Russian-style law could bring surprise raids, fines for uncooperative banks and could create a network of informers

• Fidesz's new legislative proposal "on transparency in public life" will make it possible to place organizations which receive any support from abroad on a special register if the Sovereignty Protection Office (SPO) has deemed them a threat to Hungary's sovereignty.
• The new law not only aims to back certain organizations into a corner, but also seeks to intimidate their leaders and members in ways never seen before, making it possible to discredit them on a personal level in a number of ways.
• In addition to the fact that once the bill is approved, the listed media outlets and NGOs will have to tread very carefully, the Russian-style law would essentially create a network of informers, allow for raids even at private residences, and sanction banks that refuse to cooperate with the state in monitoring foreign donations, which the law simply refers to as "payment transactions requiring authorization."
• The bill provides for extremely limited legal remedies and makes it clear that the government is willing to use a significant part of the state apparatus to protect Hungary's sovereignty from perceived threats.

"This is an all-out attack," Tivadar Hüttl, one of Telex's lawyers said when commenting on the bill submitted to parliament on Tuesday night by Fidesz MP János Halász. Under the proposal, organizations which receive funding from abroad (on top of donations from Hungary) could be placed on a list and financially crippled if the Sovereignty Protection Office deems them a threat to the country's sovereignty. According to the lawyer, the current bill is much harsher than the 2017 “agent law”, primarily due to the shocking severity of the sanctions, the lack of legal remedies, the possibility of disrupting individuals’ lives, and the comprehensive approach that characterizes the entire bill. Under the law, company executives and leaders of NGOs may be banned from holding leadership positions and from founding new organizations, while the National Tax and Customs Administration may even conduct house searches in private residences, and the fines imposed for violating the law are so high that they could bankrupt even a large organization in a matter of days.

"If they decide that it was wrong for an organization to receive a $100,000 grant, they'll give them a $2.5 million fine. Other than the Center for Fundamental Rights, there is no NGO in Hungary that would be able to pay such an amount," he says. According to Tivadar Hüttl, in its current form, the law could ruin people's lives and careers. He also finds it striking to see how many different entities would be involved in enforcing the law: in addition to the Sovereignty Protection Office and the NAV (National Tax Authority), the Minister of Justice, the courts supervising NGOs, registry courts, the Central Bank (MNB), and even banks will be playing a role. Furthermore, based on one of the sections, anyone will be able to file a complaint against an organization, even anonymously, which, according to the lawyer, could lead to the creation of a system built on informants.

Another striking feature of the proposed law is the almost complete lack of legal remedies: for example, there is no legal remedy against being placed on the register, losing the right for receiving the designated 1% of citizens' personal income tax, or against having to make a declaration of assets. According to Hüttl, the bill is contestable on the grounds of the right to a fair procedure and the right to legal remedy alone.

Fidesz's solution announced as "the spring cleanup" arrived in the early hours of Wednesday morning: Fidesz MP János Halász submitted his proposal entitled "On transparency in public life," which, in pure Putinist fashion, would cripple the work of NGOs and independent media and eliminate the possibilities for genuine, open public debate. As we wrote after the initial shock: with this, the ruling party has effectively decided to take the entire country and opt out of Europe.

Anyone can be a foreigner, anything can count as support

The bill is based on the premise that in recent years, there have been serious abuses of Hungary's sovereignty. According to the text of the bill, it has been proven that certain domestic NGOs and business organizations "have become a tool for influencing the domestic public sphere and shaping it in line with foreign interests through funding provided by other states, foreign organizations or individuals." The proposal claims that it is the duty of the state to ensure that citizens can make decisions without being influenced by foreign powers or individuals. To justify their proposal, the authors cite the results of the national consultation on sovereignty, which they say “clearly show that the Hungarian people have stood up for the sovereignty of our country and that an overwhelming majority have said no to others deciding on issues that have a fundamental impact on our lives.”

The creators of the bill claim that this justifies creating "the possibility of registering organizations supported from abroad that threaten Hungary's sovereignty". Once an organization is placed on the list, it won't be able to accept funds from abroad without permission and neither will it be able to receive 1% tax donations, (in Hungary it is possible to specifically allocate one percent of one’s personal income tax to certain organizations and causes of one’s choosing-TN). Additionally, the leaders of these organizations will be required to make a declaration of assets — as we will later see, under much stricter conditions than, say, members of the Parliament — and provided that the bill passes in its current form, they (executive officers, founders, and members of supervisory or oversight committees) will henceforth be considered prominent public figures.

Under the law, the following are considered to be foreigners:

• foreign nationals, including Hungarians with dual citizenship;
• other states;
• legal entities or organizations registered abroad or whose central administration office is located abroad;

Based on this, any direct or indirect support from foreign individuals, states or organizations, including movable property, services, financial benefits, property rights, donations, subsidies, grants obtained through tenders, funding received by means of a subsidy agreement or individual application, allowances, gifts, loans or essentially any type of income, regardless of whether it needs to be repaid or not, shall be considered foreign funding.

The proposal applies to organizations which "threaten Hungary's sovereignty by using foreign support to engage in activities aimed at influencing public life." Influencing public life includes, for example, efforts by an organization to influence democratic debate and state and social decision-making processes, the will of the electorate, or elections.

What will this look like in practice?

First, based on a recommendation from the Sovereignty Protection Office, the government will register organizations the SPO considers to be threatening the country's sovereignty. Foreign funding (which the bill jovially refers to as "payment transactions subject to authorization") may only be accepted with the permission of the Office for Combating Money Laundering and the Financing of Terrorism, which operates under the National Tax and Customs Administration (NAV). The Office for Combating Money Laundering and the Financing of Terrorism will then notify the organization that it has been included in the register and of the consequences thereof. The law does not provide for any legal recourse against being included in the register – but Tivadar Hüttl says that in spite of this, legal action is not necessarily out of the question, though it would definitely be tricky and would most likely involve procedural hurdles that offer little hope of success.

It is not possible to seek immediate legal protection by filing a judicial review of the decision of the Office for the Prevention of Money Laundering and the Financing of Terrorism (i.e., if it is likely that the organization will suffer serious harm as a result of the decision, it is not entitled to immediate legal protection from the court, even in cases of obvious and serious violations of the law). An appeal may be lodged against the decision within 30 days, which the NAV will forward to the Supreme Court within 15 days. The Supreme Court will have to deliver its decision within 45 days, but it cannot change the decision, at most it can annul it and order a new procedure.

The law authorizes the NAV to conduct on-site inspections practically anywhere where it is likely to find evidence, i.e., not necessarily only at the registered office of the company concerned, but also, for example, at the residence of the editor-in-chief of a newspaper or a member of an association. During the inspection, they may monitor and examine any documents, data carriers, and work processes they find, and make copies of anything. If necessary, the NAV may also request police assistance.

Banks will also play an important part in the entire process, as they are required to monitor payments made to the accounts of organizations on the list.

If the bank detects a "payment transaction subject to authorization," it must immediately notify the NAV, i.e., the Office for Combating Money Laundering and the Financing of Terrorism, and suspend access to the transferred amount for up to five days. The NAV's anti-money laundering unit will then have five days to decide whether to allow the transfer to go through. If not, then the bank is not allowed to make the transfer and must notify the Hungarian National Bank.

If the anti-money laundering unit examines a transfer and finds that it is intended for the influencing of public life (in particular if its purpose is to "fulfill the requests of a foreign supporter" or "promote the objectives of a foreign supporter"), it may decide that the amount should be returned to the sender. And as for how long the NAV has to conclude such an investigation? The examination must be completed within 90 days of the suspension, with the possibility of extending the process for another 90 days. This means that, according to the proposed law, the investigation of, say, an EU grant application could remain in the system for up to six months, and even then there is no guarantee that the organization concerned will ever see the money.

The bill also seeks to "motivate" banks to monitor the accounts of those concerned. If a bank fails to comply with or disregards the rules and, as a result, an organization receives foreign funding unlawfully, the bank is required to pay the amount of the aid into a common fund, i.e., the National Cooperation Fund (this is also the fund into which the organizations in question have to pay the fine) within fifteen days. If the bank can prove that it acted with due care and diligence, it may be exempted from liability.

If it is assumed that a listed organization has accepted foreign funding without permission, the NAV may conduct an audit. If it finds that the organization has broken the law, it will impose an administrative fine equal to twenty-five times the amount of the funds received, and the funds themselves must be paid into the National Cooperation Fund within 15 days. If the organization fails to do either of these things—which is quite possible, since it would have to transfer 25+1 times the original amount of funding to the state within two weeks, and it is likely that it won’t be able to do—or if it violates the law a second time, the NAV may ban the organization from "continuing to engage in activities that influence public life." What this means exactly is not clear from the current proposal, but in the case of NGOs, it would obviously result in their being banned from exercising their fundamental rights, which is incomprehensible from a constitutional point of view.

In this case, the NAV would notify the relevant authority (the registry court or, in the case of an NGO, the regional court), which would register the ban without conducting a separate procedure. And if all this were not enough, the NAV would then once again order the listed and by this point, already banned organization to pay the amount corresponding to the accepted funding into the National Cooperation Fund within 15 days.

The law would place a brutal administrative burden on the organizations and on potential domestic supporters as well.

One of the clauses in the seventh paragraph stipulates that individuals or organizations supporting an organization listed in the register must make a statement in a private document with full evidentiary force at the time of providing support, confirming that the support is not of foreign origin – imagine how likely an average person would be to transfer 10,000 forints (25 euros) to a human rights organization on the list if they first had to hunt down witnesses in order to prove that the money was not coming from abroad.

House searches, asset declarations, and a network of informers

In addition to asset declarations, unlike members of parliament, the leaders of affected organizations must also undergo "enhanced client screening in accordance with the law on the prevention and combating of money laundering and the financing of terrorism." The asset declaration is then to be reviewed by the Minister of Justice and published on the government's website. Failure to comply will result in a public announcement on the government's website and the suspension of the individual's right to represent the organization, with no possibility of appeal. If someone fails to submit their final asset declaration, they may be fined between 500,000 and 2 million forints, (1240 euros and 5000 euros) which may be imposed repeatedly (there is no possibility of appeal).

Paragraph 23 is also reminiscent of the informant system of old, as according to this, the NAV may not only act ex officio (on the basis of a signal from a bank), but may also investigate the operations of organizations listed in the register on the basis of individuals' notifications or complaints. Additionally, a complaint may also be submitted if the matter would otherwise fall under the jurisdiction of another procedure, and the NAV may also act based on any information at its disposal. Anyone may file a complaint or a report, even if the NAV's anti-money laundering unit would not be competent to take action. The person submitting the report may remain anonymous: “In order to receive reports and complaints, the anti-money laundering authority will operate a reporting platform that ensures the anonymity of those making reports and complaints,

which allows for confidential communication.”

Although there are additional methods for contacting the tax authority, the draft law does not elaborate on these.

Section 25 of the draft law is equally alarming: according to this provision, the NAV, as an anti-money laundering authority,

• may require regular or extraordinary reporting of data
• may request practically any data: reports, receipts, investigation materials, accounting records, submissions, documentation of transactions, minutes, auditor's comments, and internal audit reports;
• Furthermore, the audited organization or person, as well as "the persons obliged to cooperate in clarifying the facts," are required to disclose data, including personal and protected data, and even “incriminating evidence.”

For the press, the fact that everything can be seized during on-site inspections means that the protection of sources will effectively cease to exist, making investigative journalism impossible. In the case of civil rights organizations, this would give the authorities access to the data of citizens seeking legal assistance against the state. The new law would therefore grant unlimited investigative powers and authorize raid-style inspections (in principle, the person or organization subject to inspection must be notified 15 days in advance, unless this would jeopardise the effectiveness of the procedure).

The bill also severely restricts access to data: the state may refuse granting access to data held by the NAV's anti-money laundering unit for up to 30 years if such access would threaten "crime prevention, law enforcement or national security interests." On the one hand, this means a restriction of the rights of clients: the body or person concerned may be arbitrarily prevented from accessing documents pertaining to the proceedings. On the other hand, it also means a restriction on the disclosure of data of public interest: the public will not be able to obtain information about the proceedings, or, even more absurdly, about their outcome.

Serious sanctions may also be imposed on the organizations' leaders: the registry court may prohibit the managing directors and senior officers concerned from acting as managing directors or senior officers of commercial companies for a period of five years, and from establishing a commercial company within five years. These individuals also may not be allowed to acquire a majority interest in companies, become members of limited liability companies or sole proprietorships, or to represent companies.

Similar penalties will also apply to leaders of NGOs: if they violate the law, they will be banned for five years from becoming senior officers of NGOs or from establishing an NGO within the next five years. If an NGO should fail to fulfill its obligations as defined by law, it may even be dissolved, with its assets being transferred to the National Cooperation Fund.

From bugs to the law on “transparency in public life”

In his speech on March 15, Prime Minister Viktor Orbán called NGOs critical of the government, independent journalists, and the judges who demonstrated for the independence of the judiciary and opposition politicians "bugs who have made it through winter." According to Fidesz's narrative, all of these people are funded from abroad. "We've had enough of them. Tavaszi szél vizet áraszt" (lit:Spring winds bring floodwaters – the first line of a traditional Hungarian folk song -TN), he said, adding: let the waters take them away. The scarlet letter is upon them, may their fate be shame and contempt. If there is any justice, and there is, there is a special place waiting for them in hell," the Hungarian Prime Minister said at the time, adding that "spring cleaning" will commence by Easter.

As it was mentioned in our special live broadcast, the current law bears striking similarities to the situation in Russia: In Russia, the suppression of civil society and the press dates back to 2012, when the first law on "foreign agents" was passed, which has been gradually tightened over the past 13 years. "With the proposal tabled by János Halász, Hungary is also rapidly moving in this direction: the suppression of the press, the suppression of individuals associated with them, the obstructing of funding, and the instilling of fear – all of this has already been done in Russia, and now Hungary has taken another step in the same direction."