In the first weeks of the summer, investigators of OLAF, the EU-s antifraud office, visited Budapest and made inquiries about the state contracts that had been awarded under suspicious circumstances to energy company Elios Innovativ, then co-owned by Tiborcz.

Around the same time another EU body also started to look into the matter. In June, the European Commission’s Directorate General for Regional Policies launched an audit of Elios’ projects that were financed almost fully from EU funds. The audit’s goal is not only to find out what happened but also to impose sanctions for any potential abuse of EU money. The sanctions include the possibility that Hungary will lose some of the EU subsidies it is entitled to.

The contracts are being investigated by the Hungarian police too. The EU’s interest means, however, that the case involving a member of the Orbán family is examined from different angles and by organizations that are entirely independent from the Hungarian government.

Tiborcz sold his shares in Elios Innovativ in the spring of 2015 but the events investigated by the Hungarian and European authorities occurred mostly when he was still a co-owner of the company. Elios had won a series of state tenders in most cases without facing any competition. It was the execution of these tenders that first came under suspicion but the investigations also look into how Elios carried out the projects, including the inexplicably high prices it charged for some of its products.

OLAF confirmed months ago that it was conducting an investigation but hardly anything has been known about the procedure so far. The European Commission’s audit has not been reported until now. Although the Hungarian government and the authorities are aware of some aspects of these investigations they declined to give any official information. Direkt36, however, learned new details of both EU inquiries from sources familiar with them.

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Brussels reads the news

In Hungary, Elios Innovatív first drew attention back in 2011 (then the company was called E-OS Innovatív) by winning state contracts as a politically connected company. The scrutiny has intensified since 2014 when the company started to win tenders of public street lighting projects that were launched in several towns as part of a countrywide program. This program is almost entirely financed by the EU so the series of winning and the suspicion of irregularities attracted Brussel’s attention as well.

It was OLAF that made the first move. The Brussels-based office, which is responsible for the protection of EU’s financial interests, launched an investigation into the Elios projects in January 2015, according to OLAF’s Press Office. OLAF has not disclosed any details about what prompted the investigation but, according to its publicly available guidelines, the procedures can be based both on reports received from outside sources an on information gathered by OLAF’s staff.

The latter was the case with the Elios investigation, according to a source familiar with the procedure, but OLAF also received several external complaints as well about Elios and the Hungarian street lighting projects.

In February 2015, Csaba Molnár, a Hungarian member of the European Parliament from the opposition Democratic Coalition party, sent a letter to Giovanni Kessler, OLAF’s director general, describing how Elios multiplied its revenue in only a few years just as it was being awarded valuable state contracts, mostly of projects funded by the European Union. Molnár argued that the company’s rise is in itself suspicious, given that “it’s co-owned by the prime minister’s son-in-law.”

OLAF was also following Hungarian press reports, including Direkt36’s stories that pointed to potential wrongdoings. The investigators therefore knew of the suspected conflict of interest surrounding some of the procurements awarded to Elios. As Átlátszó reported, in several cases the public procurement announcements were prepared by a company, whose co-owner also had shares in Elios. OLAF was also aware of the Direkt36 story exposing that so many contracts could be awarded to Elios without any competition because the tenders contained such specific requirements that no other company was able to meet them.

In the meantime, OLAF received another report from Hungary. In April, András Lukács, president of the Clean Air Action Group, a Hungarian activist organization, sent a letter to the European Commission, arguing that, based on some economic analyses the EU’s funding system helps the erosion of Hungary’s democracy because a big chunk of this money ends up in the hand of businessmen close to whoever is on government. This distorts the market significantly, Lukács argued.

Lukács’s letter listed several examples, including the spectacular rise of Tiborcz’s company and its share in state contracts. A few weeks later, he got a response from an official of the European Commission who told him that “concerning the possible misuse of EU funds, your email has been forwarded to the European Anti-Fraud Office (OLAF), which is responsible for conducting investigations in the field of the protection of the EU financial interests.”

Well-prepared investigators

At this point it was still not publicly known that OLAF was investigating Elios’ contracts but the office’s investigators had quietly made some progress.

In June, they visited Hungary and met an opposition politician who had turned to OLAF with other matters in the past. This meeting was not dedicated specifically to the Elios investigation, however they also discussed it as well. According to the politician, who asked not to be named because the meeting was confidential, OLAF officials appeared to be “very well-prepared of the details of the Elios-case.” They had already got in contact with the Hungarian authorities investigating the street lighting projects and got access to their files, the politician said.

This Hungarian investigation was prompted by a report filed by András Schiffer, co-president of LMP, an opposition party, based on Átlátszó’s article detailing the suspected conflict of interest.

Who took on the mafia

The politician who met the OLAF officials noted that based on the investigators’ remarks he had the impression that OLAF “has limited capacities to deal with the high number of Hungarian cases.” Still, OLAF’s head has made it clear to the public that he pays special attention to Hungary.

On June 22, Giovanni Kessler, OLAF’s director general, travelled to Budapest to personally discuss some investigations with Péter Polt, Hungary’s prosecutor general. Polt received Kessler, a former prosecutor himself, in the headquarters of the Prosecutor’s Office.

Kessler, an elegant man known for being verbose, served for more than ten years as a prosecutor in his homeland, Italy. He spent a third of this time with fighting the mafia, proving he does not fear taking on powerful interests.

In the mid-90s he asked to be placed in Sicily, on the frontline of the anti-mafia fight. This was considered a highly dangerous commitment at the time. The mafia had assassinated several prosecutors in the previous years. Kessler was aware of the risks, according to a local press report guards protected him at a press conference where he announced the indictment of mafia figures.

Almost no details have been disclosed officially about what Kessler and the Hungarian prosecutor general discussed at their meeting. OLAF and Polt’s office declined to say what cases were on the agenda and offered only vague and slightly contradictory statements about the meeting.

“The parties exchanged information on the status of pending cases and discussed required measures and information flows in certain matters,” said the Prosecutor General’s office in a statement published on the day of the meeting. OLAF, however, now told Direkt36 that Kessler and Polt discussed only such cases that had already been closed by OLAF. In response to a new round of questions, the Prosecutor General’s office said that they stand by the original statement. They declined to address the contradiction between the two versions.

According to three sources based in Brussels with indirect knowledge of the meeting the case of the street lighting projects were also discussed by Polt and Kessler. The sources – of whom two have links to the Hungarian opposition – asked for anonymity because they all got the information in a confidential way.

Early fall, Kessler had a meeting with officials in Brussels where his visit to Budapest was also discussed. A source familiar with the details of this talk said that the director general did not say which topics were covered but he made suggestions that Elios was one of them. “Kessler did not say it openly that they discussed the street lighting projects but it was obvious from the context that he and Polt talked about this issue,” said the source.

Another source said an official from OLAF told him that Kessler talked about the Elios-investigation with the Hungarian prosecutor general. A third source – based also in Brussels but with no ties to Hungary – who is familiar with OLAF’s investigation on Elios also said that his understanding is that Kessler brought up the case in his talk in Budapest.

Special attention

Whatever was discussed at the meeting, Kessler made it clear that his visit to Budapest carried a special meaning. A few weeks later he gave an account of OLAF’s work in front of a European Parliament committee and he said that it does not happen often that he delivers reports of individual cases to the head of a national authority in a member state.

“Normally we don’t [do this]. If I have to deliver personally, taking a flight, going in the morning to Budapest and coming back in the afternoon as I did [in this case] I couldn’t even work in my office,” said Kessler. He added that he made an exception because of the importance of the cases and also because Hungary is one of the countries with the highest number of OLAF-investigations.

According to OLAF’s most recent report, in 2014 they concluded 13 investigations in Hungary. There was only one country with a higher number: Romania, where 36 cases were closed.

OLAF’s investigation into Elios’ projects is remarkable because it is conducted in parallel with an investigation carried out by the Hungarian authorities. “In this case, OLAF’s role could be not to allow the Hungarian prosecutors sweep it under the carpet,” said Benedek Jávor, an MEP from the opposition party Dialogue for Hungary, who also filed a report about Elios to OLAF. That report was based largely on a Direkt36 story that showed that Elios charged inexplicably high prices for some products in the street lighting projects.

Another Hungarian official based in Brussels, who also has links to the Hungarian opposition, said that an OLAF-official told him in September that the Elios-investigation is considered a “a case of high importance ” inside the anti-fraud office. The source asked not to be named because his conversation with the OLAF-official was confidential.

Even though OLAF has relatively wide authority to conduct investigations – including the right to carry out on-the-spot checks – it has limited power when it comes to holding responsible those who are suspected of wrongdoings. The only thing OLAF can do is to give proposals to other authorities.

They can submit financial recommendations to EU institutions that seek the recovery of misused EU money. They can also turn to the national authorities with judicial recommendations, suggesting them to take judicial actions. However, it is entirely up to the national authorities whether they take OLAF’s advice.

Another investigation

There is an EU procedure in progress that can have more immediate consequences. In June 2015, the European Commission’s Directorate General for Regional Policy launched an audit into the procurements awarded to Elios Innovatív, Direkt36 learned from a Commission source acquainted with the audit.

The Commission has notified the Hungarian authorities, namely the National Development Ministry which is in charge of the street lighting projects, of the audit. The government declined to answer questions on the procedure, saying that EU regulations prevent them from disclosing information about ongoing audits.

According to the Commission source, the audit is still in a so-called contradictory phase. This means that the Commission discusses the matter with the national authorities before coming to a final conclusion.

The payments for the projects under investigation, however, have stopped already. The commission source says that this halt was not initiated by Brussels but the Hungarian authorities that have not submitted any payment claims to the Commission for the projects. The Hungarian government declined to answer any questions regarding this decision.

The Commission also asked the Hungarian authorities to take “certain corrective actions.” The nature of these actions has not been disclosed by the Commission sources but “corrective actions” mean financial penalties in the terminology of the Commission audits.

When a corrective action is taken, a part of the EU funds allocated for the impacted program is taken back by Brussels. “In average, it is 5 percent but it can be much higher,” said Gabriella Nagy, head of Transparency International Hungary’s public spending program.

Even a few percentages can amount to hundreds of millions or billions of forints. Through a subset of the Environment and Energy Program, of which the projects won by Elios are funded, 19 billion forints (61 million euros) was distributed to public lighting developments. Elios won the tenders in more than two dozen cities, acquiring contracts worth of 10 billion forints (32.1 million euros). The company has not responded to Direkt36’s questions, including how much of this they have received so far.

Hungary could lose part of the funding for some of these street lighting developments if the European Commission closes its audit with taking corrective measures. Even though governments often have room to avoid some of the sanctions with some manoeuvers, in this case the chances for this are weak.

An EU development cycle runs for several years and during this cycle the member states have the possibility to save some of the money affected by corrective actions. The governments can ask the European Commission’s permission for reallocating the money for other programmes instead of paying it back to the EU budget. This, however, will not be an option now because the current cycle is about to end.

“If a corrective action will be taken then this money will be lost. If this had happened at the beginning of the development cycle, the government would have the option to move the money to other fields. Now they do not have this possibility,” said Gabriella Nagy of Transparency Hungary, adding that therefore the money “will go back to the EU budget.”

Gergő Sáling contributed to this article.
Photo: Dániel Németh, courtesy of Magyar Narancs
For information on companies, we used the databases of Ceginfo and Opten.