Hungary's Corruption Scandal Is Becoming a Total Soap Opera

Hungarian Prime Minister Viktor Orbán has rejected corruption allegations that led to the US banning six senior Hungarian officials from entering the country, in a series of events that has plummeted US-Hungarian relations to their lowest point since the Cold War.

A US Embassy document published on Thursday outlines American fears of mass tax fraud, institutionalized corruption, and a lack of whistleblower protection in Hungary. It is the latest development in a diplomatic standoff that has seen Hungarian tax officials accused of attempting to bribe US companies and a none-too-private feud develop between Hungary's indignant leader and its top US envoy.

On Friday, Orbán defended Hungary's US-banned tax authority chief, Ildikó Vida, despite reports linking his long-standing associate with an unexplained luxury property acquisition and tax avoidance via a shell company.

Vida initially greeted the news of her entry ban by taking an unannounced "holiday." She has since reappeared and confirmed her place on the US blacklist, the only official so far to admit involvement.

"I am a tigress type, and I have two families: one my closest family and the other, NAV itself," she told the government-friendly newspaper Magyar Nemzet, using the initials for the Hungarian equivalent of the IRS.

But Orbán said he would "think twice" before accepting Vida's resignation, as he did not want to set a precedent that would remove an official based on a "groundless accusation" made by a foreign country.

The impulsive Hungarian PM — once dubbed "Putin's mini-me" — also called for the dismissal of America's senior diplomat in Hungary, M. André Goodfriend.

"Any ambassador presenting a paper like that to a government should be withdrawn from their post the following day," Orbán said.

Goodfriend, a career diplomat, is the current chief of mission to Hungary while it awaits the arrival of ambassador-designate Colleen Bell, a fundraiser for the Democratic party who produces the American soap opera The Bold and the Beautiful. Bell has yet to show up in Budapest, perhaps partly due to her poor performance when Senator John McCain grilled her on Hungary before the Senate Foreign Relations Committee in January.

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Goodfriend has become a high-profile figure in Hungary in recent weeks, not least due to his sanguine reaction when Vida paid a surprise embassy visit with a lawyer and film crew in tow. The video of the visit soon went viral, leaving Hungarians to wonder whether a senior bureaucrat who doesn't speak English should make unannounced trips to a high-ranking US envoy.

The pro-government television channel HirTV took down the video after a couple of days, but it has since resurfaced elsewhere. Vida's comment "Tolmácsot szeretnék kérni," — I would like to ask for a translator — became an internet meme. It has also been regarded as a symbol of how the Orbán government values loyalty over expertise, and of its rejection of the West.

HirTV had reported that social media pioneer Zsolt Várady had been arrested for possession of marijuana (0.19 grammes of it) in 2003 and that internet-tax protest organizer Balázs Gulyás had been involved in car accident. Both said they may sue the TV station, which also ran reports on the multiple arrests of activist Kinga Kalocsai. She responded by posting details of all of her arrests on Facebook, noting that they all had taken place at demos againstthe Fidesz government.

Later on Friday, Orbán snubbed Goodfriend when they both attended the local branch of the American Chamber of Commerce's (AmCham) celebration of "25 years with Hungary" at Budapest's Parliament building. The Oxford-schooled politician made the only non-English speech of the evening, saying "one of the few privileges of being prime minister is being able to make a speech in your own language," as Hungary's anglophone CEOs and politicos scrambled for their live translation headphones.

In a twist that even The Bold and the Beautiful may have rejected for being a little too corny, as Orbán delivered his speech, Cargill, the name of one of the evening's sponsor companies involved in the entry ban scandal, was projected on a huge screen behind him.

VICE News spoke to Hungarian tax official-turned-whistleblower András Horváth, who went public a year ago with allegations of hundreds of millions of dollars worth of fraud in the country's grain industry.

"When the US issued the travel ban, I immediately recognized it as referring to the scandal I had uncovered, and I didn't sleep for three days," Horváth said.

According to the dossier compiled by Horváth, the no-entry case concerns an alleged attempt by the Hungarian tax authority to bribe US grain companies Cargill and Bunge Zrt., by offering tax breaks in exchange for a "consultancy fee" worth about $8.2 million, to be transferred to a foundation, "probably the state-funded think tank Századvég."

A third company, a direct competitor of Cargill and Bunge Zrt., was supposed to receive prohibitive fines. But, as Horváth explained, NAV's plan backfired. The US firms reported the Hungarian tax agency to US authorities. The Hungarian tax officials, Horváth said, also became "visibly terrified" when they researched the company they had planned to fine.

According to Horváth, the US intended to issue the travel bans in July, but waited until after the country's municipal elections were held in October. Horváth said the current situation is a "golden opportunity" to root out the systemic corruption at the NAV.

"The NAV is on its back right now," he said.

During an interview at the US embassy in Hungary, Goodfriend told VICE News that Washington let the Hungarian government know in advance that the six tax officials would be slapped with travel bans.

"We are serious that corruption is harmful to democratic societies: that is why we stop corrupt officials from entering the country," he said.

Goodfriend initially refused to confirm that Horváth's evidence was discussed at a meeting with Hungarian officials, but later conceded he "did mention the range of sources available to the government… including whistleblowers."

Goodfriend told VICE News that the US had intended to keep the matter private and only went public after a claim was leaked to a business daily with close links to the government that entry bans had been imposed in retaliation for Hungarian tax probes into US firms.

A Hungarian diplomat, speaking on condition of anonymity, told VICE News that the country's foreign ministry lacks experienced staff, which may have contributed to its questionable handling of the scandal.

Hungary has sacked around 75 percent of its ambassadors and most of its foreign ministry staff this year, replacing them with less experienced people, who are unquestioningly loyal to Orbán.

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Earlier this year, János Martonyi — a respected statesman with over four decades of experience — stood down as Hungary's foreign minister, leaving the diplomatic crisis in the hands of his successor, 36-year-old Péter Szijjártó. The diplomatic source told VICE "there is a huge competency problem: Szijjártó is neither educated nor experienced enough."

Goodfriend said the diplomatic standoff "has been brewing for years," recalling that US Secretary of State Hillary Clinton met Orbán in Budapest in summer 2011 and warned him then about the "democratic backslide" that was already taking place.

"That was a significant statement from the US secretary of state on civil society, the rule of law, the rolling back of democracy — which should have been treated seriously at that stage," Goodfriend said.

Orbán firmly rejected Clinton's suggestions and continued on a dizzying legislative drive that saw his party pass more than a thousand laws in the past four years. The country's election rules were rewritten, and judges friendly to the populist nationalist party were appointed to the Constitutional Court.

After Orbán's re-election in April, which OSCE observers called "free but not fair," the government turned its sights on liberal NGOs. In September the Government Control Office raided the offices of the NGO Okotárs, which administers the disbursement of Norway Grants — a scheme through which the non-EU country donates to Europe's less developed states — to other NGOs, some of which are critical of the government. These include Transparency International and Átlátszó, the investigative journalism website that had helped Horváth to go public on the mass corruption at NAV. According to the Hungarian government, it should have control of all the "public funds" from Norway, and charges have since been brought against Okotárs, whose CEO was recently honored by Obama for what Goodfriend called "extreme courageousness in difficult circumstances."

NAV has also frozen the tax numbers of several of these critical NGOs, rendering their operations impossible.

Goodfriend insisted that the travel bans are not connected to Hungary strengthening its energy ties with Moscow and opposing EU sanctions on Russia. But it is undeniable that Orbán has been moving closer to the Kremlin. With no prior announcement he signed a €10 billion ($12.5bn) loan agreement with Moscow in January, which will finance the Russian upgrade of Hungary's nuclear power plant at Paks. Parliament has also passed a law that circumvents EU legislation to allow the planned construction of the Kremlin-backed South Stream gas pipeline, which the EU opposes and would enable Russia to bypass Ukraine and pump natural gas under the Black Sea to Europe. As well as halting gas transits to Ukraine, Orbán has also said the EU "shot itself in the foot" by imposing sanctions on Russia.

"Ukraine came onto the screen last year, but these issues and concerns were on the radar long before another way of pushing Russian gas," Goodfriend said. "However, Hungary should back European Union sanctions against Russia."

Hungary now joins Russia, North Korea, Iran, Belarus, Myanmar, and Sudan as countries slapped with US travel bans. It is the first EU or NATO country to have officials banned under a 2004 US proclamation that aims to restrict entry to corrupt foreign functionaries.

Hungarians were to hold nationwide demonstrations on Monday evening as part of a "Day of Public Outrage." The protesters are demanding the resignation of Vida and three other NAV officials rumored to be on the US entry blacklist. They also want an independent investigation of NAV to be conducted by the European Commission, rather than Vida — who the government has appointed to lead the probe into the tax scandal.

Follow Dan Nolan on Twitter: @nolan_dan