OLAF investigating 34 instances of alleged corruption in Hungary

November 26, 2014

Giovanni Kessler, Director General of OLAF, gives a briefing on the resignation of John Dalli

Representatives of the European Anti-Fraud Office (OLAF) recently visited Hungary’s Ministry of Human Resources’ Office of Organizational Cooperation as part of an investigation into the distribution of EU Social Funds.

Part of the European Commission, OLAF is empowered to investigate any European institution or body funded by the EU budget, including governmental institutions of member states.

The Office of Organizational Cooperation division of the ministry is responsible for assisting it to distribute EU Social Funds (ESF). Over the course of the current seven-year funding cycle Hungary is due to receive EUR 3.6 billion (USD 4.8 billion) in social funds for projects that address education, job creation, poverty reduction and other programs promoting Hungary’s inclusive growth within the EU.

The Ministry of Human Resources told independent ATV the visit by OLAF investigators was merely “routine”. However, the fact that this is the first time in over four years representatives of OLAF have visited the ministry suggests otherwise.

ATV reports OLAF investigators were curious about the ministry’s dealings with a company that has a “significant relationship” with the government. Currently, no other information is available regarding this particular investigation.

Depends what you mean by “routine”

OLAF is responsible for:

  • protecting the financial interests of the EU by investigating fraud, corruption and any other illegal activities;
  • detecting and investigating serious matters relating to the discharge of professional duties by members and staff of EU institutions and bodies that could result in disciplinary or criminal proceedings; and,
  • supporting EU institutions, in particular the Commission, in the development and implementation of anti-fraud legislation and policies

Any organization, entity, institution or project receiving EU funds falls under the jurisdiction of OLAF. However, because OLAF is not a law enforcement agency, it can only submit its findings to the law enforcement authorities of the member state in question.   Minister for National Economy Mihály Varga recently acknowledged that OLAF had submitted evidence of corruption in at least 34 cases to Hungary’s Prosecutor General since 2011. Apparently the Prosecutor’s Office has only launched criminal investigations into 12 such incidents.

Hungary’s chief prosecutor, Péter Polt, has demonstrated a certain reluctance to investigate alleged cases of corruption, being a close friend of Prime Minister Viktor Orbán who he frequently accompanies to soccer games.

Spending money not the same as achieving results

As one of the poorer members of the European Union, Hungary is a net beneficiary of EU funds.  However, lack of controls and transparency regarding the distribution of funds has resulted in a number of abuses, few of which are the subject of formal investigations.

Good financial management of EU funds is simple in theory but difficult in practice. “It is not a choice between spending the money, complying with the rules and achieving results. It is about achieving all three at once,’’ says Vítor Caldeira, president of the EU Court of Auditors.  Caldeira is concerned the EU’s “use it or lose” policy may deter decision-makers from focusing on how to use those funds most effectively. According to Caldeira, the culture of using EU funds should be focused on achieving results.

Another problem with EU funding according to the EU’s head auditor is that “those who claim funds are not complying with all the requirements.”  In such cases, the EC has the right to suspend payment of sectoral grants and even demand government’s return EU funds received to date.   Such was the case last year when the EC notified Hungary that it was suspending the payment to Hungary of some EUR 100 million in road construction grants due to irregularities in public procurement procedures.

When this happens, the national government’s budget takes the hit. Such is the case regarding Minister of National Development Miklos Sesztak’s scandal.

In a country which one informed observer recently told the Huffington Post was “the most corrupt member of the European Union”, where companies owned by Fidesz oligarchs win a disproportionate share of EU-funded projects, where prosecutors are reluctant to investigate official corruption, it is Hungarian taxpayers who end up taking the biggest hit.  Some would go so far as to argue that EU funding to Hungary is actually doing more harm than good.

Referenced in this article:

12 büntetőeljárás indult az OLAF feljelentésére, ATV.hu; 25 November 2014.