HOW EU FRAUD SCHEMES WORK IN ORBAN’S HUNGARY

Hungary tops the list of countries where irregularities with EU funds have been uncovered, including a recent corruption case involving the then-mayor of Kengyel. He explains to BIRN how the system works.

In late September, Szilard Nagy lost the early election for mayor of Kengyel, a village of some 3,500 people in central-eastern Hungary – and he had never felt so relieved.

“If I regret anything, it is that I entered politics,” he told BIRN. “Prior to that, I was a successful radio host in Szolnok [the main town nearby] – and I should have stuck to it.”

The 41-year-old Nagy was mayor of Kengyel for nine years, between 2010 and 2019, and for most of that time he was backed by Fidesz, Hungary’s nationalistic ruling party led by Prime Minister Viktor Orban. In the 2014 local election, he won nearly 94 per cent of the vote.

Yet even such popularity couldn’t save him. Last year, before he ultimately lost the mayoralty election, he was removed from office by the Kengyel Council after a court in Szolnok sentenced him to a year in prison, suspended for three years, for signing during his time as mayor a contract with a lawyer who was then accused of embezzling some 10 million forints (about *28,000 euros) of Kengyel public funds.

What helped Nagy to win a conditional suspension of that sentence was his cooperation with the prosecutor’s offices in Kecskemet and Budapest on a matter of much greater importance: how a fraudulent scheme involving EU money works in today’s Hungary.

Now, living under police protection, Nagy agreed to explain to BIRN how this scheme operates.

If you lie with Boldogs, you get fleas
The Jasz-Nagykun-Szolnok county, in which Nagy’s village is located, was for many years informally controlled by Istvan Boldog, Nagy claims.

A mechanic by education, a former mayor of one of the neighbouring villages and a Fidesz member of parliament since 2010, Boldog had his parliamentary immunity removed in April at the request of the Office of the Prosecutor General, which accused him in a statement of “abusing his official position and influence, and illegally influencing the results of the assessment of applications [for EU funds], for which he received an unjustified advantage from entrepreneurs.” He has been questioned by the Office of the Prosecutor General over the corruption allegations, though he denies all the charges.

Nagy claims he and Boldog met twice in November 2016. “Along with the other mayors in the county, I was invited to Boldog’s office in Ketpo,” Nagy said. “We were going inside one by one, every 30 minutes. Before entering, we were asked to turn off and leave our phones outside. Boldog listed specific projects for European money that we should apply for. When one of my colleagues replied that he did not need a new bus stop, he was told that, in that case, he would not get a penny.”

Why did Nagy agree to go along with this? “Every mayor wants his village to grow,” he sighed.

In Hungary, a village like Kengyel applies for EU funds through the county council under the Settlement Development Operational Program, known by the abbreviation TOP, which then sends the application to the Hungarian State Treasury, the central budget agency. The Treasury experts evaluate each application. This assessment is crucial for the county council and the Ministry of Finance, which jointly make a decision about subsiding the project.

A few days later, Nagy said he received a phone call from Boldog’s office inviting him to another meeting. He was told to take swimming trunks and go to the thermal pool in Cserkeszolo. “Sitting in the pool with two secretaries in bathing suits, Boldog explained that I had to play by his rules. The rules were as follows: person X will write the application, person Y will be the project manager, and person Z will be in communication. The fourth person must win the tender,” Nagy recalled.

After that, Nagy was told to be in touch only with Boldog’s intermediaries, called in Hungarian taskas emberek (bagmen). The first taskas ember was bald and showed up a day after the meeting in the pool in a car with Slovak registration plates. “He said that my village will get six EU projects and the first one is a bike route. I was given a detailed plan of the route and information about who would build it, and that it would cost 500 million forints,” Nagy related to BIRN.

In the evening, the future path constructor called him to clarify that although the route would cost half a billion forints (1.4 million euros), half of that would go into Boldog’s pocket. This is when Nagy rebelled for the first time. “At the next meeting with the taskas ember, I said I am out. In response, I heard a load of dirty words, of which ‘Boldog’s dog’ was the gentlest.”

What language is employed when discussing such dealings? Boldog was reportedly referred to as “the boss” by the taskas ember, who tended to use ambiguous phrases such as “the boss is letting you know that if you behave correctly, everyone will benefit”. They never used the word “corruption”, Nagy stressed.

Some weeks later, it turned out that out of six applications Nagy had submitted, the four most expensive were found to be invalid by the Hungarian State Treasury due to formal errors. The other two applications received only partial funding. Nagy speculated it was Boldog who had somehow influenced the independent experts; under Fidesz, he claims, “the state and the party have become one [organism].”

In late 2018, a year before the next local elections, Nagy himself reached out to Boldog to “secure his re-election with new investments”. Nagy was told to meet another of Boldog’s taskas ember, who demanded total control over the two winning projects – the renovation of the main square and a nursing home in Kengyel, a deal which Nagy accepted. “The same day, I got a message that two other applications, previously rejected for formal reasons, had received a positive response from the Treasury,” he said.

BIRN requested the Hungarian State Treasury comment on the details of the process that Nagy’s applications went through, but it had not received a reply by time of publication.

Having secured funds for four projects altogether, Nagy received from a second taskas ember, through a private email address, a list of companies which should take part in the tenders. In Hungary, for projects worth less than 300 million forints (about 840,000 euros), a public entity is legally obliged to invite at least five companies to submit bids, of which at least two must submit a formally correct bid for the tender to be deemed successful.

“Boldog pointed out all the companies. One was supposed to win, the other presented an inflated offer,” Nagy said. He speculates that Boldog himself could benefit by receiving money from all the companies through his taskas ember.

According to Istvan Janos Toth, director of the Corruption Research Center Budapest (CRCB), close ties between all the bidders are a characteristic feature of the Hungarian tendering system. “All actors, including the one who orders the tender, intermediaries, the winner of the tender and even the losers, are related to each other,” Toth told BIRN. “Everyone benefits.”

In a report published in May, after analysing almost 250,000 public contracts from the period 2005 to 2020, the CRCB said that the risk of corruption in public procurement in the first four months of 2020 had reached its highest level since 2005. According to the report, 41 per cent of contracts from this period were signed despite a lack of fair competition during the tender. Toth explains that most of the irregularities occur in the most profitable public sectors: construction and IT.

“Among the mayors of my county, everyone was aware that this was how it works,” Nagy commented. “As we discussed it, we used the phrase: Boldog is hungry again and needs to be fed.”

BIRN tried to contact six other current and former mayors in the Jasz-Nagykun-Szolnok county, but none agreed to comment.

In Nagy’s case, the corrupt workings of the scheme were exposed by a whistleblower in his office, a notary, who, unable to bear the stress, reported the dealings to the prosecutor’s office in Szolnok. Nagy discussed the details in a four-day-long questioning in 2019. The police subsequently granted Nagy protection.

Several other figures have also been detained in connection with the case, including Boldog’s secretary from the thermal pool in Cserkeszlo and the heads of a few companies involved in the tenders. Boldog himself has not yet faced any charges, though in April the parliament waived his immunity at the request of the Office of the Prosecutor General.

The Prosecutor General confirmed in an email that there are 11 suspects in these proceedings accused of “accepting bribery and other crimes”, but “none is currently subject to coercive measures affecting personal liberty”, meaning no one is in custody. As for Boldog, he “was questioned by the investigating prosecutor’s office as a suspect”, Katalin Kovacs, spokesperson for the Office of the Prosecutor General, wrote in response to BIRN enquiries.

Nagy suspects that since Boldog is just an ordinary MP and does not belong to Orban’s inner circle, he may be made a scapegoat to show the EU that the government is fighting corruption.

Boldog did not reply to two email inquiries about the case.

Deeper and wider
The government’s opponents argue that small-scale schemes, such as those in the Jasz-Nagykun-Szolnok county, are not isolated cases; they are, in fact, a microcosm of the dealings that go on throughout Fidesz’s Hungary, which is a major recipient of EU funds and where, at a higher level, more prominent figures and much bigger money are involved.

“Before Orban, we had regular Eastern European corruption, so the rich bought influence from politicians,” Szabolcs Panyi, a journalist at the investigative Direkt36 website, told BIRN. “Now, the state itself is at the forefront of corruption. State and EU money are treated as private. If someone gets into trouble, the laws in parliament are quickly modified. Investigations are often frozen because trusted people are in charge of the police and the prosecutor’s office.”

David Jancsics, an expert on Hungarian corruption from San Diego State University, explained that, “it’s not like the best Hungarian businesses are awarded contracts, but the most loyal.”

“In this system, that goes down to local governments; if you don’t support Fidesz-related interests, you won’t get any resources,” he added.

The European Commission and European Parliament are becoming increasingly concerned with how member state governments are using EU funds, and are now actively looking at ways to change how EU money is allocated, for example by distributing it directly to municipalities, small and medium-sized enterprises and NGOs, thus avoiding problematic central governments.

As for Hungary, the European Anti-Fraud Office (OLAF) concluded 43 investigations into the misuse of funds where it found irregularities between 2015-2019, the highest in the bloc, and recommended the European Commission recover 3.93 per cent of payments made to Hungary under the bloc’s structural and independent funds and agriculture funds. This was ten times more than the EU average (0.36 per cent).

In response, Fidesz alleges that OLAF’s work has been politically motivated for a long time. “[OLAF] was very active during the last election campaign [trying to influence the results],” Agoston Samuel Mraz, director of the Nezopont Institute, a think tank close to Fidesz, claimed to BIRN.

Instead of publishing new reports, OLAF should rather remain impartial in “the clash between V4 governments and the Brussels elite” and “should help fight the misuse of EU funds,” Mraz wrote in an email.

The new business groups that have grown under Orban, which include those of his childhood friends and members of his family, among other figures, represent to Mraz “a national elite in the economy”. Critics might call it an “oligarchy”, Mraz says, but argues that the word ‘oligarchy’ is a misnomer, “because people in the economy have no influence on political decisions as it used to be in Russia in the 1990s.”

In many ways, Hungarians, it seems, have simply got used to corruption. According to the latest Eurobarometer, 87 per cent of those surveyed believe that corruption is widespread in the country, but only 38 per cent consider corruption to be unacceptable – the lowest figure in the EU.

“People don’t know about corruption, because the Fidesz mafia have used the stolen money to take over the public media and buy a large part of the private one,” Akos Hadhazy, a former leader of the Hungarian Green Party, now an independent MP, said. Yet in the 2019 local elections, Fidesz lost several cities, including Budapest, due to corruption scandals, among other things.

“To their supporters they send a message: we steal, but others steal too – and we at least protect you from migrants and Soros,” Hadhazy added.

Nagy could not care less; he says he wants out of politics for good. “The prosecutor from Kecskemet who introduced the proceedings against me was removed by the Prosecutor General, while his supervisor committed suicide,” Nagy explained. “I don’t want to end up like that.”

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