Hungary’s nationalist-populist government is facing a reckoning with the European Union after nearly a decade of accusations that it has failed to uphold the EU’s democratic values.

The EU’s executive arm, the European Commission, appears set to impose financial penalties against Hungary on Sunday over corruption concerns and alleged rule-of-law violations.

Hungary is one of the largest net beneficiaries of EU funds in the 27-nation bloc, and the sanctions could cost Budapest billions and cripple its already ailing economy.

Prime Minister Viktor Orban has denied the commission’s accusations. Now, a legislator who is a former member of Mr Orban’s party alleges the government has channelled large sums of EU money into the businesses of politically connected insiders.

Akos Hadhazy left the nationalist-populist Fidesz party in 2013 after becoming aware of what he describes as unchecked corruption taking shape in the Central European nation.

He told the Associated Press: “When Fidesz came to power, I saw more and more that a very serious organisation was beginning to develop throughout the country, whose main task was to steal as much of the European Union’s money as possible.”

The EU’s executive arm, the European Commission, has for nearly a decade accused Mr Orban of dismantling democratic institutions, taking control of the media and infringing on minority rights.

Peter Kreko, director of the Budapest-based think tank Political Capital, said the EU appeared to be hardening its stance against Mr Orban, who has been in power since 2010, after previous disciplinary measures failed to bring Europe’s longest-serving leader into compliance with its values.

Mr Kreko said: “EU institutions learn slowly, but they learn. More and more people in the Commission and in the European Union know about the negotiation deception tactics of Hungary, as well as about the nature of the Hungarian political regime.”

While it is not clear how much money Hungary stands to lose, funds cut from its 22 billion euro (£19 billion) share of the EU’s 2021-27 budget could affect around 70% of funding from some programmes, according to an internal July document by Budget Commissioner Johannes Hahn.

Many of the potential cuts are related to public procurements – purchases by the state of goods and services or for the execution of projects using EU funds.

According to Mr Hadhazy, improper processes for awarding of such contracts have allowed Mr Orban’s government to channel large sums of EU money into the businesses of politically connected insiders.

“Huge fortunes were made from such things, and they are essentially the source of this astonishing luxury mansion behind us,” Mr Hadhazy said, before the gates of the opulent Schossberger Castle in Tura – which is owned by the son-in-law of Mr Orban.

“The system is about having its tentacles … in the highest levels of government.”

Mr Hahn’s EU memo also pointed to irregularities in public procurements in Hungary and to “an increase of the odds of winning of politically connected companies”.

Mr Hadhazy, who has investigated and documented hundreds of cases of alleged corruption, borrowed a car from his mother to visit several places this week where he suspects EU funds were misused.

One was the site of a planned server farm near Budapest where the government said it would store the state’s most important data.

Receiving more than 50 million euro (£43 million) in EU funding, construction of the facility – awarded to a company owned by a childhood friend of Mr Orban who is Hungary’s richest man – began in 2016, and completion was set for the following year.

But when Mr Hadhazy visited the site on Wednesday, only a concrete skeleton stood where the server park was planned – a sign, he said, that the funds may have been misused.

“The whole process is a charade,” Mr Hadhazy said of Hungary’s public procurement process, which ordinarily should involve competition between several bidding companies.

“It’s decided at the very beginning who can win, and it’s decided who will do the work at the end.”

Earlier this month, the Hungarian government pledged to set up its own anti-corruption agency. It has reportedly prepared additional legislation aimed at increasing transparency in public procurements.

But the European Commission faces pressure from Euro-MPs to fully enforce rules on corruption and rule-of-law requirements.

In a resolution passed on Thursday with an overwhelming majority, the European Parliament said the Hungarian government had become “a hybrid regime of electoral autocracy” that could no longer be considered a democracy.

Hungary’s ministry of justice did not respond to a request for comment. Speaking in Serbia on Friday, Mr Orban dismissed the resolution as a “joke” and maintained that his government’s conservative credentials were the reason for the EU’s tough stance.

In 2021, Hungary’s government opted out of joining the European Public Prosecutors Office — an independent EU body tasked with combating crimes affecting the financial interests of the bloc. It argued that joining would amount to a loss of national sovereignty.

But Mr Hadhazy said that unless Mr Orban’s government agrees to join the office, there will be no real guarantee that graft reforms will be able to achieve any meaningful results.

“I say that if the EU gives Hungary one eurocent without us having joined the EU prosecutor’s office, then the EU really is as stupid as Orban says it is,” he said.