Offshore companies make USD 185 million on sale of Hungarian residency bonds

January 30, 2015


As previously reported by the Budapest Beacon (although we underestimated the amount of revenue being diverted from state coffers to offshore companies), off-shore “brokerage” companies selling Hungarian residency bonds have made a fortune at the expense of the Hungarian treasury.  The plan to sell residency permits to foreigners willing to acquire treasury notes was first proposed by Fidesz caucus leader and former Budapest 5th district mayor Antal Rogán at the end of 2012.

What is a residency bond?

Non-European Union businessmen wishing to obtain a permit to settle in Hungary (and thus move freely about the EU) can do so by buying at least EUR 300,000 (previously EUR 250,000) of so-called residency bonds from the Hungarian State Debt Management Center (ÁKK).  However, investors may not purchase the bonds directly from the Hungarian treasury but from a “broker” approved by the parliamentary economics committee chaired by none other than Rogán.  When purchasing the bonds the applicants must pay a one-time processing fee which, according to, ranges from EUR 45,000 to 70,000  (USD 51,000 – 83,000).  Within six months of acquiring the residency bonds, the bearer may apply for a settlement permit valid for five years.

According to it was Rogán himself who worked out the whole structure of the residency bonds scheme with the help of his Chinese contacts.  Rogán is personally connected with Attila Boros, former CEO of bankrupted Hajdú-Bét and, their common acquaintance, Simon Wu, CEO of the Chinese company that privatized Hungarian chemical firm Borsodchem a few years ago.

When introducing the bill Rogán said that, in addition to helping the country finance its national debt, it would bring millions of euros of investment to Hungary.

What happened instead?

It turns out that the overwhelming majority of applicants for these residency bonds were Asian investors already doing business in the EU before the introduction of such a legal framework.  Investigative journalist Bálint Szalai has revealed that none of the applicants were allowed to buy such bonds directly from the state. Rogán insisted that rather than sell the bonds directly to foreign investors, the Hungarian State Debt Management Center contract with brokerage firms, each having exclusive rights to a different country or region.  This means that private brokers divided global regions among themselves, thereby preventing competition and maximizing the cost to the state of selling the bonds.

Only those companies approved by the parliamentary economics committee (chaired by none other than Rogán himself) were to be allowed to contract with ÁKK.

The broker companies are registered in tax havens such as Malta, Cyprus, the Cayman Islands and Singapore.  Only one of them has its official headquarters in Budapest.  After receiving an application and collecting the handling fee, brokers purchase residency bonds directly from ÁKK at the discount price of EUR 221,000 per bond. So far, 2213 such transactions have been registered by ÁKK.   In this way over the past eighteen months private companies have made an estimated HUF 51 billion (USD 185 million) calculating with the minimum handling fee of EUR 45,000.

Fidesz: This is an international best practice

Answering to Index’s questions, Fidesz party communications said the above described scheme is completely legal and is “in line with international practices to pass bond transactions to brokers”, adding that “Handling fee prices are set by the market, the state can exercise no influence on this amount.” The governing party further claimed that the private companies are not offshore because they have revealed all details of their owner structure.

There has been no official reaction to the fact that the Hungarian state only gains EUR 221,000 on the sale of each settlement bond while incurring an obligation to repay EUR 250,000 in five years time in each case. At current bond yields, the Hungarian state loses 0.5 percent compared to regular market prices. Private brokers, on the other hand, are able to make EUR 74,000 in profits on every bond acquisition. Typically, these companies cost little to operate, spend little on sales and marketing, and have little in the way of overhead. But since free movement in the EU is essential to a wide variety of Indian, Chinese and Vietnamese businessmen, there is no lack of demand for their services.

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