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Almost there? A number of issues remained unaddressed in Hungary's anti-corruption reforms

tangentopoli // 2022.11.09.

Címkék: english EU conditionality

In our publications about the Hungarian Government’s recent steps against corruption, we already referred to the fact that the 17 measures agreed on by the European Commission (EC) and the Hungarian Government neither cover several corruption related issues raised earlier by the EC when preparing and launching the mechanism, nor significant aspects of the Country Specific Recommendations formulated by the EC in the last year. This publication aims to list a number of fields and interventions that should be or should have been covered when moving further with anti-corruption reforms as part of the conditionality mechanism, milestones for Hungary’s Recovery Plan or in connection with Hungary’s Partnership Agreement.

Although anti-corruption related interventions as a response to the EC’s conditionality mechanism became key elements of recent policy and lawmaking, no effort was put into transparent policy development or consultation with stakeholders. Still, K-Monitor and other Hungarian CSOs repeatedly published assessments of recent legislation and planned interventions by the Hungarian Government, hoping that at least a part of their observations and recommendations will be taken into account when aiming to safeguard the EU’s financial interests. 

Reinforcing the anti-corruption framework in general has been a recurring recommendation in the relevant documents. [Country Report 2019, CSR 2019, Country Report 2022, CSR 2022] According to the analysis of the Hungarian Helsinki Committee, K-Monitor and TI Hungary, the adopted legal acts indeed contain several measures which may contribute to the overall anti-corruption performance of Hungary, however their scope is limited in several ways: The anti-corruption measures and new legal institutions focus mainly on the mismanagement of EU-funds and important pillars of the anti-corruption framework are left intact. 

In the mentioned publication CSOs already formulated necessary steps in connection to the remedial measures of the Hungarian government that would be inevitable to ensure that public funds are safeguarded in Hungary. As public procurement was the key topic within the remedial measures offered by the Government to address the systemic deficiencies, K-Monitor dedicated a separate blogpost to the issues of concern. K-Monitor also analysed the possible impact of the proposed measures on the general situation of Freedom of Information in Hungary, a relevant bill was just adopted by the Hungarian Parliament. A fundamental topic left unaddressed so far is the independence of the judiciary. K-Monitor shares the concerns and recommendations formulated in the Hungarian Helsinki Committee’s recent publication on that issue. 

This post summarizes a number of fields and interventions that should be or should have been considered when moving further with anti-corruption reforms in Hungary to ensure that there are improved conditions to safeguard the EU's financial interests.

 orban-viktor-eu-zaszlok.jpg

 

Whistle-blowing

One of the most striking shortcomings is the lack of reforms concerning the protection of whistleblowers. Not only the 2019 Country Report addresses this topic referring to the study of the State Audit Office, but it is also a constant element of the Phase 4 Follow-Up Reports, on the implementation and enforcement of OECD Anti-Bribery Convention  [Additional Follow-Up 2022, Phase 4 Two-Year Follow-Up Report (Recommendations 1.a-1.e). The latest Rule of Law report also urges the Hungarian Government to take meaningful steps in this field as “No steps have been taken yet to address the major operational deficiencies in the whistleblower regime, including the limited protection against retaliation and the risks of disclosure of the whistleblowers’ identity”.  While various state agencies and bodies operate anonymous chats and receive reports and complaints, they are not uniformly operated. (Note, that the new measures also authorize the new Integrity Authority to process reports on corruption, but this intervention, together with the expected developments of the www.anti-lop.hu site only deals with irregularities related to the use of EU-funds.) Lack of regulated, safe reporting channels and incentives (such as providing legal and financial support for whistleblowers in need) may have contributed to the disappointing results of the latest Eurobarometer Survey that attest that less than one third of Hungarians know where to report corruption, which is is among the lowest figures in Europe. 

A comprehensive reform would be timely, as the proper transposition of the 1937/2019 EU Directive in Hungary has still not been completed. Although the Directive is marked as transposed by Hungary according to the relevant Eur Lex-document, the quoted legal acts were adopted much earlier and fall short of providing whistleblowers the level of protection required by the Directive. It would be a basic sign of commitment from the Hungarian government to finally initiate the implementation of the directive and ensure protection for those reporting crimes and wrongdoings. 

According to K-Monitor, the following measures would be key elements of an effective reform: 

  • Implement the EU’s whistleblowing directive (2019/1937) properly through legislative changes to the existing whistleblower act (Act CLXV of 2013).
  • Enact changes to the whistleblower act to establish strict conflict of interest rules for the internal examination of whistleblower reports to ensure that whistleblower reports cannot be accessed or examined by those reported on or those who could jeopardize the investigation of cases.
  • Empower the Integrity Authority to become a second instance for investigating whistleblower reports that were not properly examined by the entity in charge.
  • Enact legislative changes that ensure that whistleblowers acting in good faith cannot be prosecuted and sued for public disclosure of information, when reporting through established channels might jeopardize the investigation of a case or if the use of such channels has proven inefficient.
  • Establish mechanisms for the financial support for whistleblowers in case of suspension by their employer.
  • Amend the whistleblower act to ensure that reported cases are also examined if a whistleblower acts in anonymity.
  • Establish a safe communication platform that offers the possibility of communication between whistleblowers and authority without registration or tracking.
  • Promote the opportunity of whistleblowing and the rights of whistleblowers at work places and public institutions.

 

Lobbying

A similar deficiency in the anti-corruption framework arises from the insufficient regulation (and application) of lobbying rules. This shortcoming also has a serious impact on transparent, accountable decision-making, which has been repeated in virtually all country-specific recommendations since 2019. The 2022 Rule of Law Report also deals with this issue in detail.   The new measures adopted in October 2022 indeed introduce a sanctioning mechanism in order to prevent the omission of public consultation prior to submitting a bill to Parliament – but overall, the new provisions concern only a minor part of the requirement for transparent decision-making and and ignores individual decision-making (e.g. on certain subsidies, benefits and exemptions).

According to K-Monitor, the following measures would be key elements of an effective reform: 

  • Hungary should adopt a comprehensive law on lobbying instead of fragmented pieces of legislation that are currently in force and only partially applied, e.g. Govt. Decree 50/2013. (II. 25.).
  • Statutory lobby register should be established including the names of registered interest representatives and their affiliation.
  • Meetings with interest representatives shall be documented in case of lawmakers and at all levels of public administration and published in a central directory disclosing the names of the parties, the date and location of their meeting and its topic.
  • Failure to register & report should result in sanctions (temporary ban, financial and criminal sanctions).
  • Information on such encounters shall be subject to FOI.

 

Conflict of interest

Creating strict conflict of interest rules and regulating revolving door situations is also an important factor for the improvement of the Anti-Corruption Framework – these areas are only partially covered by the new measures. New, but insufficient conflict of interest rules have been adopted in three areas: management of different EU-funds, public procurement and in the case of the public interest asset management foundations. A more comprehensive approach would also help curb tailor-made legislation and decision-making and the pursuit of private interests. This issue is also raised as a problem in the 2022 and the 2020 country reports, while the latest Rule of Law report also urges reforms regarding the revolving door regulations.

According to K-Monitor, the following measures would be key elements of an effective reform:  

  • Create a comprehensive and transparent system of conflict of interest categories for public administration 
  • Request conflict of interest declarations at major decisions and establish a regime to scrutinize decisionmakers;
  • Implement internal channels for the reporting of conflicts of interest and impose sanctions for failure to report.
  • Define cooling off periods for high level decision makers when moving between the private and the public sector or potentially conflicting positions in the public sector.
  • Separate the responsibilities and the capacities of staff working on implementation, selection and management of programs, projects or procurements from the staff working on audit, anti-fraud, irregularity management (outside EU funding as well)
  • Take beneficial ownership information into account when defining, controlling conflicts of interest.

 

Prosecutorial reforms

A key problem of the Hungarian anti-corruption framework is the highly centralized prosecution service, which is considered reluctant to investigate or indict in high level corruption cases. Prosecutorial reform is also a recurring recommendation of the Commission [CSR 2022, CSR 2019, CSR 2020], and was also raised by GRECO. Recent amendments do not introduce  organisational reforms in the prosecution system. The newly set up Integrity Authority will not perform prosecution services and it will not have a standing before criminal courts. It is important to stress here that the most effective measure to improve the detection and prosecution of abuse of EU-funds would be for Hungary to join the EPPO.

According to K-Monitor, the following measures would be key elements of an effective reform: 

  • Not internal decisions but law should settle the allocation of investigations to prosecutors and the conditions to remove cases from prosecutors.
  • Case removals, orders to stop investigations, attempts to influence investigations shall be documented in written form and statistics on such interventions should be released in the prosecutor general's annual reports.
  • The Integrity Authority should be granted standing before criminal court if the prosecution fails to indict.
  • Private prosecutors should be provided with a right to appeal against court decisions on admissibility of indictment and the verdict.
  • Deadlines to meet by the private prosecutors and the court should be extended to provide time enough for well-founded submissions and decisions .
  • General rules on legal aid should apply for private prosecutors too.
  • CSOs should be granted standing as public interest litigants before civil and administrative courts in all corruption cases.

 

Transparency of public spending

A key asset for journalists and civil society in their watchdog activities is access to information on public spending. According to K-Monitor’s experience and reports from the media, public institutions increasingly fail to comply with the FOI Act in proactively publishing information or responding to data requests. This has a chilling effect on investigative work as only few can afford to launch court procedures against non-compliant data holders. Recent amendments and bills under discussion intend to improve access to public information, an issue raised in several country reports (ROL 2022, Country Report 2019, CSR 2019, Country Report 2020. However, the adopted reforms are lacking measures to improve proactive data disclosure or data holders’ compliance with the FOI act. K-Monitor has dedicated a detailed analysis on the proposed measures in a separate blogpost

According to K-Monitor, the following measures would be key elements of an effective reform:  

  • The practice of data holders to qualify information as internal data crucial for a decision-making process should be revised; 
  • and the possibility to exclude access to information labeled as necessary for future decision-making should be removed from the FOI Act.
  • The FOI Act should prescribe mandatory sanctions to deter data holders from failing to disclose information prescribed in the proactive publication scheme attached to the FOI Act.
  • The practices and procedures of the Data Protection and Freedom of Information Authority should be revised in order to enable it to develop and implement new tools that better incentivise data holders to publish information and to respond to freedom of information requests, such as financial sanctions, listing of non-compliant data holders.
  • Mandatory representation by an attorney before the court in FOI lawsuits should be abolished as it disproportionately restricts requesters' access to justice. 
  • The planned transparency portal shall not substitute data disclosure on the website of public authorities.
  • Besides public authorities, the planned transparency portal shall publish contracts and meta data of contracts of all entities performing a public duty, as such entities have an existing obligation to proactively disclose information of public interest.
  • Besides meta data on contracts the planned transparency portal shall also publish contracts in a machine readable format.
  • Besides data on contracts, the planned transparency portal shall publish spending data of public institutions (similarly to the Slovenian Erar website, or the website of the municipality of Budapest).
  • Beneficial ownership information of private bodies contracted by entities performing a public duty or becoming beneficiaries of public funds shall be published.

 

Public procurement

Public procurement expenditure in Hungary amounts to around 7.5% of the country’s GDP, with a record amount of HUF 4222 bn (EUR 10.5bn) in 2021. However, compared to 2015 when the amount spent was only half of that, the number of procedures went down by almost 50% (from 14127 in 2015 to 7676 in 2021). This shows the significant concentration of the market in recent years. According to our view this concentration arose from the combination of numerous factors (our detailed assessment of the topic is available here), such as the increased use of framework agreements and gigantic tenders that excluded SME-s from directly submitting bids. The low level of competition, the high share of single bidder tenders have been raised by the EC in many of its publications. In the Commission’s proposal for a Council Implementing Resolution published in September, a third of the remedial measures proposed by the Hungarian government are related to the lack of substantive competition and corruption in public procurement. Despite the increased attention to this topic, the measures introduced so far are insufficient. 

According to K-Monitor, the following recommendations would be key elements of an effective reform:  

  • Less transparent procedures, such as PPA 115.§ should be phased out. Although contracting authorities may only use this type of procedure in case of construction procurements below HUF 300 million (approx EUR 750.000) that are not funded by the EU, they still account for a reasonable share (35%) of below-the-EU threshold procedures. In this procedure contracting authorities are allowed to invite five bidders directly to submit an offer without a truly open process, thus contributing to a non-transparent procurement culture. 
  • Measures should be introduced to eliminate framework agreements where they are not necessary and simply serve the purpose of securing contracts for a closed circle of providers over a long period of time. The issue of framework agreements is one of the problems raised by the Commission but not addressed by the Hungarian Government.
  • All public procurement documents that are published in the EPS should be made available for bulk download / API access in machine readable format. While the publication of data from contract award notices is indeed useful and forward-looking, there are also a number of other procurement data types that are necessary to analyse the procurement system and identify systemic issues or risky tenders. Among others, such data are the names of all bidders, the number of invalid bids, invited tenderers, the conditional nature of the procurement, and the mandatory justification for certain exceptional procedures. Furthermore, there is no reason why not to publish the text of entire procurement documents.
  • The broad opportunity to exempt procurements from the public procurement regime shall be narrowed (including general authorisation to use exceptional procedures in separate Acts and e.g. the general exemption of almost all COVID-related procurements) while justification for exemptions should be subject to independent controls.
  • A stricter audit system also for non-EU funded public procurements should be introduced by deploying risk assessment methodologies and protocols that support the selection of procurements to be audited.
  • The fees for seeking legal remedy should be lowered. While the new Integrity Authority may initiate the ex officio procedure of the Public Procurement Arbitration Board in case of EU-funded procurements, in case of procurements funded from the national budget, high fees may discourage other parties (including organisations acting in the public interest) from seeking legal remedies.
  • Steps should be taken to strengthen the independence of the Public Procurement Council by establishing equal representation of government appointees and non-governmental procurement experts among its members.

 

Transparency of programme and fund management 

While Government Decrees adopted in September 2022 can indeed contribute to the transparency and the better allocation of EU funds, a number of issues remain unresolved. According to the EC’s proposal to the Council on 18 September, “the Hungarian authorities had not provided information regarding the measures taken to recover the amounts affected by the irregularities which led to the withdrawal of projects from Union funding, nor did they provide data on recoveries.” K-Monitor can confirm that there is no comprehensive publicly accessible documentation on the amounts that have been recovered after irregularities, nor the measures that have been implemented in such cases.   

According to K-Monitor, the following recommendations would be key elements of an effective reform:   

  • Clear institutional delineation of responsibilities and capacities of staff working on implementation and staff working on irregularity management should be performed.
  • The legislation regarding priority investments of national significance should be modified to 1) provide objective criteria for designating projects as priority investment and 2) include a mechanism to challenge/appeal the status after it was granted. Similar amendments should be made to the government decree on investments in “rustzone” action areas. 
  • Monitoring Committee members from civil society should be selected through transparent application processes.
  • Subcommittees should be established where requested by stakeholders to ensure the application of the partnership principle in a wider field of subjects.
  • Civil society members should be remunerated for their participation, and at the same time be obliged to publish at least annually a report on their work.
  • Monitoring Committee meetings shall be recorded, meeting transcripts shall be made public.
  • (Where relevant) beneficiaries of Cohesion Funds  should be required to incorporate project elements that ensure citizens’ participation in the planning and monitoring of projects.
  • Government decisions on the annual development framework of OPs (ÉFK) should be subject to a similar public consultation process as the OPs and calls. Same should apply to future legislation on annual budgeting of RRF.  
  • Improve access to data on EU funding by allowing unrestricted bulk access to the palyazat.gov.hu portal.
  • Publication of detailed data on the content, implementation and progress of proposals, projects and individual payments in a transparent, publicly searchable format
  • Publish further details on whistleblower reports on the anti-lop.hu website, such as the identification number of a project that was reported on after the examination of a case, short summaries of the findings.
  • Promote the opportunity to report irregularities in connection to EU funded projects on the anti-lop.hu website.
  • Disclose information on case management and investigation protocols in case of reports on anti-lop.hu.
  • Publish identification numbers of the beneficiaries of agricultural subsidies to allow the interconnection of beneficiaries over years and various funding schemes. Publish identification numbers of parcels that are subject to SAPS payments.
  • Create a comprehensive central database for irregularities in EU / state funded projects, including financial damage, the applied correction and the recovered amount. 

 


Címkék: english EU conditionality

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