Economy 13 July 2022, 3:50pm

Commission identifies serious rule of law issues in Hungary

Portfolio

In its latest rule of law report published on Wednesday, the European Commission has identified two areas where Hungary has made progress and a host of others where the country still needs to step up its game. Overall, the country is characterised by state interference with the judiciary and the press, as well as the dysfunction of democracy.

The two positive findings in the 39-page report (30 w/o footnotes and the list of resources) are that "the digitalisation of the justice system continues to be overall high," and that "the efficiency in civil and administrative cases remains high."

The main areas put under the microscope were (i) the justice system, (ii) the anti-corruption framework, (iii) media pluralism and media freedom, and (iv) other institutional issues related to checks and balances.

Key findings

JUSTICE SYSTEM

As regards judicial independence, concerns expressed in the context of the Article 7(1) TEU procedure initiated by the European Parliament, as well as in previous Rule of Law Reports, remain unaddressed.

This is also the case for the relevant recommendation made under the European Semester. These concerns relate in particular to

the challenges faced by the independent National Judicial Council in counter-balancing the powers of the President of the National Office for the Judiciary,
the rules on electing the President of the Supreme Court, and
the possibility of discretionary decisions as regards judicial appointments and promotions, case allocation as well as bonuses to judges and court executives.

Following the Supreme Court decision declaring unlawful a request for preliminary ruling, the European Court of Justice ruled that such decision is contrary to EU law.

As regards efficiency and quality, the justice system performs well in terms of the length of proceedings and has an overall high level of digitalisation. The gradual increase of salaries of judges and prosecutors continues,

the EC said in the report.

CORRUPTION

"The implementation of most measures under the 2020-2022 anti-corruption strategy was postponed and no new strategy has been announced," the EC said.

Shortcomings persist as regards lobbying, revolving doors as well as political party and campaign financing. Independent control mechanisms remain insufficient to detect corruption.

Concerns remain regarding the lack of systematic checks and insufficient oversight of asset declarations as well as the lack of conflict of interest rules for the public interest trusts.

Portfolio reported in late June that the cabinet was changing the asset declaration system, saying the new practice would be identical to the German rules. It has since become clear what this actually means: the most important parts, such as movable and immovable property, which could have been used to track the wealth of MPs (if anyone had taken their official wealth accumulation seriously) were simply removed from the declaration.

The lack of a robust track record of investigations of corruption allegations concerning high-level officials and their immediate circle remains a serious concern,

the Commission said, adding, however, that some new high-level corruption cases have been opened.

"The lack of judicial review of decisions not to investigate and prosecute corruption remains a cause of concern, in particular in an environment where risks of clientelism, favouritism and nepotism in high-level public administration remain unaddressed."

The perception of public sector corruption among experts and the business executives is that the level of corruption in the public sector remains high.

In the 2021 Corruption Perceptions Index by Transparency International, Hungary scores 43/100 and ranks 26th in the European Union and 73rd globally. This perception is relatively stable over the past five years.
The 2022 Special Eurobarometer on Corruption shows that 91% of respondents consider corruption widespread in their country (EU average 68%) and 27% of respondents feel personally affected by corruption in their daily lives (EU average 24%). As regards businesses, 75% of companies consider that corruption is widespread (EU average 63%) and 45% consider that that corruption is a problem when doing business (EU average 34%).

Furthermore, 37% of respondents find that there are enough successful prosecutions to deter people from corrupt practices (EU average 34%), while 17% of companies believe that people and businesses caught for bribing a senior official are appropriately punished (EU average 29%)

The EC also found that despite amendments to the Criminal Code to address foreign bribery, there is still an absence of enforcement, and that integrity tests and ‘lifestyle monitoring’ continue to be the main tool to deter and detect corruption in the public sector, while oversight could benefit from more independence.

Some measures to improve corruption investigations involving EU funds have been taken, the Commission acknowledged. It added, however, that

concerns exist regarding the frequent practice of the Hungarian authorities to withdraw EU-funded projects in case of financial recommendations issued by the EU AntiFraud Office (OLAF) or the opening of OLAF investigations, while amounts due are not systematically recovered from the economic operator who committed the irregularity or fraud.

Similarly, the refusal of economic operators to cooperate during on-the-spot checks conducted by OLAF have been in focus. In order to better protect the EU funds from potential fraud and corruption, the Prosecutor General’s Office and OLAF have signed a cooperation agreement in February 2022, which commits both parties to closer cooperation.

However, as it was recently signed, the effectiveness of the cooperation agreement will still have to be seen in practice. The recent allegations regarding the existence of a corruption ring in management authorities linked to national and EU funds raise concerns as to the lack of systemic oversight.

The Commission sent Hungary a written notification under the Regulation on a general regime of conditionality to protect the EU budget in case of breaches of the principles of the rule of law.

MEDIA INDEPENDENCE

The functional independence of the Media Authority needs to be strengthened, the Commission said.

The continued channelling of significant amounts of state advertising to pro-government media creates an unlevel playing field in the media landscape.

"Public service media operates in a complex institutional system, amid concerns over its editorial and financial independence. Media professionals continue to face challenges in exercising their activities, including with the surveillance of investigative journalists. Access to public information continued to be hindered under the state of danger."

CHECKS AND BALANCES

As regards the system of checks and balances, the transparency and quality of the legislative process remain a source of concern.

The Government has been using its emergency powers extensively, also in areas not related to the COVID-19 pandemic as initially invoked.

The Commissioner for Fundamental Rights has gained more competences, but his accreditation was downgraded following concerns regarding his independence.

The ineffective implementation by state organs of judgments of European and national courts is a source of concern.

Pressure continues on civil society organisations, whilst the public-interest trusts receiving significant public funding and managed by board members close to the Government have become operational.

Recommendations

In addition to recalling the obligation to comply with the rule of law-related rulings of the ECJ and the rule of law related infringement procedures referred to in the country chapter, the concerns raised under the conditionality regulation, the relevant concerns raised in the Article 7 TEU procedure initiated by the European Parliament, and recalling the relevant country- specific recommendations under the European Semester, it is recommended to Hungary to:

Strengthen the role of the National Judicial Council, while safeguarding its independence, to effectively counter-balance the powers of the President of the National Office for the Judiciary.
Adapt the rules related to the Kúria (Supreme Court) to remove judicial appointments outside the normal procedure, to strengthen eligibility criteria for the Kúria President, and to strengthen control by judicial bodies over the Kúria President, taking into account European standards, and to remove the possibility of reviewing the necessity of preliminary references, in line with EU law requirements.
Adopt comprehensive reforms on lobbying and revolving doors, and strengthen the system of asset declarations, providing for effective oversight and enforcement.
Establish a robust track record of investigations, prosecutions and final judgments for high-level corruption cases.
Introduce mechanisms to enhance the functional independence of the media regulatory authority taking into account European standards on the independence of media regulators.
Strengthen the rules and mechanisms to enhance the independent governance and editorial independence of public service media taking into account European standards on public service media.
Adopt legislation to ensure fair and transparent distribution of advertising expenditure by the state and state-owned companies.
Remove obstacles affecting civil society organisations.