Hungary's National Tax and Customs Administration (NAV) suspects that left-wing billionaire Zoltan Varga, the owner of the 24.hu news portal may have committed budgetary fraud, the daily Magyar Nemzet writes. According to information obtained by the daily, the investigators presume that the media mogul – by selling a company linked to him and essentially set up from EU funds well below market price – may have incurred a loss in the EU's budget to the tune of over half a billion forints.

Hungary’s National Tax and Customs Administration (NAV) questioned Zoltan Varga, the owner of Central Media Group, which operates many left-wing media outlets, including 24.hu, on suspicion of budgetary fraud causing a particularly significant financial loss, the Hungarian daily Magyar Nemzet writes. The threads of the story can be traced back to Nogradi Vegyipari Zrt, a chemical company linked to Mr Varga, which was sold a few years ago. Fidesz lawmaker Gyula Budai first reported the case to the European Anti-Fraud Office (OLAF) last year and he filed a complaint with NAV a few months later.

The report and the complaint seen by Magyar Nemzet essentially concern the same issue: the European Union’s budget may have been harmed by selling the shares of Noradi Vigyipari Zrt.

As an antecedent to the case, the complaint refers to the setting up of the CenTech Uj Magyarorszag Kockazati Tokealap, a venture capital fund with a 10-year timeframe created in 2010 as part of the EU’s Jeremie I programme. (The initiative was launched to improve the capitalisation of the SME sector.) The fund disposed over 5 billion Hungarian forints, with 70 per cent of the capital coming from EU funds and the rest from private investors, including one of the limited liability companies, with Mr Varga being its majority shareholder.

The venture capital fund (managed by Zoltan Varga’s Central-Fund Kockazati Tokealap-kezelo Zrt) founded Nogradi Vegyipari Zrt and owned 99 per cent of the company’s shares. The firm received an investment of nearly six-hundred million Hungarian forints and also took out loans. In 2019, before the expiry of the timeframe, Central-Fund Kockazati Tokealap-kezelo Zrt hired a company to sell the shares of the capital fund, including the shares of Nogradi Vegyipari Zrt, the complaint reads, and highlights that Avogadro Projekt Kft, a limited liability company founded in January 2020, made a purchase offer on 26 March 2020. On 9 April 2020, the board of directors decided about the sale and accepted the purchase offer of 459,300,000 Hungarian forints, which also included the company’s debt owed to the capital fund.

Zoltan Varga told the board meeting that the value of the company is probably higher than the purchase offer, but considering the circumstances, he recommended accepting the offer,

the complaint says, noting that Avogadro Kft was founded specifically to acquire Nogradi Vegyipari Kft at a bargain price. A board member of the sold business and the managing director – at the time of establishment – and one of the owners of the buyer Avogadro Kft is the same person, Varga’s good acquaintance and confidant. The complaint sent to NAV pointed out that the purchase price was not only a far cry from the invested 600 million, but the equity of 170 million forints needed to finance the purchase price from bank loans was also provided by Zoltan Varga with the help of an intermediary, which is not an irrelevant circumstance. According to Magyar Nemzet, Mr Varga was also provided with a purchase option, and he was also granted decision rights.

The official complaint also stated that the value of the otherwise profitable Nograd Vegyipari Zrt, amounting to more than one billion forints (some 2.5 million euros), significantly exceeded the price paid by the customer. The difference between the two was 657 million forints (1.6 million euros). Since the company was essentially created with EU money, as we mentioned above, it may have caused financial loss to the EU budget.

Left-wing media mogul Zoltan Varga, one of the richest men in Hungary, was born in 1967 into relatively poor mining family in the town of Bonyhad, according to his own account.

He graduated from the University of Economy in Pecs in 1990 as an economist. His first job was at the Budapest Stock Exchange, then he was employed by Credit Suisse First Boston. In the second half of the 2000s, Varga’s attention turned to venture capital funds. Central Fund Venture Capital was founded in late April, 2009, under his leadership. It was awarded funding at the EU’s Jeremie I tender. (This tender, as we mentioned at the beginning of this article, is the precursor to his current criminal case).

Mr Varga began to expand his media business in 2014, when he acquired the Central Media Group. The company group’s papers previously belonged to the Finnish company Sanoma, which announced in April 2014 that it was selling its interest in Hungary to a Hungarian investor, which was the Central Fund. Varga was also expanding his operation abroad: he acquired the gastronomy website Novelty and the Polish mobile service provider Premium Mobile. He also invested in a Slovak startup company developing a flying car and a project of an Argentine discount airline.

The tabloids have provided extensive coverage on stories linked ot the left-wing oligarch: they explored the background of his multibillion-dollar fortune and wrote numerous pieces about his luxury villa. Zoltan Varga’s name even came up in the Panama Papers scandal, because a company called Dorel Securities, registered in Panama City, appeared in several members of the company network connected to him. According to an article published by the Hungarian Origo portal in 2016,

Mr Varga had a leading position in two companies with an offshore background,

the above-mentioned Ada Immo Ingatlanforgalmazo Kft. and Hybrid Logistics Kft. Such companies registered in tax havens are mostly founded for the purpose of tax optimisation, that is, when the company manager does not want to pay taxes in his home country.

It is also noteworthy that while Mr Varga asserted in an interview that he felt the weight and accepted responsibility for the approximately 2000 employees whose livelihood depended on his companies of the Central Mediacsoport Zrt., which, on top of the left-liberal leaning 24.hu, includes the magazines Nok Lapja, Story and Best,

they significantly decreased the salaries of their journalists, citing the coronavirus pandemic. Meanwhile, however, the company doubled its profit compared to the previous year, and Mr Varga and his co-owners received a dividend of around 1.5 billion forints (3.7 million euros).

Although Mr Varga denied in an interview that they actually withdrew the money from the company accounts, this is not supported by any written documents. The entrepreneur admitted that the owners of the company made a decision to pay the dividend from the previous year’s retained earnings, but said that they did not withdraw the sum after that in a bid to preserve the company’s liquidity.