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From the Managing Director's desk

Is there another 25 years in LAVECO Ltd.?


Living through the turn of a century, which also saw the end of a millennium, is always going to be pretty lively. Especially when something totally new is beginning in the life of a society. In 1991 LAVECO Ltd. also began life as one era drew to a close: the socialist bloc had just fallen apart in Eastern Europe, and private enterprise was once more possible in Hungary. The old system had not died out totally, while even the foundations of the the new one had still not been laid. The business couldn’t even be described as a garage company, as we didn’t have a garage.

An interview with László Váradi, managing director of LAVECO Ltd., by Maria Sokolova.

Maria Sokolova: Is it true that back then the company basically was started from nothing, or was built on nothing?

László Váradi: It literally started from nothing, as we had neither capital nor money. My wife and I just about managed to scrape together the 500 000 HUF cash needed to set up a „Kft.” The other part of the company’s capital was made up of our LADA 1300 car, worth 250 000 HUF, and a secondhand photocopier, also worth 250 000 HUF. The goal, however, was clear: In 1991, my wife and I could reclaim 170 000 HUF tax, if we set up a joint company before the end of the year. To put things in perspective, my father’s annual salary at the time was about 50 000 HUF.

MS: So even then, taxation was a very important question?

LV: Taxation was always important, is still important today, and will remain so in the future. At the time, we were legally able to save what was a huge amount for us. Why let that opportunity go to waste? As soon as our friends found out, they asked us to set up companies for them as well, which is basically how LAVECO set out on its true vocation. We started setting up companies for people, just as a favour to begin with.

MS: But how did setting up companies as a favour become a business?

LV: We soon realised that our situation gave us certain advantages. With my wife being Russian, there were a number of foreigners among our acquaintances who were looking for exactly what we were offering: they wanted to establish companies in Hungary, as for former Soviet citizens, Hungary was just like the West. And at that time forming companies in Hungary also offered certain tax benefits. However, as they didn’t speak the language, they had no choice but to find someone to help them set up the company, to open a bank account, rent an apartment, and arrange residency permits.

MS: I see. But then how did LAVECO become involved in the establishment of foreign companies?

LV: During that period the Russians were extremely dynamic, and jumped at every possible opportunity. Or rather, for them it was partly because of the opportunity, partly because they had no other choice. The disintegration of the Soviet Union opened up an enormous market, where it was possible to sell everything, and those who set up in business became rich very quickly. However, they couldn’t keep their new found riches at home. On the one hand, currency restrictions were in place, so they had to exchange their dollars for roubles, which then soon lost their value. The other problem was the weak local banking system. So it didn’t take them long to discover the offshore world, through which they were able to keep a significant part of their assets abroad. And that is how we came on the scene. One day in the early 90s, one of the Russians that we had set up a company for came to us because he needed an offshore company. We just looked at him blankly...

MS: Why?

LV: We didn’t even know whether it was something you eat or drink! Then the Russian explained it to us. Or rather, he would have explained it, as we could scarcely believe our ears, when he said there was a type of company which paid 0 tax and didn’t have to keep books. The whole thing seemed just too incredible to us. But we started looking into it. There was no internet back then, so I sent my wife off to the library at the University of Economics to do some research. As I couldn’t speak English, she took notes and translated during the day, then I reviewed the information in the evening and told her what to look for the following day. In this way, in a couple of weeks we had worked out where it was possible to set up offshore companies around the world.

MS: And so you set up an offshore company for the Russian client...

LV: We were too late. In the meantime he had already established a company. But we realised that there are other Russians who were bound to be interested. More precisely, we dreamed about it in a 12 m2 office with nothing but a fax machine and a borrowed computer. This was where we met clients, once we had started advertising in Russia in a newspaper called East-Siberia. Why there of all places? Because that was the cheapest and the one we could afford.

MS: And did you attract any business at all like this?

LV: Absolutely. The early 90s was a golden age. We worked almost exclusively in the Russian market, and we built up a very good clientele. Sometimes a client arrived at the airport from Moscow at 11 a.m., collected the company at midday, opened an account in one of the banks in Budapest at 1 p.m., then faxed the details of the contracting company to Moscow at 2 p.m. By 4 p.m. they were sitting on the flight to Moscow, returning home very happy indeed. In those days, Hungary was like Estearn Europe’s mini-Switzerland for a few years. But there aren’t many of us who still remember that.

MS: If I understand correctly, in the 90s LAVECO was a small family business which, taking advantage of the local opportunities, acted as an agent for Russians establishing companies. But how did this lead to it becoming an international enterprise?

LV: That was exactly the way it was. For years we didn’t even want to do anything else, and we were quite contented mediating in our one simple activity. The seed for real change was sown by a person who was much more experienced than us and, having already been in the business for 15 years, had seen so much more. I am talking about Mr. Rogelio Tribaldos Alba, a man of Panamanian origin living in Switzerland, who, as manager of the company formation specialists Panazur Inc., is still a very successful businessman to this day. He visited us in ’94 in an attempt to merge LAVECO Ltd. into the Morgan and Morgan Group. He probably saw us as a successful start-up, and they didn’t have a base in Eastern Europe.

MS: Why didn’t you merge with them?

LV: My wife and I were much too proud, and even then we didn’t want to lose our independence. But Rogelio offered a lot of wise words, such as explaining the importance of the „group effect”, and predicting, in the autumn of 1994, that 10 years from then LAVECO would be an international company. He was right, and it was worth going in that direction. Of course, it was also symbolic how he came to Budapest in 1994. The annual „attic clearance” (where residents can put out anything they no longer need and the council removes it) was in full swing in Ráday Street, and to get to the restaurant we had to climb over piles of rubbish. Rogelio saw the junk and exclaimed: „Oh my god, did people really ever use all this?” By a strange twist of fate, he came to Budapest again in 2008, and paid us a visit. Can you believe it, it was autumn again, and once more there was the attic clearance in Ráday Street. I don’t have to tell you what I was feeling as once again we avoided the piles of junk to get to the restaurant...

MS: Was remaining independent the right decision?

LV: It’s difficult to answer that. We didn’t try the other option, so we can’t make a proper comparison. But then I don’t think we would have been capable of trying, it takes a different type. Someone more compromising. We’re not like that. By an interesting twist of fate, in 1997 Mossack and Fonseca also tried to tighten the links between us, but we rejected their advances as well.

MS: So there must be a lot of plus points to running a company as a family business?

LV: As I mentioned, it depends on the person. But what I can say is that it does have numerous advantages. First and foremost is flexibility and speed. You don’t need to go to chase the owners or central offices of a dictating multi when taking strategic decisions. The problem today with a lot of the world’s big companies, in our industry too, is that they are not aware of the idiosyncracies of many markets, such as Eastern Europe.

MS: So it was this local knowledge which allowed you to move into Romania and Bulgaria at the end of the 90s and start of the 2000s?

LV: Exactly. We understood the way of thinking of people in the region, evaluated the demand, and set out our package of services accordingly. It would have been pointless over the years to try and force the solutions which were already popular in the West on to these markets, as our clients always needed something a little different. And we gave them, and still give them something a little different.

MS: For example?

LV: For example, numerous clients come to us today having bought companies somewhere else, only to find that the lawyer or accountant concerned couldn’t help them open a bank account for the company, or provide some other related service.

MS: Some clients say that your services are expensive

LV: If you go to the market to buy cabbage, you will always hear people say that this or that greengrocer is expensive. That is human nature, and we’re not going to try and change that. But let’s go back to the earlier example of the bank account. Just imagine that you have to try and open an account somewhere abroad by yourself. First of all, you have to travel to the given country, probably by plane. You have to stay there for a minimum of 2-3 days, take taxis, eat and drink etc. If you add up all these expenses – flight ticket, hotel, taxis, restaurants – then the total will certainly come to more than the cost of our services. And there is no guarantee that you will be able to open the account in 2-3 days.

MS: Why not open the account without you?

LV: The world around us has changed significantly, and there are only a handful of banks willing to cooperate with foreign clients. You need to know which bank to go to, which door to open, who to look for and which documents to take, not to mention knowing what to say if they ask questions. This is that little extra which only a company specialising in this field can provide. A company which offers company formation as a side product is not able to develop the banking services and contacts required.

MS: So you see this as the little extra which LAVECO offers its clients?

LV: That’s not the only „extra” service which we offer. Today, company formation has developed into something much more complex. The fact that LAVECO has its own offices and infrastructure in several countries means that we can provide our clients with a full range of services „in-house”, from consultation to the arranging of audits. Or, if the owner of a company decides to move their family to Dubai for business purposes, we can even help with that. With us it is not necessary to go through 3 or 4 different agencies, we arrange the company formation, opening of bank accounts, and residence permits.

MS: Will there be any point to LAVECO in the era of the automatic exchange of information?

LV: The world economy will not close down when the banks start making their reports. Of course let’s wait for the large countries to start fighting over the information. In my opinion, as soon as they see the darker side of it all, they will do all they can to make sure they give their rivals as little information as they can. This is perfectly natural. If you look at the work of the secret services, then even those on the same side are unwilling to share confidential information. Why should this be any different in the financial world?

MS: Indeed, that is the crux of the matter: making and maximising profit.

LV: Exactly. Just as much at country level as in the case of any given business. And to that end, countries as well as businesses will make use of every means possible in the future too. Just as businessmen have used tax-reducing methods up until now, so they will do so in the future as well. At most the jurisdiction and the type of company will be different. Much more complex, intricate and sophisticated structures will be established, requiring the combined efforts of a number of specialists. Today, it is not unusual for a businessman to come to a meeting in our offices accompanied by his accountant and lawyer. This will be the case in the future too.

MS: So, do you think there will be a place in the market for LAVECO Ltd. for the next 25 years?

LV: Absolutely. In fact, we can even go on much longer, because we think in systems, and continuously develop what the market demands. Only one thing is constant in the university of life: change. And we adapt to change with the times. That is the natural order.

MS: And are you yourself able to adapt to the changes taking place day after day?

LV: Of course, I have no option but to adapt, otherwise LAVECO would have disappeared from the market long ago.

MS: You have been managing the company for 25 years now? Have you ever considered standing down and handing the reins to someone else?

LV: Naturally I have thought about it. And if we are speaking about the natural order of things, then it goes without saying that sooner or later I will „hang up my boots”, and hopefully my eldest son will take over. He’s studying law at the moment, so there is every chance that I will pass the management of the company to him some time soon. But for me it would be a dream come true if, in time, my other son also joined the company and they managed it together for decades to come, before handing it on to their children. There is immense power lying in such family businesses, and this is good not only for the family, but also for the clients connected to the company.

The above interview appeared on 14.09.2016 on the following site: http://www.kurier.hu/node/3263