Hungary has legislation in place to combat corruption. Giving or accepting a bribe is a criminal offense, as is an official’s failure to report such an incident. Penalties can include confiscation of assets, imprisonment, or both. Since Hungary’s entry into the EU, legal entities can also be prosecuted. Legislation prohibits members of parliament from serving as executives of state-owned enterprises. 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. It is common for prominent politicians to be forced to amend declarations of assets following revelations in the press of omission of ownership or part-ownership of real estate and other assets in asset declarations. Politicians are not penalized for these omissions. Transparency advocates claim that Hungarian law enforcement authorities are often reluctant to prosecute cases with links to high-level politics. For example, they reported that, in November 2018, Hungarian authorities dropped the investigation into USD 50 million in EU-funded public lighting tenders won by a firm co-owned by a relative of the prime minister, despite the fact that OLAF, the European Anti-Fraud Office, raised concerns about evidence of conflict of interest and irregularities involving the deal. According to media reports, OLAF concluded that at least some of the tenders were won due to what it considered organized criminal activity.
Annual asset declarations for the family members of public officials are not public and only parliamentary committees can look into them if there is a specified suspicion of fraud. Transparency watchdogs warn that this makes the system of asset declarations inefficient and easy to circumvent as politicians can hide assets and revenues in their family members’ name.
The Public Procurement Act of 2015 initially included broad conflict of interest rules on excluding family members of GOH officials from participating in public tenders, but Parliament later amended the law to exclude only family members living in the same household. While considered in line with the overarching EU directive, the law still leaves room for subjective evaluations of bid proposals and tender specifications that could potentially be tailored to favored companies.
While public procurement legislation is in place and complies with EU requirements, private companies and watchdog NGOs expressed concerns about pervasive corruption and favoritism in public procurements in Hungary. According to their criticism, public procurements in practice lack transparency and accountability and are characterized by uneven implementation of anti-corruption laws. Additionally, transparency NGOs calculate that government allied firms have won a disproportionate percentage of public procurement awards. The business community and foreign governments share many of these concerns. Multinational firms have complained that competing in public procurements presents unacceptable levels of corruption and compliance risk. A recent EU study found that Hungary had the second highest rate of one-bidder EU funded procurement contracts in the European Union. In addition, observers have raised concerns about the appointments of Fidesz party loyalists to the heads of quasi-independent institutions like the Competition Authority, the Media Council, and the State Audit Office. Because it is generally understood that companies without political connections are unlikely to win public procurement contracts, many firms lacking such connections do not bid or compete against politically-connected companies.
The GOH does not require private companies to establish internal codes of conduct.
Generally, larger private companies and multinationals operating in Hungary have internal codes of ethics, compliance programs, or other controls, but their efficacy is not uniform.
The Hungarian Ministry of Justice and the Ministry of Interior are responsible for combating corruption. There is a growing legal framework in place to support their efforts. Hungary is a party to the UN Anticorruption Convention and 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. Parliament passed the Strasbourg Criminal Law Convention on Corruption of 2002 and the Strasbourg Civil Code Convention on Corruption 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. GRECO’s reports on evaluation and compliance are confidential unless the Member State authorizes the publication of its report. For several years, the GOH has kept confidential GRECO’s most recent compliance report on prevention of corruption with respect to members of parliament, judges, and prosecutors, and a report on transparency of party financing. Following calls from opposition, NGOs, and other GRECO Member States and a March 2019 visit by senior GRECO officials to Budapest, the GOH agreed to publish the reports in August 2019. The reports revealed that Hungary failed to meet 13 out of 18 recommendations issued by GRECO in 2015; assessed that Hungary’s level of compliance with the recommendations was “globally unsatisfactory”; and concluded that the country would therefore remain subject to GRECO’s non-compliance procedure. The compliance report on transparency of party financing noted some progress, but added that “the overall picture is disappointing.”
In December 2016, the GOH withdrew its membership in the international anti-corruption organization the Open Government Partnership (OGP). Following a letter of concern by transparency watchdogs to OGP’s Steering Committee in summer 2015, OGP launched an investigation into Hungary and issued a critical report. The OGP admonished the GOH for its harassment of NGOs and urged it to take steps to restore transparency and to ensure a positive operating environment for civil society. The GOH — only the second Member State after Azerbaijan to be reprimanded by the organization — rejected the OGP report conclusions and withdrew from the organization.
In recent years, the GOH has amplified its attacks on NGOs – including transparency watchdogs – accusing them of acting as foreign agents and criticizing them for allegedly working against Hungarian interests. This anti-NGO rhetoric endangered the continued operation of anti-corruption NGOs crucial to promoting transparency and good governance in Hungary. In 2017, Parliament passed legislation that many civil society activists criticized for placing undue restrictions on NGOs, including compelling organizations to register as “foreign funded” if they receive funding from international sources. In July 2018, the GOH passed legislation that criminalizes many legal activities, primarily conducted by international NGOs that assist migrants and asylum seekers. Although the legislation does not directly target transparency NGOs, transparency experts claim the GOH could use the overly broad definitions in the legislation to target virtually any NGO in Hungary.
Transparency International (TI) is active in Hungary. TI’s 20198 Corruption Perceptions Index rated Hungary 70 out of 180 countries. Among the 28 EU members, Hungary was tied for 26th place with only one other member state scoring lower. TI has noted that state institutions responsible for supervising public organizations were headed by people loyal to the ruling party, limiting their ability to serve as a check on the actions of the GOH. After the GOH amended the Act on Freedom of Information in 2013 and 2015, TI and other watchdogs note that data on public spending remains problematically difficult to access. Moreover, according to watchdogs and investigative journalists, the GOH, state agencies, and SOEs are increasingly reluctant to answer questions related to public spending, resulting in lengthy court procedures simply to receive answers to questions. Even if the court orders the release of data, by the time it happens, the data loses significance and has a weaker impact, watchdogs warn. In some cases, even when ordered to provide information, state agencies and SOEs release data in nearly unusable or undecipherable formats.
U.S. firms – along with other investors – identify corruption as a significant problem in Hungary. According to the World Economic Forum’s 2017 Global Competitiveness Report, businesses considered corruption as the second most important obstacle to making a successful business in Hungary. The U.S. Department of Justice announced in 2019 that Microsoft Hungary, a wholly-owned subsidiary of Microsoft Corporation, agreed to pay an $8.7 million Department of Justice fine and an additional $16.6 million fine to the U.S. Securities and Exchange Commission for violations of the Foreign Corrupt Practices Act in Hungary. According to the investigation, Microsoft admitted that senior executives at Microsoft Hungary convinced Microsoft executives to issue deep discounts on Microsoft products to local resellers who then sold the products to the GOH at full price. DOJ stated that resellers used the difference for “corrupt purposes,” and were falsely recorded as discounts. Media reporting on the case note that of the four top Microsoft executives dismissed over the corruption allegations, two subsequently found employment with the GOH. Despite the U.S. findings, the Hungarian prosecutor’s office has not pursued charges against any of the Hungarians involved in the scheme.
State corruption is also high on the list of EC concerns with Hungary. The EC Anti-Fraud Office (OLAF) has found high indices of fraud in EU-funded projects in Hungary and has levied fines and withheld development funds on several occasions. Over the past few years, the European Commission (EC) has suspended payments of EU funds several times due to numerous irregularities in Hungary’s procurement system. In December 2016, after completing an investigation into the construction of the EU-funded Budapest M4 metro line, OLAF discovered that contracts valued at more than USD 1 billion had been affected by corruption and determined that Hungary should return USD 240 million to the EU. In a January 2018 report, OLAF recommended Hungarian authorities investigate a high-profile corruption case linked to PM Orban’s son-in-law, whose firm the report alleges was fraudulently awarded EU-funded public contracts by local municipalities in Hungary. OLAF requested the GOH return USD 54 million to compensate for the amount of misused EU funds. In November 2018, Hungarian authorities announced they were closing the investigation, claiming to have found no evidence of a crime. In February 2019, the GOH withdrew its request that the EU fund the controversial projects.
TI and other anti-corruption watchdogs have highlighted EU-funded development projects as the largest source of corruption in Hungary. A TI study found indices of corruption and overpricing in up to 90 percent of EU-funded projects. A 2016 study by Corruption Research Center Budapest (CRCB) based on public procurement data from 2009-2015 revealed that the massive influx of EU funds reduced competition and increased levels of corruption risk and overpricing in public procurements. According to the study, EU-funded tenders perform poorly with regard to corruption risks, competitive intensity, and transparency, compared with Hungarian-funded tenders. Besides their positive impact on GDP growth and development, EU funds in Hungary contribute to the system of political favoritism and fuel crony capitalism, the study concluded. A September 2018 CRCB report found – after analyzing more than 120,000 public procurement contracts of the 2010-2016 period – that companies owned by individuals with links to senior government officials enjoy a preferential treatment at public tenders and face less competition than other companies.
Resources to Report Corruption
GOH Office Responsible for Combatting Corruption:
National Protective Service
General Director Zoltan Bolcsik
Phone: +36 1 433 9711
Fax: +36 1 433 9751
Contact at “watchdog” organization:
Transparency International Hungary
Falk Miksa utca 30. 4/2
Phone: +36 1 269 9534
Fax: +36 1 269 9535