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Minister’s security business in the thick of tax evasion
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A number of security guards are planning to press charges after they discovered they are part of a widespread practice used by employers to avoid paying employee taxes. This company at the center of the story is closely linked to Hungary’s interior minister, and the firm has every interest in keeping the story concealed since it is looking to take over the secure cash transfer market, a lucrative sector as electronic payments are on the rise.
In certain segments of the economy there are well-established means through which companies try to avoid paying their taxes and other obligations to the state. One of the most typical examples is the security services industry, where the most widely used method is for the service provider to change ownership or complicate legal relations through involving temporary agencies and then tangling up the legal arrangements to such an extent that the employee, the individual security guard, has no clue who he is actually working for.
One such matter directed Atlatszo.hu to a compound in Budapest run by the state-owned postal service, Magyar Posta, and supervised by its 50% interest JNT Security. The people guarding the location have been on the site for years, some of them from as early as 2009. Yet, they are only now coming to realize that they may not have any formal employment, given the ownership of the company they are supposed to be working for was changed repeatedly. As such, nobody has been paying their health insurance or their pension contributions. As we learned, a handful of them are planning to press criminal charges for fraud.
Browsing through the records of the companies that were involved in the matter, we found a curiously large number of Ukrainians, offshore companies, as well as Jozsef Erdelyi, who seems to be professional phantom, founding one firm after another then disappearing when convenient. Records show he has established over 100 firms. Apparently, the method is known to the tax authority, but they hardly seem determined to take any action in unraveling the scheme that is also prevalent in other areas of the economy.
The escalation of the story would be especially bad for JNT Security, which has big plans in mind. The company is intricately linked to the ruling political party, and it was formerly owned by Interior Minister Sandor Pinter, who divested his stake in the company in 2010, when Fidesz won the elections, to avoid conflict of interest. However, the firm is still run by his former business partners and financed by businessmen close to the government. The firm is on the verge of winning what would essentially be a monopoly on the secure transport of cash, most of which is spent at state institutions, for example, the postal service. Although electronic payments are on the rise, there is still some HUF 3.4 trillion (€11 billion) of cash in circulation, more than 10 percent of Hungary’s annual GDP. This means that such a deal, with even a small percentage commission, would be a very lucrative business. Understandably, JNT will want to avoid scrutiny in the near future with so much at stake, as such, formal charges from the guards would shed bad light on the firm.