EU funds

Hungarian billionaire quietly sentenced by court in EU tender fraud case

Atlatszo has learned that the Kecskemét Court of Justice convicted Dániel Jellinek in June 2022 as an accomplice in a budget fraud case, and at the same time exempted the businessman from the legal consequences of his criminal record. The real estate tycoon has been doing business with the prime minister’s son-in-law István Tiborcz for years, is one of the ten richest Hungarians, and almost bought Budapest Airport back for the Hungarian state. The conviction was handed down in a case of EU tender fraud committed by a project company loaned by one of Jellinek’s financial companies. Jellinek admitted he had made a mistake without a trial and accepted the verdict.

According to Forbes, under the leadership of Dániel Jellinek, whose fortune is estimated by the magazine at HUF 189 billion in 2021, Indotek Group has quietly bought up one of the country’s largest real estate empires of shopping malls, office buildings and warehouses. In the 2022 edition of another list of the wealthiest Hungarians, the real estate tycoon is already in sixth place with an estimated fortune of HUF 240 billion.

According to various Hungarian press reports, Dániel Jellinek primarily buys debts backed by real estate, acquiring the properties of debtors in difficulty. Tamás Vitézy, a major entrepreneur and former Orban oligarch, publicly accused Jellinek that one of his companies bought up his debt from banks and acquired his real estate assets in Croatia at a discount. Jellinek’s group acted in a similar way in the case of the real estate assets that were left abandoned after the Quaestor bankruptcy.

Dániel Jellinek became one of Hungary’s richest men in a short time, with the Balaland project, which was financed by the Russian International Investment Bank and billions of Hungarian state money, and the Waberer’s logistics company as part of his fortune. He has been a frequent business partner of Prime Minister Viktor Orbán’s businessman son-in-law István Tiborcz in the last few years. However, in a 2020 portrait interview with Válaszonline, Jellinek says he does not consider himself an Orban oligarch, and claims to be doing business with the Hungarian state without political tailwind.

More recently the businessman’s name appeared in news reports about the possible buy-back of Budapest Airport: a consortium involving the Hungarian state, MOL and Indotek was reported to be forming and the price was guessed at €4.4 billion, but the huge deal has not yet gone through. The Indotek Group is not only active in Hungary: they are also expanding in several countries in the region, including Romania, Croatia, Serbia and even Italy, aiming to become a regional leader in the commercial real estate market.

A debt management company was investigated by the tax authority

The majority owner of Bohemian Financing Zrt., which played a central role in the case leading to the criminal judgment, is Dániel Jellinek, through Florange Property Kft., with a stake of more than 50%. According to the company’s website, Bohemian Financing Zrt. is a finance company that provides receivables management services for the distressed loan portfolio of credit institutions, as well as loans to small and medium-sized enterprises.

References to the case are also available in the public company documents of Bohemian Financing Zrt. In May 2021, the Criminal Investigation Directorate of the Hungarian Tax and Customs Authority notified the Company Court of the Metropolitan Court of Budapest that it was conducting an investigation into the suspected offence of budget fraud under Article 396 of the Hungarian Criminal Code, which also concerned the activities of Bohemian Financing Zrt. In the framework of the proceedings, HUF 75 million was placed under a freeze on the company’s bank account to secure the fine that could be imposed as a sanction, and this freeze was lifted in November of the same year.

Atlatszo has learned that the businessman was convicted as an accomplice by the Kecskemét Court of Justice in June 2022 in a case that violated the articles cited above by the Criminal Directorate of the Hungarian Tax and Customs Authority, and Bohemian Financing Zrt. was also fined a significant amount. This was done in the framework of a “preparatory meeting” and became final immediately.

According to a legal expert interviewed by Atlatszo, a final court judgment can only be handed down on the basis of a “preparatory session” if the accused admits to the acts he is accused of, in which case further hearings and evidentiary proceedings are waived. In return, the accused may receive a more favourable sentence, as confirmed by the fact that, according to our information, the court granted Dániel Jellinek a preliminary discharge from the consequences of his criminal record, allowing him to continue working in the business world.

A loan transaction led to the indictment

The press department of the Kecskemét Court replied to our questions concerning the case that “in case B.250/2022. the Kecskemét Court issued a judgment on 27 June 2022, which has become final. In view of the fact that the defendant in the case was granted a preliminary discharge, we cannot provide any further information”. We also contacted Bohemian Financing Zrt. and Dániel Jellinek, who confirmed our information and provided information about the case which led to his indictment:

“In December 2017, Bohemian Financing Zrt. entered into a loan agreement with Zsana Geoterm Energy Services and Trading Ltd. The purpose of the loan was to provide equity for a project to be launched by the company and its consortium partner to construct a geothermal power plant, supported by the Operational Programme for Environment and Energy Efficiency. The Municipality of Zsana was a 26% member of the consortium. Zsana Geoterm Ltd. concluded a grant contract with the National Development Programme Office Nonprofit Ltd. as the donor.

Bohemian Financing Zrt., acting under these circumstances and on the basis of the legal and business documents attached to the loan appraisal, concluded the loan agreement and disbursed the loan, which was repaid by early repayment. The provision of own resources was not a legal precondition for the disbursement of the aid.

In 2021, Bohemian Financing Zrt. learned from a request from the National Tax and Customs Authority that the grant had been partially disbursed, but that Zsana Geoterm Ltd. had used part of the grant received for purposes other than those for which it was intended, which raised suspicions of budgetary fraud. Bohemian Financing Zrt. had reason to believe that Zsana Geoterm Kft. would indeed carry out the otherwise promising project for which it had applied for aid. The misuse occurred at Zsana Geoterm Kft., of which Bohemian Financing Zrt. could not have been aware, as there was no meaningful business relationship between the parties after the prepayment of the loan for the equity.

Dániel Jellinek, as a senior manager of Bohemian Financing Zrt. at the time, acted in full good faith with regard to the project. However, the Authority assessed that he did not act with due diligence in relation to the disbursement of the loan, which may have contributed to the infringement of Zsana Geoterm Kft. Hungarian law also provides for the sanctioning of assistance by extension, and the Authority based its position on this, finding it sufficient to apply a measure that would exempt Dániel Jellinek from adverse legal consequences. On the basis of the above, Dániel Jellinek did not contest the legal assessment of the cooperation with the Authority as different from business practice and admitted the error. His aim was to be able to continue with his business after the consequences had been drawn, thereby ensuring the operation of a growing group of companies that provides a livelihood for a significant number of Hungarian families.

Bohemian Financing Zrt. and Dániel Jellinek will continue to act with the utmost prudence in the future, and with even greater caution in the light of the experience of this case.”

Jellinek must have stepped on someone’s toes

Zsana Geoterm Kft. won HUF 2.5 billion in EU subsidies in a KEHOP (Operational Programme for Environment and Energy Efficiency) tender in 2017 for a HUF 4 billion geothermal energy programme proposed. An irregularity procedure was launched in the case, and the Managing Authority found that HUF 1.2 billion should be repaid by Zsana Geoterm, which received the EU tender money, failed to complete the geothermal power plant, and has been in compulsory liquidation since 2020.

According to a financial expert who asked for his name to be withheld, based on the information detailed above, it seems that the HUF 1.5 billion equity required for the EU tender was provided to Zsana Geoterm Kft. by Bohemian Financing Zrt. as a short-term loan, but it was immediately returned after the equity was certified. In this way, Bohemian Financing and its manager became, according to the interpretation of the investigating authorities, accomplices, since without the proof of own contribution the applicant would not have been able to receive the EU funding, which it later could not account for.

However, our source pointed out, such stunts are unlikely to result in a case investigated by the Hungarian authorities, let alone an indictment and conviction, for billionaire businessmen with good government connections: Dániel Jellinek must have stepped on someone’s toes if he was so reprimanded for this. This view is supported by the fact that, as we have reported in the EU tender fraud case of István Tiborcz and Elios Zrt, investigating authorities and prosecutors find their ways to resist if they would rather not investigate and bring to justice a politically sensitive budget fraud case.

However, in the case of Dániel Jellinek and Bohemian Financing Zrt., the prosecution acted with the maximum rigour of the law. The criminal case of Zsana Geoterm, the company which allegedly embezzled the EU money, has not yet been tried in court, so Jellinek was convicted as an accomplice in a case where there is no perpetrator yet.

Written and translated by Tamás Bodoky. Cover photo: Daniel Jellinek, The Hungarian version of this story is available here.