What is the background to the so-called Transparency Law?

In his annual end-of-year address this February, Viktor Orbán stated: “We are urgently creating the constitutional and legal conditions so that we do not have to stand idly by while pseudo-civil public organisations serve foreign interests in plain sight and organise political events. (…) Let’s shut off the money taps of the Soros-network, let state bodies fulfil their obligations to protect sovereignty, and let’s enforce the law against the perpetrators. (…) We could finish the empire’s Budapest outpost by Easter.” The Prime Minister’s March 15 threats were made in a similar spirit: “The great Easter clean-up is coming. The bugs (“poloska”, meaning stinkbug – the term can refer to a covert listening device in Hungarian as well) have overwintered. We are dismantling the financial machinery that bought politicians, judges, journalists, pseudo-civil organisations and political activists with corrupt dollars. We are dismantling the entire shadow army.”

Later, Orbán and his communications machine insisted that by “bugs” he only meant Péter Magyar (referring to Magyar secretly recording conversations with his wife, then-justice minister Judit Varga). And there were no other signs of the “Easter clean-up” until 13 May, when Fidesz MP János Halász submitted the draft law titled “On the Transparency of Public Life” to the Parliament shortly after 11:30 p.m. (Later, along with many other government party politicians, both Orbán and Antal Rogán claimed credit for it.)

Where does the name come from?

It is an old weapon of Fidesz to hide its own political intentions – usually not exactly in line with the announced goal – behind popular terms. This is how the law merging homosexuality with paedophilia came to be called the Child Protection Law. The situation is similar with the Transparency Law, which, under the guise of transparency, actually threatens to silence critical voices – yet no other name for it has taken root in public discourse so far.

Who does the “Transparency Law” apply to?

The cardinal law proposal targets “organisations influencing public life with foreign funding”, claiming that they endanger Hungary’s sovereignty, especially if their activities harm or portray negatively

• the independent, democratic, rule-of-law character of Hungary;
• the unity and cohesion of the Hungarian nation and the responsibility for Hungarians living beyond our borders;
• the primacy of marriage, family, and biological sexes;
• peace, security, and cooperation with other countries;
• Hungary’s constitutional identity and Christian culture.

The law applies to all legal entities and other organisations without legal personality that are classified in this category.

According to the draft, the Sovereignty Protection Office, led by Tamás Lánczi, will submit a proposal to the government regarding the organisations deemed to be threatening Hungary’s sovereignty. Based on the office’s recommendation, the government will then compile a register of these organisations, announcing the list via decree. Later, the National Tax and Customs Administration (NAV) may – either ex officio or based on a report – verify whether the organisation’s activities still meet the criteria for inclusion in the register.

What is the essence of the “Transparency Law”?

The following apply to any organisation included in the register:

• its executive officers, founders, and members of its supervisory or control boards are considered prominent public figures and must submit an annual asset declaration, which will be published by the Minister of Justice;
• it may only accept foreign support with the permission of the anti-money laundering authority;
• it may not receive any part of the one percent of personal income tax designated by the taxpayer;
• additionally, it must request a private document with probative force from its supporters – whether they are natural persons, legal entities, or other organisations – when receiving financial or in-kind support, stating that the support does not originate from a foreign source either directly or indirectly.

Banks, according to the draft law, will continuously monitor the accounts of registered organisations to identify foreign funding, and in the case of a payment transaction requiring authorisation, they will immediately notify the NAV. The tax authority will, within five days, order the execution or suspension of the payment transaction. In the latter case, it will conduct an investigation within 90 days (or, as the deadline can be extended once, 180 days), and if it determines that the support is intended to influence public life, it will order the amount to be returned to the donor.

If a registered organisation has accepted foreign support without NAV’s permission, the office will impose an administrative fine equivalent to twenty-five times the amount of the unauthorised support, which must be paid within fifteen days into the National Cooperation Fund.

(This is a budgetary appropriation of the central budget offering support opportunities for civil organisations, primarily through grants.)

If an organisation fails to pay the fine on time or accepts unauthorised foreign support a second time, the NAV will prohibit it from continuing activities influencing public life.

The public prosecutor’s office will call upon civil organisations that fail to fulfil their obligations under the Transparency Law to restore lawful operations. If the organisation does not comply, the court, at the prosecutor’s request, will dissolve the association. A company may be similarly declared defunct if legal supervisory proceedings are initiated due to violations of obligations specified in the Transparency Law.

What’s the problem with the “Transparency Law”?

We covered why the draft is problematic in detail, dedicating a separate article for legal concerns.

The main problem is that the law defines both “foreign” and “support” in extremely broad terms.

“Foreign”, as per the draft law, refers to:

• anyone who is a citizen of another country, including dual citizens – that is, a good portion of ethnic Hungarians beyond the border (based on a recently submitted amendment proposal, individuals who also hold Hungarian citizenship would no longer be classified as foreigners even if they are citizens of another country as well);
• as well as any legal entity or other organisation registered abroad, with its central administration also located abroad.

“Foreign support” is defined as any contribution of assets from a “foreigner” either directly or indirectly, including property – money, goods, rights and claims – services, financial advantages, donations, grants, support obtained through tenders, gifts, loans, or income from any legal relationship.

In other words, the draft law isn’t about banning foreign grant money: instead, it qualifies any income arriving from abroad as foreign support. This includes subscription and advertising revenues, as well as, for example, EU funding. In addition to clearly violating the free movement of capital, the definitions within the proposal would make the law so flexible that virtually any media company and countless civil organisations could arbitrarily be blacklisted, according to political intentions. This could also dry up their domestic funding channels.

The second major criticism is that the listing is done by the government, based on the recommendation of the Sovereignty Protection Office – meaning that political intentions will likely be the deciding factor. Being an extremely problematic organisation comparable to Russian models of state control, the Sovereignty Protection Office ostensibly serves to prevent “foreign attempts at gaining influence in Hungary”. (The law establishing the Sovereignty Protection Office is already the subject of an EU court case. Several member states have joined the European Commission and the European Parliament in the lawsuit against Hungary.) A fresh amendment would also create the possibility of taking away this year’s 1% personal income tax donations from organizations that end up on the designated list — whereas the original proposal would have only enacted this rule starting next year.

The third danger is that it is highly debatable what counts as an activity that endangers sovereignty. According to the draft law, criticism of the state of the rule of law in Hungary could qualify as such, as could standing up for LGBTQ people, not to mention statements the government and the Sovereignty Protection Office routinely label as pro-war (which in reality are simply not openly pro-Russian).

The fourth problem is the near total absence of legal remedies. The Sovereignty Protection Office’s investigation is not considered an administrative authority procedure, so no legal remedy is available against it. In administrative litigation against NAV’s decisions, immediate legal protection cannot be requested. Claims can only be submitted to the Curia, which will rule within 45 days, but it cannot change NAV’s decision (it can only annul it and order a new procedure). Additionally, for the affected parties, banking secrecy essentially ceases to exist – according to Telex, this has already triggered capital flight.

When will it be voted on, when might it enter into force, and can the draft law still change by then?

Parliament is discussing the proposal under normal procedure, so adoption is expected around mid-June. Amendments may still be submitted, but so far no one on the government side has publicly expressed any intention to make substantive changes. If adopted and signed by the President, the law will enter into force on the third day after its promulgation. Afterwards, the law may be further examined by the Constitutional Court and then the Court of Justice of the European Union, but this is a time-consuming process.

We wrote more here about possible international responses. Since then, the European Commission has requested the government to withdraw the draft law, saying its adoption would represent a serious violation of fundamental EU principles and laws.

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