Hungary

Hungary Corruption Report

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Snapshot

Hungary_250x163.jpgCorruption in Hungary presents a risk to business. Petty corruption is not widespread, but companies report that unofficial payments are sometimes necessary to resolve certain administrative tasks. Public procurement is vulnerable to irregularities at the local level because of strong informal relations between businesses and political actors. Hungary's Criminal Code forbids bribery in the public and private sectors, along with most other forms of corruption offences contained in international anti-corruption conventions. Criminal sanctions can be imposed on companies for acts of corruption committed by individuals working on their behalf, as well as if the individual carrying out the act is not prosecuted or convicted. There is no distinction between bribes and facilitation payments, and gifts and hospitality may be considered illegal depending on the intent and benefit obtained. The practice of bribery is widespread in Hungary. Anti-corruption enforcement gaps exist, especially in relation to foreign bribery cases.

Last Updated: October 2015
GAN Integrity

Judicial System

European_Commission.svg.pngJudicial corruption is not reported as a problem for doing business in Hungary, but there are concerns over the lack of judicial independence (EUACR 2014). Companies see the judiciary as relatively independent, but not very efficient in settling commercial disputes or challenging government regulations (GCR 2014-2015). Despite this, almost no companies view the courts as a significant constraint to doing business (ES 2013). Companies increasingly prefer mediation as a tool to settle commercial disputes in order to avoid lengthy court procedures (ICS 2015). Public corruption polls reveal that some citizens perceive corruption and abuse of power as being widespread in Hungary's judicial system, but almost none report paying bribes to judges (GCB 2013, SE 2014). Hungary has signed the New York Convention of 1958 and is party to the International Center for the Settlement of Investment Disputes (ICSID).

Police

The security sector in Hungary is not free from corruption (HRR 2014), however, the government has effective mechanisms to investigate and punish police corruption and abuse of power. In recent years, Hungary's National Protective Service (NPS) has carried out background checks among the police forces, and several cases were sent to the investigative authorities (HRR 2014). More than a third of citizens perceive police corruption and abuse of power as widespread, but none report paying bribes to police officers (GCB 2013, SE 2014). Despite this, the police services are considered reasonably reliable when protecting companies from crime (GCR 2014-2015), yet more than a third of businesses still pay for security in Hungary (ES 2013).

In one corruption case, a former nightclub mogul was charged for bribing police officers in return for refraining from any investigations into his 40 nightclubs in Budapest (HRR 2014). The case is still pending.

Public Services

There is a high risk of corruption in a few areas of the Hungarian public administration (NiT 2015). The burden of government regulation is considered high, and companies complain that some administrative procedures suffer from a lack of transparency, predictability and excessive red tape (ICS 2015). Companies report that unofficial payments and gifts are sometimes expected to resolve administrative processes, to obtain operating licences and utility services such as electricity and water connections (ES 2013, FE 2014, GCR 2014-2015).

Land Administration

Corruption in Hungary's land administration is not a significant obstacle for foreign investors, and property rights are reportedly well protected (BTI 2014). Very few companies report that bribery or gifts are needed to obtain building permits (ES 2013, FE 2014). Companies should note however, there have been complaints about a lack of transparency, regulatory unpredictability and corruption in the construction sector (ICS 2015).

Tax Administration

Corruption in Hungary's tax administration is not a problem for businesses, and no companies expect to offer gifts when meeting with tax officials (ES 2013). Nevertheless, tax rates and regulations are among the problematic factors to doing business in Hungary (GCR 2014-2015). The government has imposed several tax changes in recent years and has increased taxes on the banking, energy, telecommunications and retail sectors, leading to many foreign companies complaining of the unpredictability of Hungary’s tax regime (ICS 2015). Companies should note that the law explicitly prohibits the deduction of bribes as business expenses, and tax officials are obliged to report suspicions of foreign bribery to law enforcement agencies (P3R 2012).

A former employee of the Hungarian National Tax and Customs Administration (NAV) blew the whistle on corrupt practices within the administration. Reportedly, NAV had turned a blind eye on tax fraud committed by some of the biggest corporations, amounting up to USD 4 billion annually (NiT 2015). By the end of 2014, the prosecutor general opened an investigation into 150 NAV employees for alleged corruption (HRR 2014). In another case, the head of Romania's tax office, Ildiko Vida, resigned amid allegations of corruption. Vida was suspected by the US to be involved in corruption, and is now banned from entering the country. The government did not initiate any investigation into the allegations (Associated Press, July 2015).

Customs Administration

Corruption is not reported to be a problem in Hungary's customs administration. Corruption at the Hungarian borders is considered the least problematic factor for importing and exporting, and transparency and efficiency of the customs administration is regarded as being high (GETR 2014). Even though over a third of citizens perceive the Hungarian customs administration to be highly affected by corruption and abuse of power, none report paying bribes to customs officials (SE 2014).

Public Procurement

Hungary's public procurement system suffers from endemic corruption and therefore, poses high risks for foreign investors. Between 65-75% of public tenders are believed to be involved in corrupt transactions (BTI 2014), and the government has reportedly diverted significant public funds to people with close ties to the ruling elite (BTI 2014). More than half of companies expect to give gifts to procurement officials to secure government contracts (ES 2013). Local-level public procurement is particularly vulnerable to corruption due to lack of transparency and strong informal relations between local businesses and political actors (EUACR 2014). State-owned companies often have an advantage over private companies on public tenders (ICS 2015), and surveyed companies consider it likely for procurement officials to show favouritism when deciding on contracts (GCR 2014-2015). More than a third of businesses respondents believe that corruption has prevented their company from winning a public tender in Hungary (FE 2014), and systematic corruption within the sector has been found to add 20-25% to the costs of government procurement (ICS 2015).

The Public Procurement Act allows for procurement procedures to be initiated without holding an open public tender, as long as the value of the project does not exceed USD 647 thousand (ICS 2015). The law however, has been criticised for leaving ample room for corruption, as evidence suggests that government officers have broken down large projects in order to avoid holding a public tender (ICS 2015). Companies are highly recommended to implement special due diligence procedures to reduce the likelihood of encountering corruption in Hungary's procurement process.

Natural Resources

Corruption is not reported to be a significant obstacle to doing business in Hungary's natural resources sector, and no surveyed companies report being asked to pay bribes for environmental permits, including for waste and water treatment (European Commission 2014).

Legislation

Hungary's Criminal Code criminalises extortionabuse of officefraud, trading in influence and money laundering, and makes it illegal to give or receive a bribe in both the public and private sectors. Bribing a foreign public official and failure to report bribery are criminalised. Criminal sanctions can be imposed on companies for acts of corruption committed by individuals working on their behalf under the Criminal Code and the Corporate Sanctions Act. Company directors and persons with supervisory powers are liable for bribes paid through intermediaries (OECD, 2014). Penalties for persons include up to 10 years of imprisonment, and companies may be fined and risk confiscation of assets, debarment from public contracts and state subsidies, and/or forced termination. There is no distinction made in Hungarian law between bribes and facilitation payments, and bribes do not have to be monetary, meaning that gifts and hospitality may be considered illegal depending on the intent and benefit obtained (CMS Legal, 2014). The Act on Complaints and Public Interest Disclosures provides whistleblower protection in both the public and private sectors. Public officials and several members of their respective families are required to disclose their assets annually, yet no specific sanctions apply for non-compliance (ICS 2015). Hungary is a signatory to the OECD Anti-Bribery Convention, the United Nations Convention Against Corruption (UNCAC), the Council of Europe’s Civil and Criminal Law Conventions against Corruption, and the Group of States Against Corruption (GRECO). Hungary has been applauded by international monitoring institutions for strengthening its legal anti-corruption framework and for bringing it in line with the international conventions, but the OECD notes that enforcement gaps still remain and urges Hungary to increase detection and investigative efforts, especially in foreign bribery cases. 

Civil Society

Despite freedoms of speech and of the press being constitutionally guaranteed, the Hungarian government has been criticised for its tight control over media content (FotP 2015). The state media regulatory body is heavily politicised and has the power to impose sanctions and revoke media outlet licences (FitW 2015). Although the media is generally active in covering corruption stories, the extent of investigative journalism is curbed by the Press and Media Act (NISA 2011). The Act on Freedom of Information was recently amended, limiting the amount of data the public may obtain and requiring individuals to justify their requests for information on court cases, public bodies and officials (OCCRP, May 2013). Hungary’s media environment is considered 'partly free' (FotP 2015).

The Hungarian constitution provides for the freedom of assembly and association, however, the year 2014 marked a regress in civil society freedom (NiT 2015), as the government launched far-reaching investigations into the funding of what it deemed as critical NGOs (FitW 2015). The targeted NGOs were mainly the ones receiving funding from the European Economic Area (EEA)-Norway Grants NGO, which is an organisation that grants funding to NGOs promoting transparency and the rule of law among other democratic values (HRR 2014). NGOs have encountered obstacles in promoting transparency and fulfilling their role as government watchdogs, partly due to their dependency on state funding (NISA 2011).

Sources

Topics: Europe & Central Asia