ECJ: Hungary’s restrictions on the foreign funding of civil organisations do not comply with EU law
In its judgment in Case C-78/18 Commission v Hungary, delivered on 18 June 2020, the European Court of Justice condemned Hungary for its 2017 adoption of the “Transparency Law” which imposed an obligation on civil organisations to register as “organisations in receipt of support from abroad” if the yearly sum of the donations they received from abroad (including both other Member States and third countries) exceeded a certain threshold and to publicly disclose the donations received, including the name, the country and the city of residence (or in the case of legal persons, the registered office) of the donors whose donations reached HUF 500,000 (around €1400). This information was then published on a freely accessible electronic platform.
The Commission, following a pre-litigation procedure that included the issuance of a letter of formal notice and a reasoned opinion, brought an action for failure to fulfil obligations before the ECJ against Hungary, claiming that the Transparency Law infringed on both Article 63 of the Treaty on the Functioning of the European Union (TFEU) concerning the free movement of capital and on Articles 7, 8 and 12 of the Charter of Fundamental Rights of the European Union, concerning, respectively, the right to respect for private and family life, the right to the protection of personal data and the freedom of association. Hungary claimed that the action of the Commission must be dismissed as inadmissible due to the Commission’s unlawful conduct during the pre-litigation stage, namely the requirement that Hungary submit its comments on the letter of formal notice and then on the reasoned opinion within a period of one month, instead of that of two months normally applied in pre-litigation procedures.
The Court of Justice dismissed Hungary’s argument, noting that the short time limits of the pre-litigation procedure can only lead to the inadmissibility of the subsequent action if the Commission’s conduct provably made it more difficult for the member state concerned to refute the complaints raised in the case. In this case, however, Hungary couldn’t prove such conduct, especially since the Commission accepted – and duly took into consideration – comments submitted by Hungary’s on the formal letter and the reasoned opinion several weeks after the original one-month deadline had passed.
On the substance of the case, the Court first examined whether Hungary’s conduct constituted an unjustified restriction on the free movement of capital enshrined in Article 63 TFEU. The Court held that the transactions covered by the Transparency Law fell within the scope of Article 63’s concept of ‘movements of capital’ and that the law in question does indeed constitute a restrictive measure of a discriminatory nature, as it establishes a difference in treatment between domestic and cross-border movements of capital which does not correspond to any objective difference in the situations at issue and which is apt to deter natural or legal persons established in other Member States or third countries from providing financial support to the organisations concerned. The obligations of registration, declaration and publication and the penalties for failing to comply are meant to create a climate of distrust with regard to the organisations in receipt of support. The public disclosure of information on persons established in other Member States or in third countries providing financial support to these organisations is also such as to deter them from providing such support.
On the question of the possible justification of this restriction, Hungary argued that the law is justified both by an overriding reason in the public interest, specifically the objective of increasing the transparency of financial support received by civil society organisations that have a significant influence on public life, and on the grounds of public policy and public security mentioned in Article 65(1)(b) TFEU, as a measure in the fight against money-laundering, the financing of terrorism and organised crime. Considering the first argument, the Court held that, while increasing the transparency of the financing of organisations may indeed be considered a legitimate justification, Hungary had not demonstrated why this objective warrants the restrictive measures implemented by the Transparency Law, especially since they apply indiscriminately to all the organisations which fall within the scope of that law, instead of targeting only those that are genuinely likely to have a significant influence on public life and public debate. On the second argument, the Court noted that the grounds of public policy and public security may only be relied on if there is a genuine, present and sufficiently serious threat to a fundamental interest of society; Hungary, however, had not submitted any argument proving the existence of such a threat and instead based the Transparency Law on a presumption made on principle and indiscriminately that any financial support of civil organisations that is sent from abroad and the organisations in receipt of such support are intrinsically suspect. Consequently, the Court concluded that the restrictions were not justified and therefore that Hungary had failed to fulfil its obligations under Article 63 TFEU.
The Court of Justice then examined whether the provisions of the Transparency Law constituted a limitation of the rights enshrined in Articles 7, 8 and 12 of the Charter. As regards the right to freedom of association (Article 12(1)), the Court pointed out that it constitutes one of the essential bases of a democratic and pluralist society, inasmuch as it allows citizens to act collectively in fields of mutual interest and in doing so to contribute to the proper functioning of public life. In the present case, the Court found that the obligations put in place by the provisions of the Transparency Law limited that right, inasmuch as they rendered significantly more difficult the action and the operation of the associations which are subject to them.
As regards the right to respect for private and family life (Article 7), the Court referred to the interpretation given by the ECHR, according to which this right compels public authorities to refrain from any unjustified interference in the private and family life of persons and in the relations between them. On the right to protection of personal data (Article 8(1)), the Court noted that it precludes information in relation to identified or identifiable natural persons from being disseminated to third parties, whether that be public authorities or the general public, unless that dissemination takes place in the context of fair processing that meets the requirements of Article 8(2). The Court observed that, in the present case, the obligations of declaration and of publication provided for by the Transparency Law constituted a limitation of both of these interconnected rights, especially since Hungary had not submitted that the provisions laying down those obligations met the requirements of fair processing.
Addressing, lastly, the issue of the potential justification of the limitations to fundamental rights, the Court observed that the provisions of the Transparency Law could not be justified by any of the objectives of general interest – that is, the objectives of transparency and the safeguarding of public policy and public security – which Hungary relied upon.
In the light of these considerations, the Court concluded that, by adopting the provisions of the Transparency Law which impose obligations of registration, declaration and publication on civil society organisations directly or indirectly receiving support from abroad exceeding a certain threshold and which provide for the possibility of applying penalties to organisations that do not comply with those obligations, Hungary has introduced discriminatory and unjustified restrictions in breach of its obligations under Article 63 TFEU and Articles 7, 8 and 12 of the Charter.
Law No LXXVI of 2017 on the Transparency of Organisations which receive Support from Abroad