large state farms are still members of Viktor Orbán’s inner circle: Sándor Csányi, István Töröcskei, Zsolt Nyerges, and, yes, Lajos Simicska.

As for Fidesz’s current favorite company, Közgép, which gets almost 100% of government investments financed by the European Union, it belongs to Lajos Simicska himself. Or whoever stands behind him in the shadows.

To be continued