Corruption and the residency bond scheme in Hungary

The Hungarian residency bond program appears to be the textbook example for legal and systematic corruption, writes mno.hu based on the study of Transparency International Hungary and Investment Migration Council.

The study, mainly made by Boldizsár Nagy international lawyer and professor at Central European University and Eötvös Loránd University, shows that the residency program has nothing to do with financing the state’s debt or with the investment visa programs abroad.

One of the most important rules of debt financing is to sell the bonds at the lowest price, that is, at the lowest interest possible. The Hungarian residency bonds, however, are too expensive, and their interest is four times as much as the market interest rate. This is because the parliament agreed on putting a guaranteed 2% yield into law. Other state bonds do not have a law-regulated interest rate, though.

The visa program of other countries honour an economic activity with residing permission or the granting of citizenship, which provide a significant amount of money to the state and encourage the creation of new jobs. The foreigner is also required to buy a property of great value and actually reside there during the year for some time.

The Hungarian program, on the other hand, does not even require the presence of the foreigner in Hungary. Moreover, it does not even bring money to the country, only lends some, after which the country pays public funds as interest. Thus, the offshore companies distributing the residency bonds are the participants who benefit from the deal.

They get to register the bonds worth of 300 thousand EUR, receive the service charges of 45-60 thousand EUR paid by the foreigner, and receive an interest of 29 thousand EUR paid by the Hungarian tax-payers. This means that, by selling a bond of about 301 thousand EUR (93 million HUF) these companies get a profit of about 30%, 74-90 thousand EUR (23-28 million HUF).

This profit is a hundred times more than the average profit gained on the state bond market, as the global participants, such as Deutsche Bank and Goldman Sachs, get a profit of 0.3%. The program has been going on for almost four years, during which period 4700 bonds were sold. But if we count the family members of the buyers, altogether about 16 thousand non-EU citizens were granted permanent residency permission in Hungary and free movement within Schengen, by the government.

Thus, the offshore companies gained about 3.72-4.21 million EUR (114-130 billion HUF) profit, of which 136 million EUR (42 billion HUF) is regarded public fund, thanks to the program. Only one of the companies was registered in Hungary, while the others were in offshore heavens; hence, they most probably do not pay taxes in Hungary.

Ce: bm

Source: mno.hu