Central bank foundation story keeps on running

Hungary’s central bank has recently courted controversy by creating a number of private foundations which are then used to keep finances secret, even though the moneys involved are clearly public funds. Yielding to public pressure and, most importantly a decision from the Constitutional Court, the foundations have adopted a transparency policy and complied with the relevant regulations. However, the controversies are far from resolved, and the additional consequences of secretive contracts will in all likeliness have further impact.

The events at the National Bank of Hungary and its setting up and funding of private foundations is an ongoing story that has raised the interest of the Hungarian media. Atlatszto.hu has reported before on how this has helped them to keep their finances secret, even as they purchased valuable real estate asset as well as state bonds.

Yielding to pressure from public scrutiny as well as court verdicts, most notably one from the Constitutional Court, the central bank agreed to open up the foundations’ records and also asked for a review of their past activities from KDB, Hungary’s public procurement supervisory body.

The KDB determined that the foundations did indeed perpetrate administrative violations, since they did not register themselves as entities spending public funds. The premise of the earlier legal drive from the government was to keep the foundations’ finances concealed by stating in law that they do not handle public money, this was the ruling that the Constitutional Court struck down.

The KDB reprimanded the foundations and issued symbolic fines, effectively nothing more than a slap on the wrist, which caused a smaller outrage in opposing sides.

However, it is worth clarifying that these penalties were not issued because the contracts signed by the foundations were actually explored. Instead, they were issued because the foundations neglected to register as subjects within the current public procurement laws.

It is strange that even with the earlier assumed protection, the foundations decided they would not fall under the effects of the law. There are only three requirements: existing to serve public interests, possessing a legal entity, and receiving financing mainly from a state entity. The foundations obviously qualify for all three, especially, because as Atlatszo.hu argued in a filing to the Constitutional Court, the central bank by nature can only create legal entities that serve the public good.

The further, yet unforeseeable repercussions of these changes are all the more interesting. KDB only reprimanded the foundations for failing to register themselves, however, now it is fairly clear that the purchases they made and contracts they signed should have been conducted under public procurement regulations, but were not. There are currently 37 investigations into matters where open tender invitations should have been issued.

Should any of these determine wrongdoing, there is a possibility that the contracts will be annulled, jobs suspended, and an onslaught of lawsuits to settle finances that were – in that case – illegally paid out. This is where the story stands now, but this is surely not the end.

Original article in Hungarian