How central bank governor György Matolcsy enriched himself at taxpayer expense, part III

April 28, 2017

Translati0n of Jenő Böszörményi’s article “The Matolcsy family’s business affairs, part 3” published in the February 23rd, 2017 edition of Magyar Narancs (pp. 10-12) under the title “State-owned private foundation”.

The foundation that played a key role in the business affairs and enrichment of the Matolcsy family would be closed down in a hurry. A good part of the revealing documents could thus be destroyed. The operations of the Tulajdon Alapítvány [Foundation] are now shrouded in silence and mist.

A continuous and central feature in the story of the enrichment of György Matolcsy and his family, and unavoidable collaborator and “partner” is a mysterious and opaque state-founded foundation, the Tulajdon Alapítvány (TA). It was this foundation that set up Növekedéskutató Intézet Kft, which was initially run by Matolcsy, and generated revenue of some 100 million forints under the first Fidesz government and György Matolcsy’s first term as minister. Later, in 2001, the company was transferred in name to Matolcsy’s wife Gyöngyi, with György Matolcsy becoming the real owner (see “My wife is my front man“, Magyar Narancs, 19 January 2017). The foundation and Matolcsy’s Növekedéskutató worked closely together in “utilising” funds received from the Fidesz party foundation, the Association for a Civic Hungary Foundation, or PMA (see “You can never have enough straw men”, Magyar Narancs, 9 February 2017). And over the years, the Matolcsy family and its companies also bought three properties owned by the foundation. However, most of the details of the transaction, the collaboration that within years had become seamless, and the movements of money between the foundation and the Matolcsy family (or its interests) all still unknown, and now unknowable. We have tried to gather together everything that can be known about this shadowy little brigade.

The beginnings

The TA was set up in the early days after the change of regime, in November 1990, by the Antall government’s privatisation agency, the Állami Vagyonügynökség (ÁVÜ). According to the management council minutes of theÁVÜ’s legal successor, the Magyar Nemzeti Vagyonkezelő Zrt (MNV), Matolcsy presented in January 1991 the concepts resulting from his work at the TA’s privatisation research institute. He planned to place privatisation and foreign investment at the centre of the foundation’s work, though “the independent theory workshop does not want to work as a background institution of the agency or the government”. The now defunct Postabank, Takarékpénztár [savings bank], Magyar Hitelbank, and the Országos Kereskedelmi és Hitelbank (K&H Bank is a successor to the two institutions) were attached to the foundation, although it is not known precisely with what sums. Sándor Kopátsy became president of the foundation, while Matolcsy – who around then was kicked out of prime minister József Antall’s circle – was its secretary and director of the institute it operated. As a state secretary and Antall’s chief advisor on economic policy and privatisation, Matolcsy had come into conflict with the then finance minister, Ferenc Rabár, and having lost in the struggle, set up the foundation with the ÁVÜ.

Numerous contracts signed by Matolcsy remain among the papers in the possession of the MNV, which bear witness to the foundations high level of financing in relation to the prevailing conditions in Hungary at the time (the signature of the ÁVÜ director Lajos Csepi can be seen on a few of the contracts). The foundation accumulated enormous sums of money and worked astonishingly quickly. In the first half of 1991, for example, Matolcsy took on extra work with a one-and-a-half month deadline: they worked on the strategy for compensation tickets for 2.4 million forints, reviewed the role of workers’ discounts in privatisations for 1.2 million forints, and collected 3.5 million forints to put together a publication on opportunities in Hungary for foreigners, while writing reports on experience in the privatisation of individual state companies for 300,000 forints each. In a longer deadline, they prepared a “comprehensive analysis of privatisation, ownership restructuring and company formation” (these sums are net [of value added tax]). According to the Central Statistical Office (KSH) the average monthly wage in Hungary was 17,934 forints. On this basis, it is perhaps not going too far to say that Matolcsy regularly demanded for his work a price that could have employed 50 people earning double the minimum wage.

In October 1991, Matolcsy was named director at the European Bank for Reconstruction and Development (EBRD), although a later document says he remained a member of the board of trustees and a functionary of the foundation as its secretary. During these years, the foundation followed the path he had marked out for it and amassed tidy sums of money from the privatisation body: according to a summary from 1994, in little more than a year between January 1993 and March 1994 it paid 43.6 million forints (USD 460,000) for its studies. The idea that it was overpaid is reinforced by the fact that, at the beginning of 1994 , perhaps sensing the imminent change of government, they began clawing at the ÁVÜ, too, and there was a contract that reduced the commission fee. We know less about the revenue of the foundation as the remaining documentation at the MNV is patchy, but there is no doubt that the ÁVÜ was the biggest client of the Tulajdon Alapítvány és Privatizációs Kutatóintézete. Besides this, however, according to a letter written by Sándor Kopátsy, commissions came mainly from banks, which were at the time mainly in state ownership.

In December 1994, after the Horn government had taken office, Matolcsy was forced to give up his directorial seat at the EBRD in London, and in the following months he returned to the directorial post at the foundation, as though in the intervening years the post had been kept open for him. Under the Socialist-Free Democrat government, the foundation was not left wanting, even if the effects of the change in the political wind could be felt. The material summarising the experience of privatisation in the first government term following the change of regime was put together at the start of 1995 for 2.5 million forints, a trifle compared to the previous sums of money.  Of course this was not bad money, especially if we consider that the average wage at the time was 38,900 forints a month. Among MNV documents dating from this time, Matolcsy’s signature can be seen on half a dozen contracts dated 1995 and worth a total of 10.1 million forints (USD 75,000). From this point, however, less is known of the foundation’s operations, revenue and clients.

Nobody knows a thing

It is particularly strange and thought provoking that practically no documents remain from the MNV, a state body with the power to set up legal entities, covering 1995 to 1997. However, the deeds of foundation clearly define the board of trustees’ financial reporting obligations: “The board of trustees […] are required each year to report to the establisher, and those connected to the foundation about its work, especially the foundation’s asset management and utilisation”. This expression, moreover, does not require the more common formal report, revealing little, but a substantial stocktaking. The MNV claims that it does not have a single one of these reports at its disposal, just as it was unable to produce a single financial report for us.

The foundation is in principle totally open and transparent.  According to its documentation “anyone can access all the classes of document related to the operation of the foundation (correspondence, contracts, bank statements, invoices, records, accounts etc.)”. But in practice nothing comes of this. In fact the foundation is unreachable, its telephone number does not work, and at its headquarters we only got as far as the intercom on the door, where an apparently embarrassed young man did not want to enlighten us as to how to contact the foundation. Adding spice to this, the property that serves as the headquarters of the foundation happens to belong to the Matolcsy firm Növekedéskutató, later Magyar Gazdaságfejlesztési Intézet (MGFI), now known as Mém Műhely Kft, and is also the registered office of that company. The young man acknowledged that he is employed by the company, but declined to give any further information. (Who knows, perhaps we were lucky enough to meet the current owner, Máté Huba Matolcsy).

According to the public registry of the National Judicial Authority, the current president of the TA’s board of trustees is Marianna Harczi, and its members Norbert Csizmadia and Imre Réfy – all old confidantes of György Matolcsy. We tried to contact them, too: the founding MNV claimed it could not give us contact details, so we tried to reach Harczi and Csizmadia through their lawyer, but neither of them wanted to comment. Réfy simply hung up when we finally reached him by telephone and learnt what we were after. Incidentally, Réfy is the deputy mayor of the Gyöngyi Matolcsy-led town of Balatonakarattya, the director of Mrs. Matolcsy’s election campaign, and in his own words, an old friend of the Matolcsy family. Csizmadia formerly served as a state secretary in the Ministry for National Economy (NMG) and the post created specially for her under Matolcsy of managing director for strategy at the Hungarian National Bank (MNB). And both of them are members of the Pallas Athéné [Athena] Foundation’s board of trustees.

So everywhere we tried, we ran up against a wall. And as only the foundation’s reports from 2011 onwards are public, no documents relating to the earlier period – beyond the deeds of foundation and related documents at the Municipal Court of Budapest – are accessible. What we are able to find out, we have to rake out from other sources. As we wrote in the first part of this series, the TA’s revenue between 2005 and 2010 was 180.9 million forints, which came from the party foundation run by György Matolcsy until 2007, the PMA. The TA – in close cooperation with Matolcsy’s Növekedéskutató – helped Fidesz with its preparations for the election. It seems to have been Matolcsy’s good fortune that the foundation moved ever closer to Fidesz in these years and, at least in part, functioned as one of the party’s background institutions. This, however, runs counter to the TA’s founding certificate, which prescribes political independence: “The foundation shall not engage in directly political activities, and will not participate in any party political election or other campaign, regardless of which party, and will take not a public stand on behalf of any party.” Over the years, the state-founded Tulajdon Alapítvány (TA) and the privately owned Növekedéskutató (later MGFI) worked together in a veritable symbiosis, which of course was not difficult, given the two entities operated out of the same registered offices, and even shared telephone and fax numbers.

Grants, mental health and emptying out

We know more about the period after 2010: under the new law on association, civil organisations are obliged to deposit their reports at the OBH. From these, it emerges that between 2010 and 2014, TA’s revenue was 173 million forint (USD 750,000) – 2010 was an outstandingly good year, when revenue reached 66 million (USD 295,000). According to the reports, the funds came partly from “other support”, and partly – mainly – from analyses conducted as public benefit activities. However, there is not a single word about the foundation’s clients, supporters or sources of income. What can be established is that the foundation did not directly receive any state, local government, or European Union funding in this period, as these have to be itemised. This, of course, does not rule out the possibility that state funds did not reach the foundation indirectly, for example via the Fidesz party foundation. Between 2011 and 2014 the TA board of trustees paid grants totalling 75.5 million forints (USD 330,000) (there is no data for 2010), but it remains unclear to whom. With one exception: according to the report, in 2014 one or more (we do not know who) members of the board of trustees shared a stipend of 4.2 million forints (USD 18,000), presumably in contravention of the rules.

From the written appendices we get a glimpse of the type of thing that won the approval of the trustee board. In 2011: The appearance and management of the crisis in the Hungarian economy; Market bubbles. In 2012: Developing entrepreneurship – the medium-term macroeconomic environment for starting a business; Employment, including self-employment, public employment, the state of the job market for young people, and the emigration of the Hungarian workforce. In 2013: The central bank’s room for manoeuvre in fiscal stimulus and Opportunities for the application of the results of standard of living surveys. All these were judged worthy of funding by the board of trustees. Besides the economic studies, there was another, rather more adventurous one: Observations and experience of knowledge gained about the human brain in the areas of psychology, mental health, neurophysiology, anthropology, and information science. We can assume that choice of the themes listed was guided by economic policy concerns, expect for the last which – given his known interest in brain surgery – we can perhaps detect the hand of György Matolcsy.

It can also be seen from the financial data from 2010 to 2014 that the foundation generated a loss of almost 40 million forints (USD 180,000) and drew increasingly on its reserves: its expenses far outstripped its revenue. Its assets had dwindled to around 10 million forints (USD 42,000) by the end of 2014, the same as its starting capital in 1990. The founding documents stipulated then that only the interest from this capital could be used, and the assets should under no circumstances fall below 9 million forints. The foundation has not carried out any meaningful activity since the end of 2014; in 2015 its revenue was zero.

It is surely only a coincidence that at that point in 2014 – when the Hungarian National Bank, under György Matolcsy’s leadership, set up the Pallas Athena Foundation – that the Tulajdon Foundation de facto died.

Face for the data

The activities and financial affairs of the TA are thus enveloped in thick mist, and the fog is particularly thick when it comes to its activities before 2010. Yet the foundation is one of the keys to understanding the company, real estate and other affairs of the Matolcsy family. According to a ruling by the Constitutional Court last year in the case of the central bank foundations, foundations established from public funds provide public benefit services, and its data is therefore in the public interest, and according to the Fundamental Law, should be accessible to all. The TA falls in precisely this category, since the ÁVÜ set it up with public money – its data is therefore in the public interest.

The Party With Clean Energy for Hungary (TEMPO) has been trying for almost a year, since March, to access information relating to the activities of the TA, including the aforementioned reports. As the TA did not react, TEMPO launched a legal action. The presiding judge in the case, Mrs. Judit Nagy Novák, will in a few days hold the eighth hearing (a record in such a case), but it was only a few weeks ago that the defendant’s attorney turned up in court with the requisite authorization. Marianna Harczi initially denied through her lawyers that she was currently the legal representative of the foundation. She also denied that they had ever received the information request, despite a registered post receipt attesting to the fact that the request was accepted in the name of the Tulajdon Foundation. The dispute is currently over whether the person in question – a certain Szilvia R – had the right to accept the letter. The person in question would clarify the situation, but the foundation is not prepared to reveal where and when she could be contacted. The foundation’s legal representatives, Marianna Harczi and Norbert Csizmadia, have stayed well away from the trial – so far failing to appear at a single hearing.

Harczi and the foundation were initially represented by the lawyer István Vass, then, and currently, by the law office of András Imre. What the foundation is using to pay the lawyer’s fees is a mystery, given – as we saw – that the money ran out in 2014. An interesting coincidence that the TA’s lawyers have also been representing the Pallas Athena foundation since May or June 2016, with Vass receiving 100,000 forints (USD 350) a month from each of the six foundations, while the Imre Law Office charges 120 euros an hour for legal advice to five foundations. It is clearly just a coincidence that request reached the foundation in April at around the same time the Pallas foundation engaged the legal practice. And it seems Vass’s contract with the Pallas foundations ceased at around the time that Imre and company took over the representation of the Tulajdon Alapítvány.

Meanwhile, in June, Harczi – via lawyers – initiated the winding up of the foundation by the courts, on the grounds that it had not engaged in any activity for years. The first hearing was held in December, when the presiding judge György Szilvás prepared for a quick and formal – as he put it, “23 second” – hearing, but the TEMPO Party halted the process with a request it be suspended pending the outcome of the other, ongoing court case. The fundamental question over which the judge must rule, is whether it is possible to wind up a foundation that is subject to a court case over the release of information in the public interest. When a foundation is wound up, a significant portion of its files become inaccessible. This fate awaits the Tulajdon Foundation’s documents, too – but of course we would not dare presume that it was precisely for this reason that the winding up of the foundation suddenly became so urgent. With the destruction of a large part of the files, it would finally become impossible to establish how this state foundation functioned during the two-and-a-half decades of its existence. And of course the information that could help us reconstruct the precise role the foundation played in the enrichment of the Matolcsy family would sink into darkness forever. It should not be this way.