Tag Archives: money laundering

The Orbán government’s colossal swindle: the residency bonds

It’s time to return to one of the largest scams the Orbán government has come up with to date: the sale of “residency bonds.” The project was launched in 2013. It allowed a citizen of a non-European Union country to “buy” a resident permit for a duration of five years by purchasing €250,000 worth of Hungarian government bonds. In 2015 that amount was raised to €300,000.

Many countries, including the United States, offer residency permits to foreigners willing to invest substantial amounts of money. Such an arrangement might be justified on such economic grounds as job creation and an incentive for the influx of foreign capital.

The Hungarian scheme bears no resemblance to the practices of other countries. The sale of residency bonds creates “instant cash” that is spent as soon as it is received and that will have to be paid back, together with the accrued interest, in five years. The sale of 3,874 residency bonds over the last two and a half years has brought at best a minimal benefit to the national economy, at worst a loss. That Hungary has sold so many residency bonds is understandable because this is about the cheapest way for a person to become a lawful resident of one of the member states of the European Union, and hence to be able to conduct business anywhere in the EU.

Hungarian residency bond purchases have another unusual feature. The prospective buyers of the bonds do not manage the transaction directly by dealing with the Hungarian administration. Their only contact is an agent designated by the government. And on paper at least these agents seem to be the only real financial beneficiaries of the sale of the bonds. For every bond package they sell they receive between €45,000 and €60,000 as a processing fee, charged to the purchaser. The other peculiarity of this transaction is that agents don’t pass on the full €300,000 to the Államadósság Kezelő Központ (Center for the Management of Government Debt) because they receive the bonds from the government at a discount of no less than 2%. So between the processing fee they charge and the discount they receive, agents get between €74,000 and €80,000 per bond package. As Népszabadság rightly pointed out, after five years the purchaser of the bonds will gain about as much on the deal as the agent does within a few weeks.

The whole scheme smacks of corruption. Most likely the people who were chosen to be agents were ready to share these incredible sums of money with members of the Hungarian government or Fidesz party leaders. Currently there are four such agents, of whom only one is registered in Budapest. The others operate out of Malta, Cyprus, and Singapore.

Source: Index

Source: Index

Also on the receiving end is a Budapest law firm which, according to Tamás Wiedemann of Magyar Nemzet, must have made almost five billion forints in the last three years. Heading the firm is Kristóf Kosik, who is a close acquaintance of Antal Rogán, who as the chairman of the parliamentary committee on the economy is the mastermind behind the whole scheme. Kosik’s law firm is the only one that can represent the foreign applicants at the Bevándorlási és Állampolgársági Hivatal (Office of Immigration and Citizenship). The Kosik Ügyvédi Iroda receives €5,000 per application. Since 3,784 applications have been approved since 2013, Kosik’s law firm must have earned €18,920,000 in three years from this little business.

Népszabadság also calculated the amount of money the Hungarian government is losing on these residency bonds. The economists who looked at the numbers came up with the figure of €17.4 million to date. The reason for the loss is that in 2013 the government fixed the interest rate they would pay on the bonds at 2.46%. In the beginning the Hungarian government did okay because the interest rate in the open market was almost 5%. So they were getting cheap instant cash. But by June 2014 the interest rate on euro bonds had dropped to under 2.4%, which was lower than the guaranteed rate on the residency bonds. By now the interest rate in the open market is around 0.5%, while the Hungarian government is still paying the rate fixed in 2013.

While the Hungarian government just declared a “total mobilization” in preparation for a referendum against the refugees and has been carrying out a massive campaign against outsiders, it has quietly allowed 3,784 individuals and their families to settle in Hungary. That may mean close to 16,000 individuals, who come mostly from China, Russia, and the rich Middle Eastern countries. Vetting these individuals is extremely superficial. An applicant makes an appearance before one of the agents and gives details about himself and his past activities. On the basis of this information the Hungarian authorities have 30 days to conduct an investigation. Once that is done, the happy new resident and family can settle in Hungary and travel and conduct business throughout the European Union.

As the result, it is likely that some unsavory characters have managed to settle in the European Union through the Hungarian residency program. The same Tamás Wiedemann who found out about the monopoly Kristóf Kosik’s law firm has on handling applications at the Office of Immigration also learned of at least one Russian, who had been convicted of tax fraud and was most likely a fugitive from justice, who easily managed to get permission to settle in Hungary. It was done in the following manner. Each applicant must produce an “erkölcsi bizonyítvány” (certificate of good conduct). But the Office of Immigration accepts the certificate of good conduct even if it comes from a third country. Thus the Russian fugitive from justice first went to Saint Kitts and Nevis, where he obtained the necessary document attesting to his good conduct and stating that he had had no run-in with the law.

Naturally, the government’s reaction was denial. Csaba Dömötör, undersecretary in Antal Rogán’s Cabinet Office of the Prime Minister or, as people on the street call it, the propaganda ministry, announced that the article “is based on frivolous suppositions and calumnies.” He added that it is difficult to take the story seriously because Wiedemann didn’t give the name of the individual. Magyar Nemzet’s journalist pointed out in an interview on ATV yesterday that he is forbidden by law to reveal the name of the individual, and he would also have transgressed the law on securities if he had given details.

Rogán’s propaganda ministry might be cocky but Mihály Varga, minister of the national economy, was much more cautious and told ATV that perhaps the law governing the rules of residency requirements can be changed “if necessary.”

September 7, 2016

 

The Századvég saga: Largely useless studies commissioned by the Orbán government

In the last three or four days the Hungarian media has been fixated on the “Századvég saga.” Századvég in Hungarian means fin de siècle. It began as a periodical published by the members of a youth organization that later became known as Fidesz. Their first publication appeared in 1985. Among the editors of the early issues were such eventual Fidesz luminaries as László Kövér, Viktor Orbán, Tünde Handó, József Szájer, and Tamás Fellegi. Later came the Századvég Foundation, the Századvég Politikai Iskola, the Századvég Gazdaságkutató Zrt, and the Strategopolis Kft. In brief, over the last thirty years the modest student periodical morphed into a multi-billion forint business venture with a political mission. I think it is not an exaggeration to say that Századvég is Fidesz’s exclusive research institute, with a perhaps more sinister role.

Tamás Mellár, an economist who for a while was considered to be close to Fidesz and who was one of the founders of Századvég Gazdaságkutató Zrt., called Századvég nothing more than “a money laundering device.” Business is especially brisk when Fidesz is in power. A tremendous amount of public money ends up in the hands of the Századvég leadership. Where some of this money ultimately finds a home we don’t know for sure, but many people are convinced that a large percentage of the profit, which is substantial, ends up in the coffers of Viktor Orbán’s party.

Here is the Századvég saga in a nutshell. In December 2011 Századvég Politikai Iskola, Századvég Gazdaságkutató Zrt, and Strategopolis Kft. jointly won a tender to provide political advice, to the tune of 1.4 billion forints, for the next two years. In February 2012 another contract was signed that more than doubled the original amount. A few months later yet another contract raised the amount again, until for two years of political advice Századvég received altogether 4.1 billion forints.

Shortly after the contracts between the prime minister’s office and Századvég were signed, Hajnalka Joó, then a journalist with Origo who is by now at vs.hu, sued the prime minister’s office because of its refusal to release documents relating to these contracts. It has taken almost three years, but finally the Kúria, which is the country’s highest court, ruled that there are no legal ways to avoid the release of the documents. In February the prime minister’s office most reluctantly agreed.

Hajnalka Joó received 77,000 pages of documents on 7 pen drives. Either Századvég or the ministry made sure that the studies looked substantial. They used 36-point type instead of the normal 12. Of the 77,000 pages only about 18,000 pages are of any use whatsoever. The rest are “raw data,” which pollsters use to arrive at their results. As vs.hu explained, what researchers at Századvég did was akin to a journalist including his notes in his final article. Again, either the ministry or Századvég made sure that the journalists at vs.hu would have a very hard time with this enormous amount of material. The original documents were written in Word, which they converted to .pdf format in such a way that they were not searchable, not printable, and undated.

Source: Budapest Beacon

Source: Budapest Beacon

Vs.hu’s second article on the subject gives a few examples of Századvég’s so-called research. They asked people whether they frequent a farmers’ market and whether they enjoy its atmosphere. They also asked the same people for their party sympathies. Then they came up with the following nonsense: if someone frequents farmers’ markets and enjoys them, he is most likely an MSZP voter. If not, he might be an LMP voter or sympathize with KDNP. How did they come up with these results? By combining the results of two different series of questions. Vs.hu naturally consulted bona fide pollsters, who explained that this method is called “all by all” comparisons, which takes no work because a so-called SPSS predictive analytics program unearths the patterns.

Naturally, not all of the material submitted is of such low quality. According to experts, about 25% of the material contains useful information. Moreover, from the opinion polls ordered by the government we can now gauge what information the Orbán administration found politically important. They inquired whether people would be willing to give up, completely or in part, free hospital care or their pension in exchange for lower social security contributions. The answer was a resounding “no.” Or, the government wanted to know whether people would be willing to pay higher taxes to ensure the continuation of good service in healthcare, education, cultural activities, and in local government offices. Almost 60% of the people said “no” to healthcare and education and almost 66% were not interested in culture. Well, with these kinds of answers it’s no wonder that the Orbán government is not pouring money into healthcare and education.

From one of the sets of polling data we learn that, despite protestations to the contrary, the government was thinking of setting up state liquor stores similar to the National Tobacco Shops. Sixty percent of those polled were against them. Interestingly enough, the majority of Hungarians, including Fidesz sympathizers (again 60%), wanted Róbert Alföldi to remain the director of the National Theater, but Orbán decided otherwise–a move that created an uproar. It is also somewhat heartwarming that 86% of the people considered political sympathies irrelevant to the value of an artist. Seventy-four percent of the people considered the establishment of highly regulated tobacco shops useless as a deterrent to young people smoking. The government disregarded their opinion. The Orbán government also got a message from the electorate on building stadiums: 56% were totally or somewhat against building all those football stadiums while only 18% supported the project wholeheartedly. Well, that didn’t make a dent with Orbán.

It is clear from the documents that the government learned a great deal about the people Századvég interviewed: age, sex, profession, income, and political sympathies–information it could use to target different groups of people in its political campaigns. That the government, on taxpayer money, underwrote these studies in some instances blurred what should be a boundary between a political party (here, the government party) and the government itself. In fact, just yesterday DK announced that it is suing the Orbán government because, according to its estimate, the government used 1.4 billion forints of public funds for political advertising over the course of two campaigns, touting the accomplishments of the Fidesz government.

April 12, 2016

The scandal of Viktor Orbán’s secret estate

Until now the personal excesses of Viktor Orbán, prime minister of Hungary, could be summed up in one word: “Felcsút,” a small village where, just like Romania’s former dictator Nicolae Ceaușescu, he built a luxury football stadium right next to his adobe house and where his private foundation, the Ferenc Puskás Football Academy, is located. Orbán’s foundation is richly endowed. Since 2010 it has received nine billion forints from the tax-free donations of admiring oligarchs. Hundreds of articles have been written about the Felcsút phenomenon, where everything is about Viktor Orbán and his whims. But it is possible that his downfall might come from a village only a couple of kilometers south of Felcsút called Alcsútdoboz, originally just Alcsút, meaning “Lower Csút, as opposed to Felcsút, Upper Csút.

The first time I learned that Archduke Joseph had an estate in Alcsút was when I read an amusing story, related by Mihály Károlyi, prime minister of Hungary in 1918, about the archduke. Archduke József suggested to him that, because of his enthusiasm for the new Hungarian republic, perhaps he should change his name to József Alcsúti. Károlyi wryly noted that he shouldn’t have tried to persuade the archduke to make a fool of himself.

Well, by now it is pretty certain that the Orbán family owns part of that estate and most likely hundreds of hectares of excellent agriculture land surrounding it. Thanks to Nárcisz (Daffodil) the kuvasz, whom Viktor Orbán paraded around to please those who are concerned about animal welfare, information has been gathered that makes it almost certain that Lőrinc Mészáros is a front man of Viktor Orbán. Not that we didn’t suspect that before, but none of the tricks for hiding Viktor Orbán’s wealth could ever be detected. Now, however, we have some idea of how the Habsburg estate ended up being the home of the prime minister’s family.

Until July 2011 the 13 hectare estate with five separate buildings and a water tower belonged to the Csákvári State Farm. It was then purchased by the CZG Real Estate Company, established in Székesfehérvár in 2006 by Győző Orbán, father of the prime minister. As soon as the older Orbán acquired the property, it was rented to Lőrinc Mészáros, mayor of Felcsút and a close “business associate” of Viktor Orbán. Mészáros told Krisztina Ferenczi, the journalist who spent years investigating Orbán’s shady business dealings, that he rented the place to store his farm equipment. For that privilege he plopped down 155 million forints, which allowed him to use the property for ten years. With this 155 million forints Győző Orbán paid off his loan from CIB Ingatlanlízing for the purchase of the estate. The property is still owned by CZG Real Estate.

Back in 2012 Mészáros told Ferenczi that no renovation was taking place, except for the minimal maintenance of these historic buildings. Ferenczi, however, could see even from a distance that several buildings on the property were being extensively renovated. Expensive new tiles from Coruna, Spain were installed on the roof and a second floor with dormer windows was being built from the attic of one of the buildings. At that time Ferenczi reported that on the second floor eight bedrooms, each with a separate bath, were created. By all appearances the Orbáns were planning to move in because the Felcsút house, right next to the site where the stadium was being built, was becoming unbearably noise and dirty. Ferenczi at that time came to the conclusion that, by the look of it, it was “Mészáros who bought a very expensive piece of real estate for the Orbán family.” I think we can flesh this out a bit more. First, Győző Orbán on borrowed money bought property that, although still in the name of CZG Real Estate, actually belongs to Viktor Orbán, who paid for it through Lőrinc Mészáros’s fictitious transaction, which is a crime by the way. What happened here is a typical money laundering scheme.

Ferenczi saw boxes of books that were owned by Anikó Lévai, Orbán’s wife, when she still lived in Szolnok with her parents. She spotted a temporary carpentry shop that was producing doors and windows made out of oak that greatly resembled the ones that were installed in the Orbán’s house in Buda. No question, a very expensive reconstruction and renovation of the buildings was taking place already in 2013. Ferenczi was also told by the locals that Viktor and Anikó Orbán often visited the site, which already at that time was impossible to approach.

I should add that the surrounding agricultural land is in three hands. Lőrinc Mészáros has 155 hectares, which he acquired on a twenty-year lease, after which the lessee, whether Mészáros or not, can purchase the land. A second owner is Anikó Lévai, who purchased land for very little money some years ago. Anikó’s land is rented out to János Flier, who owns substantial pieces of land around the estate. Flier might also be a front man, or at least he was often mentioned in the media as such. Therefore, there is a very good possibility that perhaps as many as 200 or even 300 hectares of land surrounding the estate actually belong to Viktor Orbán.

Details of the owners of agricultural land surround the estate

Details of the owners of agricultural land surrounding the estate. Búzakalász is Mészáros’s company.

Unfortunately, opposition politicians failed to pick up the stories published by Krisztina Ferenczi in 2012, which very accurately described the situation. Suddenly now, in search of Nárcisz’s home, Péter Juhász of Együtt, who is the most relentless corruption hound, decided to pursue the story and demand an investigation of Viktor Orbán’s financial situation, which is clearly not what he claims it to be. Under the circumstances I very much doubt that there is any hope of a serious investigation. But thanks to Nárcisz there is now proof that the Orbáns actually live in the former estate of Archduke Joseph. The dog’s microchip tells us that his owner is Gáspár Orbán, son of Viktor Orbán. In 2013, when microchips were made mandatory for dogs, his domicile was listed as Alcsútdoboz. Moreover, the gatekeeper of the estate named Viktor Orbán as his boss, not Lőrinc Mészáros, when talking with the journalists of 444 a few days ago. Slip of the tongue.

I doubt that anyone could prove that the estate is actually Orbán’s. On paper it is still owned by his father’s company, but if Hungary had an independent prosecutor’s office it could certainly probe into the details of the renovation of the buildings. Where did the money come from for what had to be a very expensive undertaking?

László Seres in HVG predicted that “with the discovery of Nárcisz’s domicile the fall of Viktor Orbán has begun.” That’s a far too optimistic assessment of the situation, but given all the country’s domestic problems, the discovery that the modest prime minister is actually a billionaire who lied about his wealth for all these years might inflame the population. Jenő Veress of Népszava also asked: “Could Nárcisz be the banana peel that the empire falls on?” Maybe, but for that the whole opposition must keep the story alive and not let the scandal die, as opposition politicians have so often done in the past.

March 10, 2016

A perfect money laundering device: The Hungarian National Bank’s foundations

In order to understand how the Hungarian National Bank managed to make so much money in the last few years we have to go back to the period between 2010 and 2014 when the Swiss franc rose inexorably against the Hungarian forint and when millions of Hungarians who took out loans, mostly in Swiss francs, found themselves in an impossible financial situation. Many of them were simply unable to pay their mortgages, or even auto loans. The Orbán government naturally blamed the earlier governments for allowing “the Hungarian people” to become indebted in foreign currencies and put forth a plan to convert foreign currency loans into Hungarian forints. There was a lot of talk but no action until almost four years later, when on November 7, 2014 D-Day was announced. All foreign-currency loans were to be converted into forints.

Great was the surprise when borrowers found out that, although they had been diligently paying on their loans over the last five-six years, they now owed as much as or more than they did before they paid a penny on their loans. If, for example, someone took out a loan for 50,000 Swiss francs (9 million forints) in 2007 and had been paying mostly interest and very little on the principal, he now owed 13 million forints because of the weakening forint in the intervening years.

The banks also lost money on the deal because they were obliged to reduce the borrower’s debt by 1 or 2 million forints. Even so, the borrower got the short end of the stick as a result of the conversion.

The later the compulsory exchange of debt occurred the more expensive these loans would become. In November 2011 the exchange rate was 204 ft. to the Swiss franc; in November 2014 it was 256 ft to the franc. For someone with a 50,000 Swiss franc mortgage, that’s a difference of 2.6 million forints. Since György Matolcsy took over the chairmanship of the Hungarian National Bank, the Hungarian forint has continued to fall against the Swiss franc (250 forints at the beginning of his tenure versus 282 forints today).

Back in 2014, in order to exchange all the foreign currency-denominated loans to forints, the banks needed additional foreign currency themselves. So, the Hungarian National Bank lent 8-9 billion euros to the banks so they could pay their debts in Swiss francs or euros. The banks then paid the National Bank back in forints. The Hungarian National Bank profited from the difference between what it had earlier paid in forints for the euros and what it received back from the bank loans. If the government had decided to force borrowers to exchange their debts to forints in 2011, according some calculations the Hungarian National Bank would have missed the opportunity to make approximately 360 billion forints in profits on the exchange rate. The government and the National Bank were excellent market timers.

This windfall has been spent on real estate (90 billion), works of art (30 billion), a Guarneri violin, the financing of a new-fangled piano, etc. But the largest amount, 250 billion forints, went into five foundations established by the National Bank. As György Surányi, chairman of the National Bank between 1990-91 and again between 1995 and 2001, pointed out in a recent interview, this sum of money is 1% of Hungary’s GDP. It would be almost enough to pay the yearly salary of all 140,000 teachers. To put it bluntly, the Hungarian National Bank’s gain comes from the loss and sufferings of millions of foreign currency debtors.

György Matolcsy

György Matolcsy

An early critic of the November 2014 loan conversions expressed his hope that the Bank’s profit would go toward lowering the national debt, which was one of the chief promises of the Orbán government. Surányi in his interview also declared that instead of establishing “foundations” the money should be used to lower the debt and also to help the deeply indebted borrowers.

I myself wrote twice about the National Bank’s strange business activities. Matolcsy took over the chairmanship of the Bank in March 2013, and within a year it was evident that he was spending the profits of the bank at a fast clip. It was still before the forced exchange of foreign currency loans to forint loans that I wrote an article titled “The Hungarian central bank goes on a buying binge.” But that was nothing in comparison to the money subsequently put into the “foundations” established by the Bank. Since they were set up to teach “unorthodox” economics, the most respected economists of the land protested against this preposterous idea.

A caricature which combines Matolcsy's looks and the logo of the national tobacco shops

A caricature that combines Matolcsy’s eyes with the logo of the national tobacco shops

Others had more sinister objections: the “foundations” look like perfect places to launder money. Suspicions grew when Matolcsy refused to divulge any of the financial details of these so-called foundations. Bertalan Tóth, an MSZP MP, approached the National Bank in March 2015 for the particulars and was rebuffed. The next move was a suit against the Bank, which Tóth won in the first round. Matolcsy was adamant and the bank appealed. He lost again, and this time there was no opportunity for further appeal. Back in early March, Index optimistically predicted that “we will soon find out how good a steward of the public money the National Bank is.” Matolcsy was at the end of his ropes. He had to do something. Apparently he went to Viktor Orbán and asked him to intervene. Or at least this is what high-ranking Fidesz politicians told Ildikó Csuhaj of Népszabadság. Csuhaj learned that Ádám Balog, one of the Bank’s deputy chairmen, wrote the text of the proposed bill, which also included a hefty salary raise for György Matolcsy.

The next step was that a Fidesz MP submitted the proposal to create a law that would make the financial details of the foundations a state secret. The reason? Knowledge of the financial activities of an affiliated company of the Bank might cause financial loss to the National Bank itself. All of the Fidesz-KDNP members of parliament who were present voted for it. When pressed, Lajos Kósa, leader of the Fidesz parliamentary caucus, explained that the money that was put into the foundations was no longer public money. It had morphed into private property. Yes, exactly, and this is the problem.

According to all legal opinions, this law is unconstitutional. The hope is that President János Áder will veto it and send it to the Constitutional Court. László Kövér, who apparently disapproves of the bill, voted for it only because of party discipline and delayed putting his signature on the bill as long as he could, which was five days. Now it is Áder’s turn. We will see what his decision will be because surely Áder is not an independent actor. It all depends on what Viktor Orbán decides. Will he think that under the circumstances this bill would best be shelved or he will decide that he can do anything he wants? That no one can limit his power. Of course, there is still the Fidesz-packed Constitutional Court. Will he have its backing? That will also have to be taken into consideration before a decision is reached at the very top of the Fidesz pyramid.

March 6, 2016