Today I will outline two cases where public money appears to have ended up in the pockets of favored individuals or in Fidesz coffers. The first case involves the Hungarian National Bank and Századvég; the second, the so-called “settlement bond program” devised by Antal Rogán.
It seems that the scandals swirling around the Hungarian National Bank are never-ending. The current scandal is the award of a tender worth 1.8 billion forints to Századvég. The loser was Koping-Tárki Konjunktúrakutató Zrt. The tender specifically stipulated that the purpose of the project was to study “economic recovery” (or konjunktúra in Hungarian) and its components. Koping-Tárki, as its name indicates, specializes in research into this particular aspect of economic activity.
Századvég’s offer was 1.8 billion forints, while Koping-Tárki would have done the job for 1.12 billion. The contract involved a working relationship with the National Bank for three years, which included monitoring world economic trends and their effects on Hungarian economic conditions. Applicants, as part of their tender, had to submit a sample study based on information released between the time the tender was issued and the time they submitted their bids.
Koping-Tárki chose to analyze the effect of lower oil prices on domestic prices of goods, economic growth, the balance of trade, inflation and, in turn, the Hungarian Central Bank’s decisions on interest rates. The maximum number of points that could be awarded for this sample study was 10. The bank’s “experts” decided that Koping-Tárki’s analysis was worth only 1 point and that Századvég’s deserved a 10. Moreover, Koping-Tárki ended up second in all the other categories, so it roundly lost the bid to Századvég.
At this point Koping-Tárki was entitled to take a look at Századvég’s winning study. In a case like this, the company that loses the bid cannot receive a copy of the document but can take notes. Even a quick glance revealed that the competitor’s work had absolutely nothing to do with monetary policy or even the Hungarian economy. It was about three innovations in the practice of medicine that were introduced in two counties of the United Kingdom: Telestroke, electronic record keeping, and tele-medicine. As for sources, Századvég ignored the demand of the bank for up-to-date data. The few sources that appeared in the study were at least two or three years old. Koping-Tárki asked for a review, which the Hungarian National Bank refused.
When the details came to light in April 2015, atlatszo.hu moved into action, asking for a copy of the public tender submitted by Századvég. Again, the National Bank refused, claiming that it enjoyed some special form of protection. The next step was to turn to the office responsible for freedom of information (NAIH). It, in agreement with atlatszo.hu, called on the National Bank to turn over the material. Meanwhile, Transparency International (TI) filed a complaint, and the Court of the Capital City (Fővárosi Törvényszék) ruled in favor of the NGO. At this point the National Bank attached a declaration by the director of Századvég claiming that the surrender of material would hurt the business interests of the National Bank. The court wasn’t impressed. Initially, it simply asked for the study. When its request was denied, it obligated the bank to turn over the material.
György Matolcsy obviously didn’t want that study to see the light of day. He decided to appeal. By that time more than a year had gone by and the affair was still not over. In mid-June 2016 the case moved on to the appellate court, which ruled on July 30 that the Hungarian National Bank must turn over copies of the documents to Transparency International within 15 days. The whole affair has taken a year and a half. This is typical of the incredible amount of effort it takes to get government agencies to release documents that according to law are public.
As we know, Századvég has the reputation of being a money launderer. Mainly through the award of government grants and contracts, billions of forints move from the government budget into the coffers of Fidesz or the pockets of individuals in high positions. But Századvég is not the only conduit for the creation of private wealth from public funds. The so-called “settlement bonds” (letelepedési kötvények) are another egregious example. As I pointed out in an earlier post, well-heeled foreign businessmen can “buy” Hungarian citizenship for about €300,000. They get €300,000 worth of five-year government bonds and pay a handling fee of €40,000-€50,000, not to government agencies but to private companies. I estimated at the time that on each bond packet the intermediary makes about €70,000. Meanwhile the Hungarian government’s only gain is the purchase price of the bonds, minus the €20,000 or so it pays to the private companies. And in selling these bonds the government incurs a debt, which must be paid back with interest. Such a “business deal” is obviously not favorable to the government. The transaction makes sense only if its primary purpose is the enrichment of chosen individuals at the expense of the state.
According to the latest information, the situation with the “settlement bonds” may be even worse than I outlined in March. The program, it turns out, was designed in such a way that those companies that receive the handling fee also act as representatives of the prospective citizens. They are the ones who actually purchase and hold the bonds. This arrangement offers plenty of room for monkey business.
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Hungarian settlement bonds / Source: Átlátszó
Some time ago 444.hu was approached by an informant who claimed that there are more bond buyers than bonds purchased. The online paper asked for details from the Államadósság Kezelő Központ (AKK), the office that is involved in matters connected to the national debt. Surprisingly, AKK obliged fairly promptly and released details of the program. During 2013-2014, 2,347 people received permission from the ministry of interior to settle in Hungary as a result of the bond buying program, but AKK sold only 2,213 packets. That is, 134 packets are missing. That is a lot of money because each bond packet costs €250,000, which means the disappearance of 33.5 million euros. Did the friends of Antal Rogán and Árpád Habony, who buy and hold the bonds on behalf of their clients, stiff 134 foreign businessmen? I don’t know, but somebody has a lot of explaining to do.