“In civilized countries, a central bank governor is deposed or forced to resign for a single unlawful action. We should have no illusion that this will not happen in Hungary. Orbán will not cut off his own right hand. But this makes him an accomplice. Orbán and Matolcsy are one and the same. Hungary is being ravaged by lawlessness.”
These are the words of former finance minister Lajos Bokros. While it is true that Bokros is the chairman of the small opposition party Movement for a Modern Hungary (MOMA), his expertise in public policy and economics is recognized well beyond Hungary’s own borders.
In a statement released to the press on Monday, Bokros summarized scandal behind the National Bank of Hungary’s (MNB) foundations in five concise points:
The MNB is required to hand over 100 percent of its profits to the Hungarian state budget. It is not doing that;
The MNB is not permitted to create foundations for any purpose because doing so would draw funds away from the state budget;
The MNB is not permitted to spend money for the public good instead of or in addition to contributing to the state budget because it is not allowed to strip the National Assembly of its right to supervise the use of public funds;
The MNB is not permitted to exercise budgetary or fiscal policy. Its single purpose is to develop, maintain, and execute monetary policy;
The MNB is not permitted to engage in the act of transforming public funds into private funds. By doing this, the MNB is deliberately engaging in the act of theft and fraud.
This story epitomizes lawlessness in Hungary
After numerous lawsuits, rulings, appeals to higher-level courts and so on, the National Bank of Hungary was finally forced to make public information related to the spending of six foundations it created in 2014 under the direction of central bank governor György Matolcsy.
Matolcsy founded and endowed the foundations with close to USD 1 billion in central bank profits, then appointed various MNB staff and Fideszniks to head the foundations and serve on their respective supervisory boards.
Needless to say, the creation of these generated serious criticism from within Hungary and abroad. Many critics argued that the MNB had no legal mandate to create the foundations and endow them with public funds. It soon became clear that the foundations had been engaging in real estate transactions, art acquisitions and other activities inconsistent with the role and responsibilities of the central bank as prescribed by Hungarian law.
Scandal after scandal emerged.
Hungarian press even began reporting that the MNB foundations had used their endowment to purchase government securities — an act strictly forbidden by the European Central Bank because it means the central bank and its foundations are financing the state.
The failed cover-up
In March, with Hungary’s highest court, the Curia, on the verge of ruling on an appeal by the MNB to keep its spending secret, Fidesz MP Erik Bánki submitted a bill that would have allowed the MNB’s foundations to make secret all of their spending.
The bill was outrageous on many levels but it passed without incident.
Fidesz MPs and government officials made the absurd statement that the MNB’s public funds ceased to be public funds when they were transferred to MNB’s foundations. The statement soon became synonymous with how corruption is dealt with in Hungary.
Ultimately, President János Áder refused to sign the bill, opting instead to have its constitutionality reviewed by the Constitutional Court. The Constitutional Court struck the bill down for three reasons:
- The funds in question are public funds despite being bequeathed to a private foundation;
- Citizens have the right to access information related to the use of public funds;
- The law would have had a retroactive effect, i.e., the law would have applied to cases currently being decided in Hungarian courts.
The Constitutional Court’s decision surprised many for a number of reasons. However, the court failed to apply the same principles to a similar ruling handed down that same day.
The MNB had exhausted every possible avenue to keep its spending secret.
- It moved money out of the MNB into foundations;
- It refused to answer Freedom of Information requests related to its spending;
- It appealed every court decision forcing it turn over documents related its spending;
- A Fidesz MP woke up one morning and decided to submit a proposal for a retroactive law to keep the MNB’s spending habits secret;
- Fidesz and the government supported the bill; and,
- The law passed.
Ultimately, the Constitutional Court struck down the bill, thereby forcing the MNB to make public the information.
The big info dump
Last Friday evening, the foundations quietly uploaded documents (but not all of them) related to their spending to their respective websites. The information, while incomplete, was shocking.
The MNB’s spending can generally be broken down into two categories: “contracts” and “grants”.
According to Hungarian news site 444.hu, the total value of grants disclosed in the info dump are worth some HUF 25 billion (USD 90 million).
Of the contracts reviewed, some HUF 9.15 billion was related to real estate acquisitions. Another HUF 5.43 billion was related to real estate renovations. The foundations also disclosed paying some HUF 383 million for management/communication/research, HUF 193 million for event management, HUF 112 million for artwork, HUF 83.6 million for rent, HUF 70 million in attorney’s fees and so on.
In addition to this, the info dump also shows the foundations had become generous benefactors, distributing billions in “grants”.
With foundations this rich, who needs a market to make money?
Magyar Építő Zrt., a business interest of pipe-fitter turned billionaire Lőrinc Mészáros, made some HUF 1.2 billion for the renovation of the Old City Hall, almost HUF 1 billion for renovation to turn the Ybl Villa into an art gallery and restaurant, and HUF 1.5 billion to renovate the IPOS Headquarters building.
It was also revealed that business interests belonging to Matolcsy’s cousin, Tamás Szemerey, raked in millions of forints. One such business interest, New Wave Media, which is co-owned by István Száraz, pulled in almost HUF 600 million — an incredible amount considering the money went to a media company that has been quiet on the MNB’s scandals and also happens to be on an acquisition frenzy in the Hungarian media market.
Business interests belonging to Száraz and Szemerey are mentioned throughout the information dump, the two being lucky beneficiaries of the MNB’s generosity. 444.hu estimates that Száraz’s businesses received some HUF 736 million in support from the foundations, primarily as “grants”.
Nor did Matolcsy shy away from spending more than HUF 85 million publishing books about himself in five languages.
As more and more media reports begin to emerge regarding the foundations’ info dump, the Beacon will continue to report what the money has been used for.
It is important to note that while the disclosures were made (in part), there is virtually no information available regarding whether the funds had been awarded in accordance with Hungarian law.
This is looking really bad for everyone involved
Hungarian news site Vs.hu, which is published by New Wave Media, saw mass resignations yesterday when it was revealed that the company had received huge sums from the foundations. Even the site’s editor in chief resigned.
Opposition parties have filed criminal complaints with the prosecutor’s office, but all are likely to fall on deaf ears because the wife of Hungary’s chief prosecutor is a high-level executive at the MNB and also sits on the supervisory boards of some of MNB’s foundations.
The National Bank of Hungary claims it has done nothing illegal, from which we can assume that Matolcsy has absolutely no intention of resigning as governor.
Fidesz MPs and government officials are scrambling to avoid having to answer any questions about the scandal. So much so, in fact, that Speaker of the National Assembly László Kövér banned a number of journalists from parliament for “violating” press rules when they tried to ask about the scandal.
The matter has caught the attention of international news outlets and will likely continue to be a source of domestic news as more information emerges.