A Tale of Two Strongmen

A report published last month by the European Anti-Fraud Office (OLAF) raised serious concerns about diversion of EU funds in Hungary, one of the largest per-capita recipients of EU economic development funds. It would be easy to chalk the report’s revelations up to more bad behavior by the Hungarian Prime Minister Viktor Orbán, ‘pariah of the EU’ who has turned his country into the ‘black sheep of Europe’. They indicate, however, a widespread problem throughout the Balkans, which threatens to jeopardize those countries’ long-awaited accession to the EU. They raise particular concerns about the region’s ostensible star pupil—Montenegro, where strongman ex-leader Milo Djukanovic is mulling a return to power. A group of MEPs’ discovery that 36% of tenders for Hungarian public projects only have one bidder raised red flags, which the OLAF report confirmed. Particularly troubling is a set of 35 contracts awarded to Orbán’s son-in-law’s company to supply EU-funded street lighting at 50% over market value. OLAF found irregularities in all 35 procurements, more than half of which were deliberately worded in such a way as to ensure that Orbán’s son-in-law was the only possible bidder. The anti-fraud watchdog is calling on Hungary to repay the $51 million in EU funds behind these fraudulent contracts. Past experience indicates that we shouldn’t hold our breath for Orbán to pay a cent back. This kind of fraud is old hat to Orbán. Back in 2016, the spotlight fell on a tourist train, largely paid for by the EU, that the Prime Minister had built between his two childhood villages. When applying for €2 million in EU funds, the Hungarian government insisted that the train would be used by as many as 7000 passengers daily—instead, the train served just 30 passengers in its first month of operation. Not only does Hungary have no intention of paying back the EU’s contribution to this vanity project, Orbán’s chief of staff lashed out at MEPs visiting the train under the aegis of the Parliament’s Budgetary Control Committee, calling their singling out of the train “outrageous”. The EU also hasn’t seen the return of their almost €200 million grant to Budapest’s new metro line, the construction of which was plagued by financial irregularities. While Orbán’s government has been especially noteworthy for its dismantling of media freedom and the rule of law, this type of diversion of funds and opaque public procurement is hardly unusual in the region. In what should have been a warning sign that the two countries weren’t ready to join the EU, Bulgaria and Romania had to have their EU pre-accession funds, granted under a scheme abbreviated as Sapard, suspended numerous times due to fraud and irregularities. This misuse and embezzlement of funds was so commonplace that locals in one farming village told Bulgarian MP Atanas Atanasov a popular joke: “Do you know how to recognize somebody round here who has got a Sapard grant? Just look for the people driving the most expensive SUVs.” The same pattern is popping up among the current EU candidate countries in the region. Macedonia has repeatedly had its pre-accession funding frozen over fraud allegations. Procurement fraud is also known to have taken place in Kosovo, though the extent is difficult to ascertain due to the particular funding relationship between the EU and the UN in Kosovo. The EU should be most concerned, however, about Montenegro, which has managed to rebrand itself as the region’s success story despite rife corruption, a quasi-dictatorship, and stagnating economic growth. Montenegro has shown notable difficulty absorbing international funds, both due to its wildly underdeveloped infrastructure and more sinister forces at work. The country received a 50-million-dollar loan in 2015 from the Abu Dhabi Fund to modernize its agriculture, but more than two years later, only one of the nine loan recipients has completed its project. Administrative hurdles and infrastructure problems with water and power supply were ostensibly responsible for the lack of progress, but former Deputy Milorad Vujovic underlined the suspicious secrecy surrounding the projects’ contracts. He explained that he himself had not been allowed to see the agreements and mortgage securities and suggested that the information was “deliberately made unavailable to hide the illegal use of funds from the public”. The situation in Montenegro is threatening to go from bad to worse. Milo Djukanovic, who has been described as “the last European dictator” and “Montenegro’s uncrowned prince” next to whom “Orbán is a mainstream democrat”, is pondering an eighth term as Prime Minister. Djukanovic ostensibly retired—for the third time—in 2016. The strongman has been positioning himself, however, as a King Arthur figure, promising to return if the country needs him. Current polls show him more than 9 points ahead of his nearest rival. Djukanovic’s potential return is deeply troubling. His track record of corruption and nepotism is uncomfortably reminiscent of the recent Orbán revelations. Named the 2015 Man of the Year in Organized Crime, Djukanovic rented out the country’s ports to cigarette smugglers connected to the Italian mafia. He has somehow accumulated a fortune of at least $14.7 million while only declaring his $1,700 a month government salary on his income tax returns. One of his closest associates was convicted in 2016 of defrauding his hometown out of millions of dollars. Djukanovic and his inner circle used Montenegro’s First Bank “like an ATM machine”, frequently taking out loans of public funds. Djukanovic likely thinks that he’s found another promising cash machine in the form of the European Union, just as Orbán and his cronies used the bloc’s economic development funds as a “cash register”. The EU already has to deal with one corrupt tyrant trying to bleed it dry, it should think long and hard before admitting another. About the author: Frank Maxwell is a competitive intelligence correspondent based in Warsaw, Poland.