Advocate General considers foreign funding restrictions in Hungary incompatible with EU law

On 14 January 2020 the Advocate General Campos Sánchez-Bordona released his opinion, in which he concluded that the restrictions imposed by the Hungarian Transparency law are not compatible with EU law.

In 2017, the Hungarian Parliament adopted the Law on the Transparency of Organisations Supported from Abroad (e.g. CSOs receiving funding from foreign foundations (read more on this topic on ECNL website)). The Law introduced a status for “organisations supported from abroad” that applies to all Hungarian associations and foundations receiving funding from any foreign sources (e.g. individuals, foundations, government aid agencies, direct EU funding) above 7.2 million HUF (approx. €23,500) in a tax year.

In order to be compliant with the Transparency law, CSOs are also required to report specific information about the funding they receive from abroad to the Hungarian authorities, including when a donor provides funding above HUF 500,000 in a given year, detailed data concerning the donor and each donation with the data all being recorded in a special, publicly accessible Registry. In case an organisation fails to comply with the requirements imposed by the Transparency law, it can face sanctions, including potential fines.

Following this worrying development, the European Commission formally started in 2017 the infringement procedure against Hungary and referred the government to the Court of Justice of the EU. This was the third step of the procedure, as Hungary did not present a satisfactory response to the letter of formal notice sent by the Commission previously or the reasoned opinion, which both preceded the referral to the Court.

The European Commission in its submission claimed that the Transparency law infringes on both the principle of free movement of capital and a number of rights protected by the Charter of Fundamental Rights of the European Union: the right to respect for private life, to the protection of personal data, and to freedom of association.

The case is still currently pending before the Court of Justice of the EU awaiting decision, however in January this year, the Advocate General Campos Sánchez-Bordona, released his opinion, in which he concluded that the restrictions imposed by Hungary in the Transparency law are not compatible with EU law.

In the Advocate General´s view the transfer of a donation from abroad to a Hungarian civil organisation fell under the definition of movement of capital. Subsequently, it was crucial to answer the question whether this freedom had been restricted by the conditions set out in the Hungarian Transparency law. The requirements stipulated in the law applied solely to donations coming from abroad, and therefore were much more likely to affect the nationals of other Member States than Hungarian nationals and thus, represented a restriction of the freedom of movement of capital, affecting both CSOs and their foreign donors.

Moreover, according to the Advocate General, the restrictions stemming from the Hungarian Transparency law also touched upon the right to freedom of association, as “the financial effects of the legislation at issue may affect the viability and the survival of the organisations concerned, undermining the attainment of their social objectives.” He further stated that the mere disclosure of the donor’s name was sufficient by itself to identify that donor, and to place that disclosure within the scope of the provisions of EU law on the treatment of personal data. Consequently, he argued that the publication of this data is an interference with both the rights related to the protection of private life and personal data, and with the right to freedom of association, all safeguarded by the Charter.

Mr Campos Sánchez-Bordona´s opinion concluded with a consideration on the justification of the interference provided by Hungary. He admitted that the relevancy of some general interest objectives relied on by Hungary — such as the protection of public policy and the fight against money laundering and terrorist financing, however he found that the general objectives did not justify imposing the obligations on all civil organisations. Moreover, the Advocate General considered the current EU AML/CFT legislation sufficient for the purposes of guaranteeing adequate protection.

Lastly, the Advocate General found that the measures at issue were disproportionate because, first, the threshold of 500 000 Hungarian forints (HUF) was excessively low given the gravity of the resulting interference; secondly, donations coming from other Member States were treated in the same way as those coming from outside the EU and, thirdly, failure to comply with the obligations at issue could lead to the winding-up of the infringing organisation.

In spite of the fact that the opinions of Advocate Generals are not binding, according to empirical research, in cases of an action for the annulment of an EU act, the Court of Justice is 67 % more likely to annul, if it was advised to do so by an Advocate General.

Image courtesy of the Court of Justice of the European Union.