Hungary - Corruption
As a consequence of Hungary’s strategic location in central Europe, its cash-based economy and well-developed financial services industry, money laundering in Hungary is related to a variety of criminal activities, including illicit narcotics-trafficking, prostitution, trafficking in persons, fraud and organized crime. Other prevalent economic and financial crimes include official corruption, tax evasion, real estate fraud, and identity theft.
Transparency International (TI) is active in Hungary and its 2010 Corruption Perceptions Index rates Hungary 50th out of 102 countries (1st being best), more favorably than most other countries in the region, but worse than Hungary’s 2009 ranking of 46th. Hungary received a poor rating – coming in 21st of 28 EU member states – in Transparency International’s 2014 Corruption Perceptions Index.
TI’s 2014 Corruption Perceptions Index rated Hungary 47th out of 175 countries (1st being best), down from 46th in 2012. Among the 28 EU countries, Hungary ranked 20th – behind regional peers like Estonia, Slovenia, Lithuania and Poland. TI commented that state institutions responsible for supervising public organizations are headed by people loyal to the ruling party, limiting their ability to serve as a check on the actions of the government. After the Hungarian Government amended the Act on Freedom of Information in 2013, TI commented data on public spending would be more difficult to access.
The law provides criminal penalties for official corruption; however, the government did not implement the law effectively, and NGOs contended that officials often engaged in corrupt practices with impunity.
While legislation is in place, persistent suspicion of corruption in some government procurement actions has arisen, due to a lack of transparency and an uneven implementation of the laws to prevent corruption. Non-governmental organizations, the business community, and foreign governments share many of these concerns, and maintain an ongoing dialogue with the government to identify strategies to improve conditions.
Corruption in the executive and legislative branches reportedly increased during the year 2010, and numerous cases of alleged corruption received significant public attention. According to the World Bank's Worldwide Governance Indicators, government corruption was a problem. Corruption within police agencies remained a problem. Penalties for police officers found guilty of wrongdoing include reprimand, dismissal, and criminal prosecution. In addition, observers have raised concerns about appointments of Fidesz Party loyalists as heads of quasi-independent institutions like the Media Council and the State Audit Office.
The GOH set up an Anti-Corruption Coordination Board, led by the Ministry of Justice, with participation from other government ministries, chambers and NGOs, which submitted a strategy and action plan to Parliament in 2008. This board disbanded in late 2009 and no new organization as arisen in its place. TI continues to actively support a transparent party financing system, however there has been little traction on reforming this issue over the past several years.
The Hungarian Ministry of Justice is responsible for combating corruption. There is a growing legal framework in place to support its efforts. Hungary is a party to the OECD Anti-Bribery Convention and has incorporated its provisions into the penal code, as well as subsequent OECD and EU requirements on the prevention of bribery. Hungary adopted a national strategy on combating corruption and passed two modifications of the Criminal Code in 2001 (Act CXXI and CIV). Parliament also passed the Strasbourg Criminal Law Convention on Corruption (Law XLIX of 2002) and the Strasbourg Civil Code Convention on Corruption (Law L of 2004). Hungary is a member of GRECO (Group of States against Corruption), an organization established by members of the Council of Europe to monitor the observance of their standards for fighting corruption.
Giving or accepting a bribe is a criminal offense, as is an official’s failure to report a bribery incident. Penalties can include confiscation of assets, imprisonment, or both. Since EU membership, legal entities can also be prosecuted. An extensive list of public officials and many of their family members are required to make annual declarations of assets, but there is no specified penalty for making an incomplete or inaccurate declaration. The 2003 “glass pocket law” extended the State Audit Office right to review businesses’ government contracts to public-private transactions that were previously considered “business-confidential”. Conflict of interest legislation prohibits members of parliament from serving as executives of state-owned companies.
In December 2009, Parliament passed new measures designed to reduce the possibility of corruption in public procurements. However, most of these measures have not been implemented. The government has suggested that it does not intend to set up new anti-corruption institutions. Rather, it prefers strengthen and build upon existing institutions. For instance, Deputy Prime Minister and Justice Minister Tibor Navracsics recently announced that a new team, dedicated to the fight against corruption, is likely to be set up within the Public Prosecutor’s Office. Minister Navracsics suggested that both the Public Prosecutor’s Office and the courts would receive additional funding to tackle anti-corruption challenges in 2011.
Hungarian legislation on combating money laundering is in line with international obligations. Act LXXXIII of 2001 on Combating Terrorism, on Tightening Provisions on Impeding Money Laundering widened the scope of the 1994 anti-money laundering legislation. Act XV of 2003 on Preventing Money Laundering increased the scope of business under the anti-money laundering legislation. It now includes financial and supplementary financial service providers, investment service providers, Stock Exchange-related activities, money transfers via postal service, real estate agents, auditors, tax advisors, casinos, retailers of precious metals, gems, antiquities, insurance companies, and lawyers.
Members of the National Assembly, high-level government officials, civil and public servants, and police officials disclosed their financial status on a regular basis, as the law requires. NGOs contended that the regulation is not adequate because there is no effective method for auditing or sanctioning violators.
The Anticorruption Division of the Central Investigative Chief Prosecutor’s Office created in 2011, together with county prosecutorial headquarters, employed 35 prosecutors and 20 administrators specialized in high-profile corruption cases involving public officials, and through November launched 244 cases in which it filed charges in 30. The Hungarian Competition Authority was responsible for providing fair and transparent market conditions.
Between September 2013 and the end of August 2014, the National Protective Service (NPS) conducted 880 “integrity tests” of the 93,000-strong police forces, and referred ten cases to investigative authorities. The Government Control Office (KEHI) is an audit organization working under the supervision of the Prime Minister’s Office and is responsible for monitoring financial support provided from the central budget or from any other system of domestic public finance.
On 21 August 2014, the Central Investigative Chief Prosecutor’s Office filed charges against former nightclub mogul Laszlo Vizoviczki for active corruption of public officials, budget fraud, and other crimes, together with 54 other defendants in two separate cases. According to the indictment, Vizoviczki paid off police officers for years, who in return did not investigate any of his 40 Budapest nightclubs. Police regularly raided the operations of his business rivals. The corruption case, disclosed by the NPS in 2012, involved five senior police officers (including the incumbent head of the National Bureau of Investigation’s organized crime unit), a firefighter captain, a customs guard lieutenant, a civil servant at a local council, and a public health inspector. On November 19, the Budapest Metropolitan Tribunal heard the case, which remained pending at the end of 2014.
Prior to the 06 April 2014, national elections, the government completed the two-year Corruption Prevention Program (CPP) to prevent corruption in public administration and public services. The CPP created several working groups to monitor the implementation of the anticorruption program, but anticorruption watchdog NGOs quit these bodies in protest against the government’s restrictive measures limiting freedom of information and access to public data.
In 2013 within the framework of the CPP, the Board of Hungarian Police Officers and the Board of Hungarian Government Officials adopted their own codes of professional ethics. The National University of Public Service introduced courses and training programs on corruption prevention and integrity in public administration. By year’s end approximately 10 percent of public servants attended a day-long integrity training session and 750 senior officials participated in a two-and-half day session on integrity management. Anticorruption measures also became part of the national educational curriculum.
In August 2014 the Ministry of Interior and the NPS took over corruption prevention from the Ministry of Justice, and the NPS began drafting a new four-year anti-corruption strategy focusing on public administration and competitiveness. Through 15 November 2014, the NPS initiated 93 criminal proceedings against 137 public officer holders and 13 government officials on suspicion of abuse of authority, bribery, or other corruption related crimes.
Transparency watchdog NGOs harshly criticized the 2013 rules governing parliamentary campaign financing that were applied for the first time to the April national elections. According to the new rules, individual candidates were required to make campaign expenditure information publicly available, but political parties were not. Transparency International Hungary (TI-H) reported that the generous state campaign funding to parties and the lack of effective financial reporting requirements resulted in the formation of 11 “sham” or “business” parties, created only to absorb state subsidies worth a total of 2.8 billion forint ($11 million), of which only 300 million forint ($1.2 million) were spent on campaigning.
On 15 April 2014, TI-H and the prosecutor general signed a cooperation agreement aimed at enhancing the prevention and monitoring of public corruption. The parties agreed to exchange relevant information. They also agreed to TI-H involvement in a prosecutors’ anticorruption training program and in the annual analysis of corruption by the National Institute of Criminology. On November 3, TI-H signed a cooperation agreement with the NPS.
High-profile allegations of corruption made in 2013 by a former National Tax and Customs Authority (NAV) contractor regarding large-scale tax fraud continued to draw attention. In November 2013 Andras Horvath publicly discussed massive shortfalls in value-added tax collection and implicated NAV leaders in protecting the scheme. Horvath filed a report with the prosecutor’s office. The allegations suggested organized tax fraud worth one trillion forint ($3.9 billion) per year. In November 2013 NAV initiated criminal actions against Horvath, charging him with defamation and abuse of protected personal data. NGOs, including TI-H and the HCLU, harshly criticized NAV and the government, asserting their attitude towards the allegations put any government anticorruption endeavors into doubt. In November 2013 NAV announced it had verified all tax records over a single weekend and discovered no anomalies.
In December 2013 the parliament rejected an opposition initiative to set up a committee to investigate Horvath’s allegations. On March 27, another former NAV official, Istvan Vancsura, reiterated Horvath’s allegations and named several officials of NAV involved in the scheme. NAV rejected Vancsura’s claims as well. The prosecutorial investigation into the reported tax fraud, as well as the proceedings against Horvath, remained pending at years’ end. On December 11, the prosecutor general announced the initiation of proceedings against 150 of 22,500 employees of NAV for alleged corruption.
On 04 February 2014, the European Commission released its European Anticorruption Report, which acknowledged the country’s ambitious anticorruption policies. The report nevertheless noted outstanding concerns related to informal relations between businesses and political actors at the local level. The report specifically mentioned several areas in need of more effective anticorruption measures; political party financing, control mechanisms surrounding public procurements, conflict of interest among public officials, accountability standards for elected and appointed officials, and favoritism in public administration, and informal payments in the healthcare sector.
On 28 October 2014, TI-H released a report on lobbying that concluded “state capture” by private interests is combined with cronyism in the country. According to TI-H, “in this special type of state capture the extensive and expansive state has been in symbiosis with some powerful business groups and oligarchs.”
On 3 December 2014, TI-H released its international 2013 Corruption Perceptions Index. According to the report, state institutions responsible for supervising the power exercised by the government were headed by government loyalists, and the competence of control bodies were weakened through legislative amendments. The report also emphasized that the erosion of checks and balances posed a serious risk of corruption.
In 2014, the Vice President of the Socialist Party was arrested after approximately USD 1 million was found in bank accounts in his name in Vienna which he could not account for. The Socialist Party ejected him from the party and condemned the behavior. Transparency watchdogs and the opposition note that the government does publicize cases against opposition politicians and former government officials, but ruling party affiliated officials are typically removed quietly.
In the fall of 2014, the U.S. Department of State barred several Hungarian officials and persons from entry into the United States under Presidential Proclamation 7750 on Anti-Kleptocracy due to suspicion of participation in corruption that adversely affected US interests.
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