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Feb 21, 2016

The Case of the Norway Grants and NGOs in Hungary

Since 2004, Hungary has been a recipient of a program called the EEA and Norway Grants, financial contributions offered by Norway, Iceland and Liechtenstein intended to strengthen bilateral relations and reduce economic and social disparities in certain EU countries.

 

Because Norway, Iceland and Liechtenstein are not EU members but enjoy certain benefits from participating in the EU’s internal market, they have devised this fund as a contribution in return for those benefits and privileges. The contributions are given in this bi-lateral context, in the relations among the participating countries, so the Norway Grants are regarded rightly as public funds.

 

In 2014, a review of the program revealed that the Ökotárs Foundation, a Hungarian NGO appointed by Norway to manage the grants in Hungary, had used the funds for political purposes. Additionally, the Ökotárs Foundation also engaged in unauthorized financial activities. Specifically, it provided loans to other NGOs, transactions that managers of the fund were not allowed to carry out.

 

As a result, the Government Audit Office and the Hungarian police opened investigations of the Foundation. Hungarian state authorities have a legal responsibility to ensure that beneficiaries of public funds use those funds in a transparent way and according to the goals and regulations defined by law. The government asked its Norwegian counterparts on numerous occasions to cooperate in a joint review of the questionable financial activities, but this request was turned down.

 

The Ökotárs Foundation, along with other organizations involved in the distribution of public funds worth billions of Hungarian forints, failed to hand over a number of documents necessary for the investigation. As a result, the Government Audit Office began the process of suspending the tax numbers of those organizations.

 

The Ökotárs Foundation challenged the lawfulness of this action, and turned to Hungary’s Constitutional Court. The Court, in a decision published in October 2015, ruled that the regulation of the status and procedures of the Government Audit Office were in harmony with the Fundamental Law.

 

In search of a prompt and reasonable settlement to the dispute, Hungarian authorities continued negotiations with their Norwegian counterparts. In December 2015, Minister of State Nándor Csepreghy announced that Hungary had reached an agreement with the Norwegian Fund and payments would continue. In the coming financial period, grants worth 37-40 billion HUF will be made available, and the fiscal period will be extended. 

 

Regarding the period between 2014-2020, however, one important question remains unresolved, that of who should manage the distribution of funds. The Ökotárs Foundation was not deemed suitable for the management of public funds, and abused the trust of the Norway Grants benefactors. The Hungarian Government insists that it should have a role in the distribution of the grants. 

 

Following the agreement, investigations of several civic organizations were suspended. The two sides also agreed that, in the future, foreign governments cannot distribute funds without the consent or the supervision of the Hungarian government. 

 

The Hungarian government maintains that financial resources provided to civil society organizations cannot be uses for political purposes and that no NGO will be exempt from the requirements of transparency and regular, orderly reporting to the appropriate regulatory authorities.

 

Contrary to some reports that appeared when the Norway Grants controversy first became public, Hungary in fact has a dynamic NGO sector that has shown growth recently. According to a study published by the Central Statistical Office (KSH) in January 2015, the number of people employed by the non-governmental sector increased from 2012 to 2013, as did the labor costs and average incomes of people employed by such organizations. The Hungarian state supports a prosperous and independent civil society. Hungary also seeks to ensure that all public resources used to support civil society are actually used to support a wide range of civic organizations for appropriate purposes and not for activities of a distinctly political nature.