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Tuesday
Nov182014

Hungary protesters: ‘Fire our tax collector the Americans call corrupt’

Ildikó Vida, chief of Hungary's tax authorityMore than 10,000 Hungarians protested in front of the national Parliament in Budapest Monday evening. Besides expressing their anger toward Prime Minister Viktor Orban's government, their main demand was that the head of the tax authority, Ildikó Vida, resign.

The protesters were angered because the Hungarian agency collecting their taxes is led by a person who has been denied entry to the U.S. based on Presidential Proclamation 7750. They do not want to pay taxes to someone considered corrupt by the Amerian government.

Proclamation 7750 is an executive order signed by President George W. Bush in 2004, giving the State Department the power to exclude foreign kleptocrats, their families and friends from the United States.

News broke in Hungary a month ago that certain government officials were subject to visa bans based on proclamation 7750. A few days later André Goodfriend, the Chargé d'Affaires of the U.S. embassy in Budapest, confirmed that six current or former officials were banned from the United States.

The visa ban and the corruption charges were extensively covered by Hungarian media in the past month. Journalists tried to find out who was on the list, though most of those mentioned in the news stories quickly denied that they were affected. Vida is the only one who publicly admitted to being among those banned but she denied the corruption charges.

The Hungarian government's main reaction to the visa bans was to say it would act on the corruption allegations by starting investigations if the U.S. embassy provided evidence for its decision. The government's wish was granted last week: the U.S. embassy handed over a two-page document to the Ministry of Foreign Affairs and Trade (MFAT). The ministry decided to publish the document after news about its existence was leaked by one of the opposition parties.

The document is a timeline of communications between the U.S. embassy and Hungarian officials. According to the document, the embassy first raised concerns about agricultural VAT fraud hurting U.S. companies and the non-transparent awarding of tobacco sale licences to people close to the governing Fidesz party in October 2013. The embassy was clearly not satisfied with the answer. "Concerns were dismissed by the [Hungarian government], whose representative offered no substantive response to questions."

The document goes on to mention four more meetings with Hungarian government officials that resulted in no real steps to curb corruption.

The embassy document mentions that "two U.S. agribusinesses noted that they were losing tens of millions of dollars per year due to unfairly priced products which were involved in VAT fraud.” Hungarian news site index said one of these companies is Bunge, a New York-based producer of cooking oil.

Index said that the State Department has been hearing about the VAT fraud for at least two or three years and was aware of how much harm it caused to those American companies that are following the rules and do not take part in the scheme.

According to Index, people close to the government approached Bunge, suggesting that if the company financially supported a foundation friendly to Viktor Orbán's government, the tax authorities would not examine its books. Index speculated that this might have been when Bunge notified the U.S. embassy in Budapest.

One of the managers of Bunge confirmed to the news portal that in 2012 the company was trying to create a group lobbying for lower VAT in order to lower the incentive for tax fraud. The result was a study written by Ernst & Young claiming that the VAT fraud takes more than $622 million of taxes out of the Hungarian government's coffers every year. Bunge also offered a partnership to the Hungarian government to fight the VAT fraud. Apparently, nothing came of it and the lobby group no longer exists.

The Hungarian arm of Bunge, however, told the Wall Street Journal later that "concerning the claim reported by different journalists that Bunge Zrt. is linked to the recent refusal of U.S. entry visas for Hungarian officials, we would like to state that the facts known by Bunge Zrt. do not substantiate such a claim.”

Another source mentioned by the two-page U.S. embassy document is András Horváth, a former Hungarian government employee who became a whistleblower last year. Horváth said there is a list of companies that the tax authorities would not examine. And if a government employee started to look into their dealings, they would be stopped. The U.S. embassy said in the document "that Andras Horvath claimed as much as 1 trillion HUF ($4.5 billion) was lost per year to VAT cheating."

After listing five meetings with Hungarian government officials that resulted in no concrete steps, the document ends with the short entry: "October 2014: CDA informed MFAT of entry bans.”

Hungarian government officials tried to play down the document's siginficance. They said it contains no valuable information, it is not signed, it is not printed on paper with an official letterhead, and it has no official stamp on it. The day after its publication, Prime Minister Orban called it a scrap of paper in his regular Friday morning radio interview.

Hungarian media quickly explained to the public that this "scrap of paper” is what diplomats call a non-paper -- an important aid to negotiaions -- and that nobody should underestimate its significance.

________

Anita Komuves is a Hubert H. Humphrey Fellow at the University of Maryland, studying recent innovations in digital media and data journalism. She has been a reporter for Hungarian newspaper Népszabadság for 7 years.