In the wake of the “brokerage scandal of the century”, it’s politics as usual in Hungary

March 11, 2015


In the wake of the Buda-Cash brokerage scandal, which is likely to cost Hungarian taxpayers some HUF 90 billion, leading government and opposition politicians have started pointing fingers.  The subsequent suspension of Hungaria Értékpapir Zrt. and the Quaestor Group’s bond-issuing company is only likely to exacerbate the blame game so characteristic of Hungarian politics.

In testimony given to the Parliamentary Economic Committee on Monday, János Veres, a Hungarian Socialist Party (MSZP) MP and former minister of finance under then Socialist prime minister Ferenc Gyurcsány from 2005 to 2009, said inadequate financial oversight on the part of ruling party Fidesz and National Bank (MNB) governor György Matolcsy had made it possible for “the savings of over 100,000 people to disappear”.  Veres further pointed out that two-thirds of Buda-Cash’s losses were realized by four regional banks authorized by the current Central Bank governor.

Veres said that, before being absorbed by MNB under Matolcsy, Hungary’s Financial Organizations Oversight Authority (PSZÁF) issued a decision in 2010 making Buda-Cash’s license to operate conditional on the company fulfilling 16 requirements, including “ending deficiencies to its information system”.  Veres asked whether financial regulators had checked since then to see whether the conditions had been fulfilled and were being kept.

Although a number of former finance ministers and PSZÁF presidents were invited to appear before the committee, Veres was the only one to testify.

Former Buda-Cash Broker House supervisory committee member Karoly Antall told the committee that his involvement with Buda-Cash had ended in 2008, but that there was no indication at that time of unlawful activity.

Committee chairman Antal Rogán (Fidesz) used the committee proceedings to point out that when the first Viktor Orbán government left office in 2002 the law required that brokerage houses be audited every two years, but this law was subsequently amended by the Socialist Party so as to eliminate the need for compulsory state audits.  Rogán said five-year comprehensive audits were reintroduced in 2009, despite Fidesz advocating that they take place in two-year intervals.

Jobbik MP János Volner observed that MSZP and Fidesz were using committee proceedings to play the blame game.  Volner said that in his opinion Fidesz and MSZP bore equal responsibility, both for the fact that Hungary’s financial regulation was inadequate, as well as for the failure of government financial regulators to properly do their jobs.

After the committee meeting, Rogán told reporters that Fidesz would propose the formation of an investigative committee to determine “why the Socialist governments relaxed controls over brokerage companies between 2002 and 2010.”  Alleging that the Gordon Bajnai government (2009-2010) appointed numerous Buda-Cash directors to positions in government and with state-owned companies, Rogán called for an investigation into the “personal connections between the Bajnai government and the Buda-Cash directors and owners”.

Finally, Rogán said it was necessary to “clarify how much money was missing already in 2010 at the time of the previous audit of Buda-Cash” and that he expected the committee to complete its work before the summer recess.

By a vote of 9 in favor and 5 opposed, the Fidesz-KDNP members of the Parliamentary Budgetary Committee chaired by Socialist MP Sándor Burány voted for the committee not to take up the Buda-Cash matter.  The reason offered by committee member Lajos Szűcs (Fidesz) was that it was Burány’s intention to stage a “media event” and that the economic committee was already holding a similar hearing.  Furthermore, he argued that hearing the testimony of Central Bank governor Matolcsy and Minister for National Economy Mihály Varga “fell outside of the budgetary committee’s jurisdiction”.

In response, Burány pointed out that neither Matolcsy nor Varga had been invited to testify before Rogán’s committee.  Nor, for that matter, had former finance minister Zsigmond Járai.

Prior to the meeting Burány told reporters that it was necessary for his committee to hear testimony on the Buda-Cash scandal because compensating depositors and investors for their losses involved “serious public money”.

Before the budgetary committee meeting Erzsébet Schmuck of green party LMP said neither the Fidesz-KNDP government nor the central bank could cast blame on the previous Socialist government because for the last five years the two-thirds governing majority could have modified whatever laws it liked with regard to the nature and frequency of state audits.