Hungary’s highest-profile corruption case lifts the veil on how Orban's regime really operates

Hungary’s highest-profile corruption case lifts the veil on how Orban's regime really operates
Gyorgy Schadl, the head of the Hungarian Chamber of Bailiffs (MBVK) escorted to the courtroom in the preliminary hearing of the corruption case. / Nepszava
By Tamas Csonka in Budapest February 20, 2023

A landmark corruption trial began last week of top Hungarian justice ministry official Pal Volner and his alleged accomplices in a case that throws a rare glimpse of the rampant graft under Prime Minister Viktor Orban’s autocratic regime.

Volner and Gyorgy Schadl, the head of the Hungarian Chamber of Bailiffs (MBVK), are among 22 people charged with offences including corruption, property crimes, and money laundering. Volner and Schadl deny all the charges.

The documents and wiretapped conversations  in the case unveil a country run in a mafia-style way, where state bodies collaborate with criminals and the justice system covers up any involvement of high-ranking officials.

The European Commission and opposition parties have long criticised Orban’s government for failing to investigate the country’s widespread corruption, and ignoring the frequent allegations made on independent media news sites.

The prevalence of corruption as a motivation for many top officials and as a grease for the wheels of the regime has turned Hungary into the EU's most corrupt country, according to Transparency International. No country globally has fallen further in the ranking in the 12 years of Orban’s rule than Hungary.

The former justice ministry state secretary is the highest ranking Fidesz official to be put on trial for corruption since Orban’s return to power in 2010.

Last year the EU demanded that Orban’s regime demonstrate more seriousness about tackling corruption or risk losing EU funds that are being put in peril. Hungary is still negotiating to release the funds.

This case therefore offers the Orban government a chance to show its seriousness, though critics argue that much more senior figures in the case have been carefully kept out of the investigation by the regime-appointed prosecutors.

Opposition MPs say it is unlikely high-ranking cabinet ministers will be indicted or even testify as witnesses as the prosecution closed down the investigation swiftly in circumstances that could have proven their connection to the case.

Accidental discovery of the scheme

The preliminary hearing kicked off on February 17 amid high security and massive media attention. The small Budapest courtroom was full of journalists and observers.

Schadl was escorted to the courtroom in handcuffs by prison guards in ski masks, sporting a sleek jacket, Louis Vutton tennis shoes and wearing a disposable medical mask.

The prosecution has proposed that Volner receive an eight-year prison term and a HUF25mn (€65,000) fine, while it is seeking a 10-year prison sentence and a HUF200mn fine for Schadl.

Hungary’s National Defence Service launched the inquiry and the secret wiretapping of the suspects in 2017 after it learnt about the case as part of a separate investigation into corruption allegations against a senior official of the tax authority NAV.

The public first learned about the case in December 2021 when police arrested Schadl at Budapest Airport allegedly trying to flee to Dubai with his wife. He was travelling with a diplomatic passport granted by the foreign ministry. 

For weeks authorities tried to keep the name of the "high-profile" politician involved in the case secret, but after pressure from independent media and opposition MPs, they eventually came out with a statement naming Volner.

The former state secretary resigned from his post in December 2021 and the Fidesz-led parliament lifted his immunity. Nevertheless, he held on to his job as a lawyer until October 2022 and remains at liberty. 

Attempts by Hungarian opposition to have the government remove or even suspend Schadl from his post have failed. Fidesz lawmakers blocked proposals in November to replace Schadl, who has been in legal custody for more than a year.

The arrests came just five months before the April general election, but the case caused no repercussions in the campaign as Hungarian voters have become inured to corruption.

Leaked wiretapped telephone conversations then began to surface in Hungarian media in mid-2022 and documents from the investigation earlier this year, unveiling a system of favouritism entrenched in all levels and branches of government

The trial could last years, given the number of people arraigned and the likely challenges as the cases progresses, observers noted.  The documentation of the entire investigation is about 1,700 pages long, while the indictment has 72 pages.

Hungary’s justice system, facing an acute labour shortage, is overwhelmed by cases and it is not rare to see legal proceedings drag on for as long as a decade.

Bailiff licence goldmine

Prosecutors allege that Schadl regularly bribed Volner until July 2021 and used his influence to secure the appointment of bailiffs of his choosing in exchange for kickbacks. Volner as state secretary was also in charge of overseeing bailiffs.

According to the indictment, Schadl paid Volner a total of at least HUF83mn (€217,000) in bribes between May 2018 and July 2021. Volner then exercised his influence as state secretary and deputy minister in Schadl's interest.

Schadl, 41, allegedly used his power to sell bailiff licenses for kickbacks and threatened people to withdraw their licenses if they had not paid him.

Holding licenses was a goldmine for bailiffs with hundreds of millions of forints of annual revenue. In six years, Schadl amassed a fortune estimated at HUF1.5bn, including some two dozen properties.

Ironically the licensing of bailiffs was part of a reform in 2015 to improve the transparency of the sector after many complaints of unjust evictions. The reform required a law degree for holding the position and curbed bailiffs' autonomy. It also imposed tighter supervision by the justice ministry, which is responsible for the appointment of bailiffs based on the recommendation of the head of MBVK, led by Schadl from the start. This reform allegedly enabled the corrupt scheme to work.

At Friday's preliminary hearing at the Budapest Municipal Court, prosecutor Gabor Boros said Volner, in exchange for the bribes, had moved to appoint bailiffs pushed by Schadl and obtain state support for one of Schadl's companies. He said Schadl had obtained more than HUF924mn in kickbacks from the bailiffs he helped get appointed.

On the first day of the trial, four defendants confessed guilty, including a local government administrator, who helped Schadl get permission for a terrace at his lakeside summer residency in exchange for a HUF500,000 kickback.

Documents in the case show that neither Volner nor Schadl went about their business without any fear of being caught. On one occasion, Schadl allegedly handed over the regular monthly HUF3mn kickback at the entrance of the Ministry of Justice building.

Volner also openly acquired a 300 sqm home in an auction, which he passed on a company owned by his son.

In a bid to improve transparency, the tax office moved the auctioning off of foreclosed homes to the internet. The auctions were often terminated early after the website was brought down by floods of requests (DDoS attacks).  In that case, the last offer would stand valid, according to one of the many leaked investigative documents

Schadl, as head of the MBVK with a bailiff office on his own, also made hefty gains from his own office, which was allegedly complemented by the kickbacks from people he got appointed to positions. His property portfolio swelled to nearly two dozen in a few years after taking office.

Schadl bought at least nineteen apartments, business premises, plots of land, or cellars, according to the prosecution. In one conversation with a friend, he is heard bragging about a new luxury seaside home in La Manga, Costa Calida, Spain, for which he had paid nearly half a million euros.

Around half of his residential property, seized by authorities, was previously owned by the Fidesz-led local district government in the Fifth District, many acquired when Antal Rogan was mayor of the affluent downtown district.

Fidesz cronies often received tips on foreclosed properties before they went for auction or in many cases it was the local government that sold off its stock at ludicrous prices in tenders only available to a closed circle of people.

Former MP Peter Juhasz unveiled shady dealings during Rogan’s term, after which he became a target of an unprecedented smear campaign by the government and its media. Juhasz eventually won more than 100 libel cases against a dozen pro-government outlets. Broadcaster TV2 in one case refused to release the full text of apology after losing a string of defamation cases, saying it would take more than the entire length of its 45-minute-long news programme.

Authorities have seized assets of the former state secretary, which did not go down well with Volner’s wife. In a wiretapped conversation Volner's wife is heard complaining: "They're rotten bastards, they're rotten rats, they are simply trying to make you say something about someone." Volner then replies: "Maybe I will."

While in detention Schadl wanted to contact "his associates to move forward" his case. He told his wife that if he did not receive help, he could turn in some 60-70 MPs. 

Comments like these suggest that the operation of the scheme was more broad-based and organised at a higher level, according to local media. 

Schadl’s wife is also being investigated in a separate case. Helga Baranyai, who had her own bailiff office is accused of forging documents involving the auction of property for just HUF38mn while the estimated market value was around HUF450mn

Schadl has also allegedly used his influence in academia (being an associate professor at a university himself) to help politicians pass university exams. The list included a relative of Volner and a young politician Adam Nagy, the chief of staff of Rogan, who now heads the cabinet office and oversees Hungary’s intelligence services and communication at the same time.

The president of MBVK allegedly colluded with high-ranking judicial officials in a bid to remove a bailiff from his post. In one wiretapped conversation he is heard cursing and speaking in foul language against the judge who ruled against him.

Schadl even contacted the president of the National Office for Judiciary (OBH) Gyorgy Senyei, who arranged a meeting with Peter Tatar-Kis, president of the Metropolitan Court. In the wiretap, Tatar-Kis told Schadl that he can’t fire the judge, but can "make him feel uncomfortable at work".

Senyei later confirmed to media that he spoke with Schadl on several occasions, but these had not "involved anything unlawful in purpose or content". He has ordered an investigation into the meeting between Tatar-Kis and Schadl, but the report was classified as confidential.

The missing threads

At one time Schadl asked Volner to get legislation passed by the justice ministry and had initiated a meeting with Justice Minister Judit Varga. There is no evidence compiled during the investigation that Schald actually met with Varga.

Independent MP Akos Hadhazy, who on his Facebook site uncovers corruption and the misuse of EU funds on a weekly basis, believes that one meeting took place, but says the investigation was closed prematurely in cases in which there was the possible involvement of high-ranking officials.

Schadl settled conflicts by initiating disciplinary proceedings against renegades, who were planning to mobilise their contacts against him, Hadhazy alleges, adding that he wanted to get ahead of this by asking Volner to arrange an appointment with the minister.

According to documents obtained by Hadhazy, Varga promised to "bounce the troublemakers". If that was the case, Varga collaborated with Schadl, he says. The former MP of the green party LMP says that the prosecution is also to blame for not sending a subpoena for deposition to Varga to testify as a witness if not as a suspect.

The justice ministry does not comment on pending court proceedings, Volner’s successor, Robert Repassy, said in reply to inquiries by other opposition MPs.

According to independent media, there may have been closer ties than previously suspected between the jailed president of MVBK and Nagy.

According to the diary of Schadl’s driver, who is also one of the suspects in the case, he had to pick up a Mini Cabrio from a car dealership and drive it to Nagy. There is a note in the diary dated October 2021: "HUF1.2mn in the glove compartment."

Schadl had earlier allegedly arranged the university exam of Nagy. 

In one of the first wiretapped recordings, an associate of Schadl’s associates claims to have talked to "Toni, Barbi and Adam" about a 35-year concession tender. The government had announced a tender to hand over the management of about 2,000 km of motorways and public roads to a 35-year concession contract in mid-2021. The winning bidder was the consortium led by private equity fund Themis, linked to Orban’s childhood friend Lorinc Meszaros, Hungary's most powerful oligarch.

Local media linked the surnames of the people in the short conversation to Rogan, his young wife Barbara and Adam Nagy.

Observers say it is very unlikely that the corruption case could be linked to people higher in the cabinet such as Rogan as the prosecution closed down the investigation in time.

It is also very unlikely that compromising material compiled by the National Defence Service that might implicate Rogan's possible role could surface as it is Rogan who has overseen the operation of all secret services since May 2022.

The liberal Momentum party has turned to the police to investigate what they call selective and politically self-censoring practices of the prosecution.

Chief prosecutor Peter Polt, a former Fidesz MP, is widely accused of covering up corruption scandals close to the ruling party and its business elite.