Protecting Civil Society Organisations in the Member States – The Court’s Decision in C-78/18 on the Hungarian NGO Transparency Law
In a recent judgment, the Court of Justice of the European Union (Court) held Hungary liable for infringing upon the free movement of capital (Article 63 Treaty on the Functioning of the European Union (TFEU)) by introducing a new NGO Transparency Law (the Law). At the same time, the Court declared that the Law infringed the Charter of Fundamental Rights of the European Union (Charter) by contravening the right to respect for private life, the right to the protection of personal data and the right to freedom of association (respectively, Articles 7, 8 (1) and 12 of the Charter).
The backdrop of the case is the ongoing rule of law crisis in the European Union (see here). As a result of political changes in Hungary since 2010 (for further background see here), media and civil society pluralism are increasingly under threat in Hungary. The Hungarian government encroaches in several ways upon the media and the non-governmental sector (see here).
This case highlights an encroachment on the civil-society in Hungary via a Law requiring excessive transparency standards from non-governmental actors. The case results from infringement proceedings launched by the European Commission (Commission) under Article 258 TFEU in December 2017 (see here). This blog post will analyse the Court’s judgment, comment on the importance of the case in the ongoing EU rule of law crisis and highlight the Court’s approach towards so-called ‘integrated Charter infringements’ (i.e. infringements of the four freedoms of the Single Market which at the same time also infringe rights enshrined in the Charter). The case is emblematic for discriminatory national laws in Hungary that infringe upon EU fundamental rights.
The NGO Transparency Law
The contested Law, which was adopted in June 2017, aimed at ensuring transparency of civil organizations (NGOs) in Hungary that receive foreign funding. Under the new Law, NGOs were required to register with the national authorities as ‘organizations in receipt of support from abroad’ if they reach a certain threshold of annual funding, and to list the donors whose support reaches or exceeds HUF 500,000 (approximately € 1,450), with the exact amount of their support. That information is subsequently published on a freely accessible online platform. In addition, the NGOs concerned were obliged to indicate on their website and in all their communications that they are an ‘organization in receipt of support from abroad’. Finally, a failure to comply with these measures would lead to the dissolution of these organizations (for an in-depth analysis of the Law see here; an unofficial translation of the Law can be found here).
The AG’s Opinion
In an earlier blog post, the author analysed the Advocate General’s (AG) Opinion that was published in January 2020 (see here). In his Opinion, AG Sánchez-Bordona argued that Hungary had infringed the free movement of capital with its new Law while at the same time also infringing certain Charter rights. Further, the AG proposed a new standard of review for integrated Charter infringements. This assessment was contentious since the Hungarian Law did not implement any EU law; therefore, it was unclear whether the Charter was concretely applicable to the matter. Hungary denied, while the Commission and Sweden, which intervened as interested parties in the case, argued in favour of the Charter’s applicability.
Infringement of the Free Movement of Capital
Regarding the substance, the Court first recalled the concept of ‘movement of capital’, which is non-exhaustively defined in Annex I to Council Directive 88/361/EEC (paras. 47-51). The Court had held in Van Putten and Commission v France that also inheritances and gifts fall under the concept. This is important because NGOs traditionally receive a large amount of funding via inheritances and gifts. The Law thus targeted holistically the main funding channels of NGOs.
Starting from this definition, the Court reiterated the concept of a ‘restriction of free movement of capital’ between two Member States (MSs) (paras. 52-53). These restrictions can be direct (e.g., via capital caps on foreign investment) or indirect (e.g., via special transparency requirements for foreign investors). Having restated the concept of free movement of capital and restrictions on the latter, the Court scrutinized whether the Hungarian Law established such restrictions.
The three essential constraints for NGOs under the new Law were the following: (i) registration as ‘an organization in receipt of funding from abroad’; (ii) publication of the list of donors on a public electronic platform; and, (iii) possible penalties (including fines but also the dissolution of the NGO) for failing to fulfil these requirements. The Court quickly found that the combined effect of these three measures was to restrict the free movement of capital (para. 57).
More specifically, the Court considered that these measures result in ‘stigmatizing those associations and foundations’ and ‘to create a climate of distrust concerning them’ (para. 58). As a corollary, the measures would deter the likelihood of funding for NGOs in Hungary (para. 60). Moreover, the Law would also discriminate against other MS nationals who provide funding to NGOs established in Hungary. Therefore, those measures constituted an indirect discrimination based on nationality (para. 62).
The free movement of capital (Article 63 TFEU) can, however, be constraint by MSs under certain conditions set forth in Article 65 TFEU. Hungary invoked those exceptions by highlighting that the Law would (i) increase transparency and (ii) safeguard public policy and public security while at the same time combatting money laundering (para. 67). Article 65 (1) (b) TFEU allows MSs to adopt measures on the grounds of public policy and public security in financial matters. Nevertheless, there must be a genuine, present, and serious threat to public policy and public security to invoke Article 65 (1) (b) TFEU (para. 91).
Moreover, Hungary argued that the Law was necessary, proportionate, and justified by an overriding reason in the public interest (to increase the transparency of financial funding to NGOs) and the reasons referred to in Article 65 TFEU (paras. 73-74). Thus, Hungary pursued a two-fold approach to justify the restrictions on the free movement of capital. First, by an overriding reason of public interest, second, by virtue of Article 65 (1) (b) TFEU.
The Court, first, affirmed that the objective of increasing transparency of financial support might constitute an overriding reason in the public interest according to the principle of openness and transparency enshrined in Article 1 TEU, Article 10 (3) TEU and Article 15 (1) and (3) TEU (para. 78). However, by flagging the preamble of the new Law, the Court found that the Hungarian Government sees financial support from other MSs as liable to jeopardize Hungary’s significant societal interests (para 83). Such a general presumption that all kinds of funding for domestic NGOs from other MSs are liable to jeopardize the MSs significant interest was not deemed to be attainable under the objective of increasing transparency (para. 86).
Regarding Hungary’s second justification based on Article 65 (1) (b) TFEU, the Court found that the Law, instead of relying on a present threat, was again based on a general presumption. This assumption was deemed untenable under the requirements of Article 65 (1) (b) TFEU (para. 93). Thus, and in conclusion, the Law could neither be justified by an overriding reason of public interest nor by grounds of public policy and public security mentioned in Article 65 (1) (b) TFEU.
Infringement of the Charter of Fundamental Rights
While the Court could have ended its analysis here, it continued to scrutinise the Law against several rights guaranteed by the Charter. This is most interesting, because in literature, it is subject of debate whether the Court of Justice is entitled to rule on the Charter infringements in such cases or only on the infringements of the four freedoms. Moreover, and in doing so, the Court affirmed the applicability of the Charter to the present case. One of the contended issues was indeed the admissibility of the Charter claims. As it is well known, the Charter is only applicable when MSs are implementing EU law (Article 51 Charter). However, in the present case, Hungary did not implement any EU measures via its Law.
The route through which the Court deemed the Charter to be applicable to the present case is very interesting and a further confirmation that MS might fall within the scope of application of the Charter without actually implementing EU law. According to the case-law of AGET Iraklis (see analysis here) and Commission v Hungary (see press release here), the Charter is applicable in cases in which MSs justify a national measure that restricts a fundamental freedom of the internal market by invoking EU law objectives. According to the Court, this justification must be regarded as implementing EU law within the meaning of Article 51 (1) of the Charter (para. 101). Therefore, Hungary’s Transparency Law fell under the scope of application of the Charter.
Next, as to the substance, the Court first recalled the concept of freedom of association defined by the European Court of Human Rights (ECtHR). According to this concept, freedom of association 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 (see ECtHR cases Gorzelik and Others v. Poland and Tebieti Mühafize Cemiyyeti and Israfilov v. Azerbaijan). In light of this case law, the Court of Justice of the European Union found that the Hungary’s Law, by its systematic obligations, creates a deterrent effect for donors’ residing in other MSs and, thus, hinders the proper functioning of public life. Therefore, the Law infringes upon the freedom of association enshrined in Article 12 (1) Charter.
Furthermore, the Court scrutinised the Law against the right to respect for private life (Article 7 Charter) and the right to protection of personal data (Article 8 (1) Charter).
As to the former, Hungary had argued that donors could be qualified as ‘public figures’ and, therefore, their data can be openly published. But the Court rejected this claim by recalling the ECtHR case-law that public figures only encompass persons exercising a political role (see ECtHR cases Von Hannover v. Germany and Von Hannover v. Germany (No. 2)). Therefore, this requirement of the Law infringed upon the respect for private life as enshrined in the Charter.
As to the latter, Hungary could not prove that handling the data of donors meets the standard of fair processing in accordance with Article 8 (2) Charter. Hence, the Law also infringed upon the right to the protection of personal data guaranteed by the Charter. The Court did not examine Hungary’s justifications for the mishandling of private data by pointing out its earlier finding that the Law cannot be justified by any objective of general interest recognized by the European Union. Thus, Hungary’s justifications did not fulfil the requirement of Article 52 (1) of the Charter (paras. 139-140).
From a European values perspective, this case is a further significant step in upholding the rule of law and democracy in the European Union’s Member States. In addition to the case brought by the Commission regarding Hungary’s ‘Lex CEU’ (see analysis of the AG’s Opinion here; see judgement here – Editors’ note: this judgment will soon be analysed in another post), this signifies a victory for the Commission to finally put flesh on the bones of some of the values enshrined in Article 2 TEU. Civil society pluralism is an important component of a democratic society. Laws that disproportionally restrict NGOs, therefore, infringe the values of the European Union to which MSs signed up to.
From a legal perspective, the Court – once again – follows the route of applying the Charter to infringements of the four freedoms that a MS justifies by an EU law objective, in line with its earlier case law. The doctrine is as follows: if a MS justifies a restriction of the four freedoms by invoking a general interest recognized by the European Union, the restriction can be scrutinised against Charter rights. Thus, MSs may not invoke EU law objectives while at the same time restricting rights guaranteed by the Charter. The case is, therefore, part of a series of cases which widen the scope of application of the Charter into the realm of the four freedoms. Subsequent to this judgement, MSs must be aware that their national laws restricting civil-society associations can potentially be scrutinised against Charter rights. This judicial development is further accompanied by a 2020 initiative of the Commission to increase the awareness, visibility, and the impact of Charter rights (see here).
From a civil society’s perspective, the judgment forms a vital component of protecting media pluralism and an active civil society in Hungary. It provides for an unobstructed level playing field for civil society organizations in Hungary. The Court – once again – plays a vital part in safeguarding the very principles of the rule of Union law in the MSs. Civil society associations are crucial bottom-up organisations in constitutional systems as they conduct essential work for the rule of law, democracy and minority protection (see, for example, here). The ongoing rule of law crisis in the EU can only be solved by gaining support for the rule of law in the MSs. Civil society associations play a crucial part in this.
 The preamble to the Transparency Law states, among other things, that civil society organizations ‘contribute … to democratic scrutiny of and public debate about public issues’ and that they ‘perform a decisive role in the formation of public opinion’ and that ‘[their] transparency is overwhelmingly in the public interest.’ It also states that ‘support from unknown foreign sources [to civil society organizations] is liable to be used by foreign public interest groups to promote — through the social influence of those organizations — their interests rather than community objectives in the social and political life of Hungary’ and that that support ‘may jeopardize the political and economic interests of the country and the ability of legal institutions to operate free from interference.’
 For further information, see the following case-note by Xavier Groussot, Niels Kirst, and Patrick Leisure: https://journals.lub.lu.se/njel/article/view/20370.
 As counterfactual, it would create a nonsensical outcome if MSs could justify a restriction of the four freedoms by an interest recognized by the European Union while at the same time infringing upon Charter rights provided for by the European Union.
 If this increasingly widening scope of the application of the Charter is, what the drafters of the Charter had in mind is material for deeper analysis in a EU law review article.