By: Tarun Krishnakumar
On June 18, 2020, the European Court of Justice (“Court”) issued its decision in the case of European Commission v. Hungary (Case C-78/18), an action brought by the Commission under Article 258 of the Treaty on the Functioning of the European Union (“TFEU”). By its application to the Court, the Commission sought a declaration that, by enacting Act LXXVI of 2017 on the transparency of organizations receiving support from abroad (“Transparency Act”), Hungary had introduced “discriminatory, unjustified and unnecessary restrictions on foreign donations to civil society organisations, in breach of its obligations under Article 63 TFEU and Articles 7, 8 and 12 of the Charter of Fundamental Rights of the European Union.” In short, the Transparency Act imposed obligations of registration, declaration, and disclosure on certain categories of civil society organizations receiving foreign financial support in excess of a certain monetary threshold. Organizations not in compliance with these obligations could face penalties including fines and dissolution.1A more detailed account of the provisions of the Transparency Act is available at ¶¶ 2–10 of the decision of the Court.
In its ruling, the Court agreed with the assertions of the Commission and found that the adoption of the Transparency Act by Hungary violated its obligations under various EU law provisions—including those which guarantee the free movement of capital (Art. 63, TFEU) as well as individual rights such as the right to freedom of association (Art. 12, Charter), the right to respect for private and family life (Art. 7, Charter), and the right to protection of personal data (Art. 8, Charter). Notably, the Court found that none of the policy objectives offered by Hungary for the Act could justify the breadth of restrictions imposed under it. The stated objectives for the Transparency Act included countering foreign influence and interference in the “social and political life of Hungary,” improving transparency of civil society organizations, and countering money-laundering and terrorist financing.
Even prior to the decision of the Court, the Transparency Act—also referred to unofficially as the NGO law—had attracted widespread condemnation from within Hungary as well as internationally. Within this context, the decision of the Court did not come as a surprise to many, with its findings closely tracking the Opinion of the Advocate General, as well as the Court’s own jurisprudence. Consequently, the decision has attracted limited engagement.
Foreign Influence and the Decision in Hungary
While admittedly breaking limited ground from a jurisprudential perspective, the Court’s decision offers important lessons for another area of increasing relevance—the study of foreign influence campaigns and the designing of frameworks meant to counter them. Ranging from disinformation campaigns and covert lobbying to election interference and surreptitious funding flows, foreign influence activities are seeing a resurgence as states seek to reshape the world order by molding public opinion and decision-making across borders. In response, targeted states are considering a variety of responses to the phenomenon—ranging from stricter foreign funding regimes to foreign agent registration laws aimed at exposing foreign lobbying and political activities.
While jurisdictions like the United States have long had in place laws like the Foreign Agents Registration Act (“FARA”) to counter foreign influence and covert activities, others including Australia have recently joined the bandwagon—with several others, including the United Kingdom, actively pursuing statutory reform in the area. Often oriented to counter similar threats (for e.g. surreptitious foreign lobbying or covert activities), these frameworks vary widely in the scope of entities and activities they aim to cover. While frameworks like the Hungarian Transparency Act may validly be considered to form part of the various state responses to foreign influence, typically frameworks which target only narrow swathes of organizations—such as NGOs or civil society—are more effectively likely to serve other regulatory or political goals. Such frameworks cannot be considered as comprehensive efforts to counter-influence—a phenomenon which can be channeled through a wide variety of stakeholders including individuals and commercial enterprises.
What Hungary Means for Counter-Influence Frameworks Going Forward
In light of the increasing interest in counter-influence frameworks which rely on transparency, the Court’s decision in Hungary provides several interesting indications of future debates including obstacles that are likely to arise. While the decision was issued in the EU, many of the Court’s findings provide indications of issues that lie ahead. After all, foreign influence is a global phenomenon that is unlikely to diminish in the near future.
1. Transparency and Labelling
First and foremost, the decision reveals a divergence in approaches as regards the role of transparency and labelling in countering foreign influence. While frameworks like FARA and the Australian Foreign Influence Transparency Scheme (“FITS”) are premised on the registration of foreign agents and the publication of details about their activities on a public portal, the decision in Hungary suggests that not all jurisdictions would be bound by similar considerations in implementing such an approach.
For instance, jurisdictions in the EU may likely be less tolerant towards blanket labelling of organizations as foreign-funded or foreign agents for fear that it would disincentive donations and stymie the free movement of capital across EU member states. In the words of the Court in Hungary, the provisions of the Transparency Act operated to “create a climate of distrust with regard to [covered civil society organizations], apt to deter natural or legal persons from other Member States or third countries from providing them with financial support.” While the observations are specific to the Hungarian law at issue, the Court acknowledged, at some level, that that any advantages of labelling may be outweighed by its effects on labelled organizations.
In combination with the requirement for public disclosure of donors and “the imposition of additional formalities and administrative burdens” on covered organizations, these requirements operated to deter support to such organizations from foreign sources. While the decision of the Court on the issue centered on proportionality and scoping concerns within the Hungarian framework (discussed below), these observations are notable as non-EU states are unlikely to have similar constraints in discriminating between domestic and foreign capital flows. This may indicate a divergence in how the EU and non-EU states counter foreign influence, particularly funding.
2. Scoping and Targeting
Second, the decision in Hungary also emphasizes the importance of appropriately scoping transparency-based counter-influence legislation—particularly in terms of which entities are covered. At the outset, it is important for such legislation to clearly outline—based on an evidence-based risk-analysis—what triggers application of a registration or disclosure requirement.
In Hungary, the Court faulted the Transparency Act for covering all civil society organizations that accepted a foreign donation regardless of whether they had a “significant influence on public life and public debate” having regard to their “aims and [the] means at their disposal.” In other words, the Court acknowledged that not all organizations can wield the type of influence which may prove harmful to a state and its democratic institutions. The Court also expressed concern that the financial thresholds which triggered registration and reporting requirements under the Transparency Act did not correlate with the nature of the threat presumed. The funding thresholds were too low to suggest that recipient organizations would ipso facto pose a significant threat to Hungary.
While both conclusions of the Court, among others, can be problematic given that covert influence does not necessarily require large organizations—particularly where the targeting of influence is subtler (or not in the public eye)—it does provide markers for the way forward. Rather than an approach based on thresholds, criteria for application of counter-influence frameworks must reflect a more nuanced and risk-centric methodology. One such approach is premising application of the framework on specific activities an organization engages in for, e.g., lobbying, education, or opinion-shaping. Another may only result in registration and other requirements being triggered where an activity of an organization advances the interest of a foreign principal or funder. In other words, mere receipt of foreign funding would not trigger application of a counter-influence framework. Another still may only apply where an organization acts at the direction, control, or request of a foreign principal, i.e. as a foreign agent. The key is manifesting an objective and risk-based approach to application of registration and disclosure requirements—based on activities rather than solely on the fact that funding was received from a foreign source.
Lastly, drawing from the above, there would seem to be little rational basis for a counter-influence framework to only cover certain types of organizations. Channels of influence can range from a well-connected individual acting on their own to a large corporation with close government ties. While there is no doubt that a civil society organization can be a channel of influence, it is likely one of the least efficient, most overt, and easiest to clamp down upon. If a state is serious about countering influence, it must acknowledge that form or advertised purpose of an organization are irrelevant. Within this context, there is even less of a basis to target or exempt certain types of civil society organizations from compliance—as the Transparency Act in Hungary does in relation to religious and minority organizations. A robust counter-influence regime must center not solely on the channel of influence but on its methods. Anything less is not only likely to raise legal questions on equal treatment, but is also likely to be ineffectual in tackling influence in practice.
3. Balancing Privacy and Transparency
Third, the decision also outlines the potential for counter-influence frameworks to clash with privacy and data protection norms. As transparency-based frameworks often rely on public disclosures of information relating to foreign principals and sources of funding, concerns arise in relation to the legal bases for collection, processing, and disclosures of personal information. While approaches to privacy and data protection law will vary in scope, approach, and philosophy (such as between Europe and the United States), states should carefully tailor counter-influence frameworks so as to be consistent with applicable (and rapidly evolving) norms.2At the same time, this is likely to be more of an issue in a harmonized environment like the EU with many rights being conferred on EU residents as a whole rather than citizens of a specific state.
If the objective is disclosure of foreign funding or control, in the absence of special circumstances, it may be sufficient to disclose generalized and non-identifying information relating to the source—particularly where individual sources are concerned. Where funding or control relates to a foreign corporation, government, or public figure, more specific disclosures may be acceptable in light of the reduced privacy concerns. At the end of the day, states must be careful to toe the line between disclosures of foreign sources and requiring disproportionate disclosures which may have the effect of disincentivizing the funding relationship in the first place.
While not intended to be an analysis of the merits of the decision of the Court in Hungary, this comment has sought to signpost certain aspects of the decision which provide indications on future debates about foreign influence and the global frameworks meant to counter it. While foreign influence frameworks will require to be appropriately structured to be effective, the Hungary decision demonstrates that another key issue will be how such frameworks interact with norms in other spaces—including privacy, equal treatment, and proportionality in restricting other rights. To address these concerns, frameworks will be required to adopt a narrowly tailored and evidence-based approach to the risks posed by foreign influence. Anything less may undermine critical societal interests and, more importantly, fail to counter malign influence.
The author is an attorney admitted to the practice of law in the United States and India. He is also a researcher affiliated with the Foreign Influence Transparency Initiative (FITI) at the Center for International Policy (CIP). All views expressed are personal.