The oil scandal being oiled?!

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I read, watch and listen to the news reports about the oil scandal every day. Generally while watching those making statements about the issue, I have doubts about whether they know what they are talking about. The articles I read, the interviews I heard encouraged me to comment on it and communicate my thoughts. However, I retreated. I retreated because there are some topics (e.g. drugs, child-abuse, organized crime, war) that I keep away from me and my surroundings to such an extent as it is possible. As a politician, I talked about these matters only when I could not evade it. The first time I met incidents of organized crime in the sphere of legal economy where murder, threat of murder became part of business was in relation to the billion forints in the oil business.In the beginning of the 1990´s I was talking once with one of my friends, György Markos, who is an outspoken opposer of these sins, about this topic in the corridor of the Parliament. The other day, he reminded me of my point of view of that time, that is the party and government programmes should not include fine sentences about the issue but silently but firmly steps must be taken against it and provide the criminal investigation authorities with the appropriate means to take action against it. Talk is harmful even if it is followed by real action because people can be too frightened, can loose their sense of security, while criminals can prepare and become more violent and aggresive. Not to mention the case when real action fails to be taken after terrifying statements, and the police budget falls, more than ten-year-old police-cars have to stand because of lack of petrol, the best trained employees of the police force are constrained to leave their career mostly as a result of financial insecurity, lack of social welfare as well as irresponsible political deals.

In September 1999, on my own web site as an economist I could not help commenting on news articles claiming that, according to calculations of experts (!) the so-called oil-smuggling caused more than ten thousand billion forint deficit in tax revenues……

Where could well-prepared economic journalists at national dailies, experts at ecomic journals, news analysts of national television channels have been at that time? Keeping the sanctity of news in mind nobody realized that the oil the tax of which amounted to ten thousand billion forints is equivalent to Hungary´s oil consumption for 30-50 years. Where are those thousands of people today who started with a wealth of 5-10 billion forints and, I suppose, it has grown significantly since then. Our real losses, which are thought to amount to several hundreds billion forints, were enormous, which would have been enough to cover the expenses of our so much desired sixhundred kilometer long motorway.

In those days, I was also thinking about the question a lot who has an interest in making the public fool, and creating a shocking atmosphere. It is really impossible to calculate how much damage and when was it done to the state budget…… No! It is obviously not true. Applying mathematical, and statistical calculation models at academic level, the real value of the oil fraud and the loss of the state budget could be any time, even today, determined with an accuracy of 5 per cent. The data (indicators of quantity of oil consumption through legal channels today, in 1980 and since then year by year, the population´s calculated need in the same years, etc.) needed for the calculations are still available. After one or two day´s routine work of some people, they would be accessible and we would- at least in this field- see clearly………

If it is true, why do not we calculate? Why do political parties argue and keep pointing to each other? Why do not they step towards revealing obscure situation?

It is not doubted by anyone today that the expansion of oil smuggling to such a degree was made possible by a deficiency of law! So why do not we hear about such economic crimes from the developed countries? The answer is not difficult, and we do not even have an excuse because the answer has no relation to the level of development of Hungary. As an MP, a politician, a specialist in economy I suggested several times that bills concerning economy have an unforgivable lack of background calculations, study of efficiency almost in every case or of conducting them at a low professional level. The essence of the bills forced through by the governments in power were of political nature and getting them through Parliament without any change was a question of prestige.

In this particular case, it would have happened in a Western-European country in the following way: on the income side of budget law, the data about the realization of oil products and about tax-revenues calculated from economic figures with 2-3 per cent accuracy from month to month are associated with planned income and they constantly follow its actual changes. According to this, the first month would become visible when instead of statistically reasonable some per cent income deficiency, they would observe at least 10 per cent difference. After percieveing it, the reason of the difference could be found within a few days. It can be some acceptible explanation such as longer or colder winter than expected or significant change of prices in one of the significant purchase markets, etc. However, it can be immediately noticed that, unexpectedly, with the change of law it became possible to commit economic offences, to which they must react by issuing an immediate, temporary decree and with the modification of the law precluding the possibility of economic abuses.

The following deduction sounds fine but it is not correct: if it is so simple, the absence of immediate perception and then measures could have only happened in such a way…… ½the criminals in the oil business were looking for contacts with important people of political parties, ten-twenty per cent of MPs, then they bribed them to leave some back doors for them? Thus sixty per cent of the oil smuggling profit was pocketed not by criminals but by politicians!½ …The answer would be too simple and too obvious!

The real answer is not less sad, but not less frightening: this is not the way how the public administration and political decisions work. Real calculations with the intention of such comparison and in such devision at that time were not, and are not even today made for the Hungarian budget. The existing calculations are (were) continually rewritten for some political reasons. Let´s remember when the draft of the budget had too much deficiency in some fields, in the government proposition the expected tax and contribution revenues were increased by ten billion forints in such a way that the necessary sums were added to successful surplus collection of tax authorities (APEH and TB) arrears, to the instructions of decreasing of arrears. Monitoring the changes of the expected income from month to month, even in case of known calculations, then when finding differences over a permissible limit immediately reporting it, then administratively interfering in it with the requirement of revealing the reason still does not work. In connection with the oil scandal, we have every reason to think of corruption owing to the exceptionally high profit if during the last years the state´s usual quick and proper reaction had failed only in the oil case when a law contradiction became noticeable. In the reality of the last ten years, politics did not reacted this way. The government in power never took responsibility for significant budget deficiency gained as a consequency of their faulty and unprofessional proposition. We should remember when some companies used television and radio adverts to draw public attention to the legal possibility for investors of claiming tax back without investing any money with their help. The expert answer would have been to modify the law immediately after the first advertisement even if the proper interpretation of the law was a controversial issue among those concerned. Unfortunately the usual reaction in Hungary was the following: the head of the Hungarian tax authority (APEH) ½threatened½ the population in the media with serious supervision and fine if they do not accept the APEH interpretation. Perceived later that people are not so easily frightened and investment companies faced APEH troubling and kept offering their services to tax-payers, APEH sent an ½invitation½ to everybody asserting tax allowance in their tax returns. During these interviews, the tax authority offered and threatened tax-payers to ½correct½ their tax returns ½voluntarily½ without any sanctions withdrawing the claim for tax-allowance otherwise they can expect the obligation to pay the maximum fine and default interest. Even under these circumstances tens of thousands of people dared to start the lawsuit with the state and its institutions.

In the democratic legal system, it is unprecedented that the state carries on a lawsiut with thousands of its citizens and at the end it loses! Because of tax allowances against the original intention of the law and claimed without actual investments, the budget suffered a loss of more than ten billion forints while being engaged in legal proceedings for years with thousands of citizens. In fact, the state ignored all democratic legal principles thus ½encouraging½ other thousands not to dare to make use of their rights! Also in this case, the one sentence modification of the law was accomplished – instead of the necessary two weeks – in more than a year! One could hardly think of thousands of citizens´ bribing 20-30 per cent of MPs in order to be slow and to make unjustified tax allowance possible.

Consequently, I am convinced that 10-20 per cent of the Hungarian political élite was not ½bought½. The missing measures, the opportunity of long-lasting economic offences causing hundred billion forint damage were the consequence of the functional error of our new democratic state which still exists. This is, of course, not an excuse for neither the Antall nor the Boross and/or Horn Cabinet and their ministers.

After all, it is not all the same, if we talk about the ministers lack of professional and political preparedness, lack of maturity of leadership, sometimes unsuitability or about the conscious and large-scale cooperation and liaison between responsible political élite and organised crime!

What shall we do then with Zsolt Nógrádi, the crown witness´s testimony, with László Pallag´s evidence? ….In my view, we have to deal with them because while Zsolt Nógrádi´s testimony collected rumours during the last eight years concerning the issue, we can have a better understanding of the every-day operation of today´s criminal groups.

Thus, for example it is almost certain that it is a usual paractice of some members of criminal groups to rearrange the profit for themselves in such a way that they decrease the divisible profit reasoning ½we had to give it to some influential politicians, police superintendents½, etc. so that they could continue their activity without any problems. The better the name sounds, the bigger sum they can retain with this. For ½broaching½ the profit from billions of forints from the oil business, they needed rather well-known names. Although Sándor Pintér is not a plain personality, I am sure that this part of Zsolt Nógrádi´s testimony has nothing to do with truth. Iván Szabó and Iván Petõ´s personality is incompatible with corruption by organized crime. Iván Szabó, as Minister of Finince has surely responsibility due to his not recognized obligation to take steps but Nógrádi´s statement is obviously false and manipulated.

Certainly, I cannot claim that no one of the politicians was directly involved in the oil – smuggling case. But I argue that the part of the crown witness´s testimony which tries to seem authentic by mentioning particular names is unsuitable for being an accurate source of information.

The further part of the testimony deserving attention is about gaining market. As a former MP, politician, head of the National Association of Entrpreneurs, economist, and top businessman knowing well the characteristic features and famous political figures of the period, I can even state that it was common to gain market under pressure of the government. In practice it means that to state companies – under control of the state implying the state´s right to appoint the executive of the firm – a source of purchase, a subcontractor is offered on the phone and perhaps a suggestion is made where, when and mainly for how much the given company should advertise and what they should sponsore. I still not accept the court´s proof of the contrary that is Péter Boross would have obtained market for the smuggled oil and mainly the statement that he did it consciously and as a member of an organized gang of criminals.Therefore, according to my values and notion of constitutionality, mentioning his name, on the basis of a testimony obviously created to mislead the public is unacceptible even if Péter Boross´s personality is foreign to my nature.

It is not difficult to recognise the inappropriateness of Nógrádi´s testimony as an evidence if the reader really wants to and does not suffer from amnesia, as well as the fact that the parts of the evidence was put together consciously by several people giving ideas. A little textual analysis reveals that the group preparing the witness giving evidence consisted of professionally untrained amateurs as well as him. Besides these contradictions, further ones also refer to this. Those living through the given period must know that in the preparation of a bill, besides the government and the proposer ministry neither the MPs of the governing party nor the opposition could take part. In the Parliament, the MPs of the governing party and those of the opposition received the bill proposed by the government at the same time and they did not have any influence on it, and nor do they now. I think, the Hungarian Parliament´s operation is faulty as the MPs of government coalition are only expected to support the cabinet propositions while the MPs of the oppositon are obliged to vote against them even if they agree. Thus, there would have been no point in bribing 20 per cent of MPs.

In the testimony, it is not difficult to see occasionally the conscious distortion of the true and known facts and another time the confusion as a result of ignorance. The witness´s words reveal that neither him nor his companions ½giving ideas½ see the difference between the illegal activity of oil smugglers and for example the scandalous KORDAX case. The previous set up a firm with fictitious identity then collected several hundred million or occasionally one or two billion forints at extremely high interest from the underworld. From this they imported oil, usually as fuel, and during the postponed duty payment period they ½processed½ it, sold it and immediately liquidated themselves. So when customs officials wanted to take measures after the deadline of tax payment, there was no firm, no bank account, no oil, etc any more. Of course, neither the taxes were paid. On the other hand, KORDAX directed by István Kelemen was a registered enterprise which operated for several years, consisted of well-known people, supported culture and sport and it owned a significant property and real estate of great value. The company employing well-trained specialists was convinced that they found a legal method in the sea of law, where part of extremely high tax on the import of oil products does not have to be paid by them thus making it possible for them to give significant discount to their consumers and also to gain high extra-profit. Respecting the court´s final judgement, my interpretation of law is closer to the viewpoint of the company.

The state´s reaction, described in the paragraph about the investment tax-allowance, worked in the same way. The legal way found by the firm became known for the authorities, as the rival companies, which started to lose their markets rapidly, instantly protested against KORDAX which supplied at a lower price and was known to the public. The modification of the law was one or two sentences but it was carried out in more than two years after the revealed discrepancy. At the time of the disclosed controversial law, the debate about customs duty and tax between the company and the state would have cost some ten million forints. The administration failed to modify the law, thus the company trusting in his own truth boldly became involved in legal proceedings and continued its activity. In consequence of this, the budget deficiency during these years added up to more than ten billion forints while the mere activity caused great tensions on the market. As the customs authorities could not modify the law, they only had the opportunity to ½extinguish the fire½ that is they tried to defend their own truth at court.

Generally, at court only one side can be right, moreover it is not certain that at the end the absolute truth will be pronounced. In a constitutional state, the characters of a civil procedure are not criminals even if the court does not agree with their point of view. Therefore, in Nógrádi´s testimony, treating the KORDAX case and fictitious firms´ tax and duty fraud alike would deserve attention, showing that the ½composers½of the testimony were not prepared to distinguish totally different cases from each other.

It was interesting and worth listening to the claims of the head of the Customs and Excise Tax Agency (VPOP), Mihály Arnold whom I respect for his personality and professional knowledge. He really lived through these years and fought for state income. In the KORDAX case, he also saw that the company chose an interpretation of law on the basis of which tax was not paid in a significant tax category which could not be the aim of legislation. When I was the head of the National Union of Entrepreneurs (VOSZ) and I was talking to him about this matter, he did not talk about criminals, although both of us considered oil smugglers to be among them.

Steps were taken by the head of VPOP against the deferred duty payment on his own authority, while I as the head of VOSZ criticized the general prohibition because it affected entrepreneurs and groups of products which operated for years as registered firms and were functioning practically. To moderate the loss, Mihály Arnold could only prohibit certain steps and start legal proceedings. Thus he said that the budget would have had much less loss if he and his warnings had been supported by politics, which in the present case would have meant a quick legal reaction. Instead of political help, thoroughly considered legislation, and if it is necessary modification of the law, he had to face constant public criticism ½why dos not he take measures against those evading the law more effectively½.

Intertwined interests within the police, abuses of authority unrevealed for a long time today rather refer to some policemen´s involvement in the oil case. I agree and I also think that there were customs officers and other officials involved, as at all bodies which have occasionally tens of thousands of members, so the existence of people liable to commit crime can never be excluded. However, it is not all the same, whether we present the occasionally revealed relationships with their real content or we adjust them to a fiction to back them up. I learnt the following from my father: if you really want to understand the events of a past period, ½you have to wear glasses of the given age½.

Through these glasses the police, when it had to be careful about his actions so that it could evade being thought as serving the defeated dictatorship, can be better seen. When the state provided them with less ever financial sources and also emphasized wrongly that the police force should look for supporters from well-to-do citizens and entrepreneurs. This financial assistance was not only needed for the accelerated developing of the police but for maintaining the essential operation (keeping or may be extending the staff, purchasing cars, buying fuel, computers, means of communication, establishing and maintaining police stations, etc). So the police had to look for successful enterprises which were able to support it. However, successful enterprises were not all booming because they excelled in benefiting from economic opportunities. The success of most of them can be explained by tax-evasion, corrupt state orders, privatization offences. The aspect of time should not be forgotten. An enterprise working legally in the surroundings of the police is successful and lawful until organs (e.g. tax authority) whose duty is to supervise participants of the economy finds something illegal. It would not be, or would not have been, a serious expectation to examine companies intending to support police foundations previuosly and in full scale in order to prove their ½innocence½. It would also have seemed strange, or would seem even today if the police had investigated its supporters openly or with secret means before accepting their contributions.

Without this it can never be excluded that it sometimes turns out about one or two previous patrons that they had an interest in a closer relationship with the police. The risk of the latter can b lessen if the police establishes closer contacts than usual with companies which have been known and acknowledged characters for decades in the given region but in the beginning of the 1990s enterprises like this could not exist. It is a human and not faulty consequence that they visit those from whom they accepted indispensable help for their work only in a very justified case on the basis of some suspicion. The difficult situation of the police, being in need of support undeservedly, and the fact that every flourishing enterprise appeared as new in these years multiplied the risk that many of the supporters hoped to buy their own protection for illegal activity with the assistance of the police. Today, it seems easy to ask former chiefs of police how later collapsed entrepreneurs could maintain such a good relationship with the police. It is easy to ask this question and it can even be effective and delusive in the media but it is also both demagogic and unjust.


With this reasoning I only aimed at seeing clearly and at what we should pay attention to in the future. Since it is not good if we swing to the other extreme. Now, an honest cheif of police does not dare to accept support with a good feeling which was offered with good intention and which was so important for him. It is also true on the contrary. I have also been hindered from supporting the police by the possibility of my intention´s being misunderstood. Moerover, finally I can be an innocent tool of a skirmish for positions within the police.

The above mentioned, of course, does not give us exemption in evey case. Every event in doubt must be examined objectively and the emphasis here is on objectivity. It is important though whether tardiness of police action came to light when the procedure against a formerly generous entrepreneur started with difficulty or the already obvious crime was not disclosed due to supports. Possibly, some chief of police ordered to stop the investigation because of the misunderstood obligation. Not to mention the cases when one or more policemen or chiefs were actively involved in some criminal act then they became beneficiaries of it.

I am convinced that conscious police presence in the oil smuggling scandal was at much lower level than it is in the present atmosphere of public life. Nevertheless, the previous statements of police chiefs and employees of the Ministry of the Interior arose antipathy in me. They claimed that all oil matters were looked over again and found that no organ of the police or policemen helped oil criminals in any of the cases and none can be accused for examination carried out not careful enough or without their knowledge. Owing to the great number, the great volume of oil smuggling lasting for years one can be sure that several policemen, customs officers, politicians, officials of the state, tax controllers, bribable large-scale consumers, hundreds of consumers (buyers) took part in the oil fraud in such a way that they knew or suspected the illegality of actions around them. It is in society´s interest to get to know mainly the conscious perpetrators of crime and/or those helping them and to specify their identity among the chiefs of state authority.

Although my article became rather lengthy, it can strike the eye of a careful reader that I did not touch upon an important question or just indirectly. I am also aware of it. I am aware of it because for me it is proved that a significant part of the events of oil case is already controlled and manipulated. I am convinced that the appearance of the case, the media coverage of excesses committed by some police chiefs happened spontaneously. Several characters of the issue, including some of the determining persons – here I think of Independent Small holders László Pallag -, are not active participants of the manipulated happenings lately.

In my opinion, however, Zsolt Nógrádi is an interested participant of the manipulation but I do not know who does it and for what reason. I do not even want to guess about many of the possible versions (political aims, personal ambitions in state bureaus, excitation of news in the media, hampering finding out the truth in an organized way, etc) because it would be unworthy of my writings. So I decided not to go further to the heart of the matter.

However, I am sure that the happenings of the previous years can also be cleared of unreliable details as the current events. If we do it, both past and present can be revealed. If it fails, the only reason for this will be the following: those making decisions, for some reason, do not have an interest in seeing the situation clearly and too many people and in a foolish way shuffle the question of oil-smuggling as a trump card in their own presumed interest in order to achieve their own aims.

Finally, I heard an interesting reasoning in one of the most popular TV channels the other day. The presenter, highly appreciated by me for his well-preparedness, argued in his question to one of the accused and prominent politicians whether there is any sense in dealing with the oil scandal when the participants cannot be punished any more as their criminal acts have lapsed. According to the politician, it can not be an obstacle for us if we want to learn who we are surrounded by in our social surroundings. Lapse of crime precludes only the possibility of punishment. This sentence attracted my attention only because it seems to me that there is a conscious influence on public opinion in this field, as well. It would not be good if authoritative people assisted it without their intentions. Usually, lapse of crime is five years and it is less only in the case of the slightest criminal acts. We could determine the time of lapse only if we knew the committed crimes as the time of lapse depends on the nature of the crime. In fact, the time of lapse starts from the date of the last criminal act and the last consignment of smuggled oil is not five years old!

Accordingly, one can still investigate, find out the truth, everything one needs is will! ……is there will?

2 August, 2000 János Palotás