Mr Trócsányi’s conflicts of interests: not strictly law, but not purely politics, either

In the noise of Hungarian politicians riding on the tide of either schadenfreude or of hysterical indignation, we would like to explain in detail why László Trócsányi, the former Hungarian Minister of Justice, did not become EU Commissioner for enlargement and European neighbourhood policy. It has little to do with corruption, though there was nothing to suggest that the legal procedures the former candidate is considering would be realistic.

Mr Trócsányi’s profile as a distinguished conservative legal scholar was built with decades of practice as a lawyer, academic work in comparative constitutional law and even as a member of the Constitutional Court, while he had twice changed to diplomacy to serve as ambassador in Brussels (2000-2004) and in Paris (2010-2014).

In 2014, he replaced Hungary’s now outgoing commissioner, Mr Tibor Navracsics as Minister of Justice. In this position, as a member of the Government, he was responsible for preparing the amendments of the constitution and numerous other laws, including the laws on the judiciary, and was responsible for designing and implementing the government’s justice policy. He gave his name, expertise and reputation for the constitutional and justice policy changes of his five years in office, including an amendment criminalizing homelessness on a constitutional level, a series of laws stripping the rights of asylum-seekers and an adopted – and suspended – reform of the administrative court system which lacked sufficient safeguards to avoid direct governmental interference.

The legal scholar-politician found himself in the middle of an election campaign this spring: Mr Trócsányi was one of the earliest official contenders for a seat in the newly forming European Commission with a reserved place in the European Parliament as the leader of the election list of Fidesz on this May’s election. But his road to the Commission was blocked on the last day of September by the decision of European Parliament’s Committee on Legal Affairs (JURI). The committee explicitly ruled that two candidates (Trócsányi and Romania’s Rovena Plumb) are unsuitable for the proposed offices on the basis of „incompatibility of their financial interests as revealed by their examination of their declarations of financial interests”, as the EP President notified the President-elect of the Commission in a letter.

Of course, according to the Hungarian pro-government narrative, it was nothing but a political lynching for the anti-immigration policy of the Hungarian Government, on the basis of findings that Mr Trócsányi himself called “a collection of lies, facts with misconstrued context and with biased interpretation”, therefore he is reportedly considering judicial remedies. Meanwhile the Hungarian opposition interprets the decision as a general confirmation of all its criticism of Mr Trócsányi. Oddly enough, what the two opposing narratives have in common is the confusion of the legality, ethics and politics aspects of the case. We are attempting to assort these aspects in this article.

What is a conflict of interest?

The founding treaties of the European Union set out the principles governing the conduct of the Members of the Commission: they shall be completely independent and neither seek nor take instructions from any Government or other institution, body, office or entity, they shall refrain from any action incompatible with their duties or the performance of their tasks and they may not engage in any other occupation, whether gainful or not. Members of the Commission shall comply with the code of conduct issued by a Commission decision, hence they shall avoid any situation which may give rise to a conflict of interest or which may reasonably be perceived as such. A conflict of interest arises where a personal interest may influence the independent performance of their duties.

The most important means of identifying conflicts of interest is the declaration of interests, which is similar to the Hungarian system of asset declarations. The declarations of interests must be submitted by Commissioners-designate before their hearing in the European Parliament, as there is a duty to declare interests annually for elected commissioners with a two months interval for the declaration of any interim changes. Unlike Hungarian asset declarations, the form in the appendix to the Code of Conduct does not generally ask about the current income and wealth situation, i.e. it is not intended to track the growth of wealth, but rather only wants to follow investments over € 10,000 (with the exception of property occupied by the person concerned) and all other „financial interests, including assets as well as liabilities, which could be considered to be capable of giving rise to a conflict of interest”.

However, the previous posts and professional activities of the last 10 years must also be indicated in the declaration. Even so, it would not seem like a heavy burden for a Hungarian politician to fill in the statement after growing used to more detailed domestic obligations. You can easily see for yourself, if you look at the largely empty current declaration of interests of Hungary’s current commissioner, Tibor Navracsics.

It is important to see that a conflict of interest does not necessarily means that anyone has engaged in illegal activities. In other words, a perfectly lawful behaviour or condition can still be considered as a reason for conflict of interest. All of this can only seem to be a novelty for the Hungarian public viewer accustomed to the mentality of domestic politics, as it is inconceivable in Hungary that qualification for a public office is based on requirements with semi-legal and semi-moral character.

What can the EP do in the event of a conflict of interest?

The declarations of interests submitted to the European Parliament are up to something that is also unusual for a Hungarian observer: they are being scrutinized. An annex to the EP’s Rules of Procedure states that “committee responsible for legal affairs shall examine the declarations of financial interests and assess whether the content of the declaration made by a commissioner-designate is accurate and complete and whether it is possible to infer a conflict of interest”. Depending on the JURI decision, the four possible outcomes of the procedure are as follows:

• (a) if the financial declaration is accurate, complete and to contain nothing indicating an actual or potential conflict of interest  in connection with the portfolio of the Commissioner-designate, JURI will issue a letter of conformation;
• (b) if the Commissioner-designate has provided incomplete or contradictory information or if the examination requires further information, the Commissioner-designate shall be invited to provide supplementary information and JURI will make a decision after considering and properly analyzing it,
• (c) if there is a conflict of interest,
• (ca) JURI draws up recommendations to eliminate the conflict of interest (e.g. renouncing the financial interests in question or changing the portfolio of the Commissioner-designate by the President of the Commission),
• (cb) “in more serious cases, if no solution is found to the conflict of interest, and as a last resort”, JURI may conclude that the Commissioner-designate is unable to exercise his or her functions under the Treaties and the Code of Conduct.

Here again, conflicts of interests are far from unlawful activities: even in the most serious cases, which cannot be dealt with by rescheduling or terminating economic relations, a conflict of interest “only” means that the Commissioner-designate has personal interests that preclude independent performance. Obviously, both the weighing of interests and the assessment of the impact on independence carry quite a number of subjective factors. From this point of view, it is noteworthy that the committee rejected one of the People’s Party and Socialist candidates respectively with barely disguised balancing, suggesting a commitment to political balance not unusual in the functioning of the EP. Political considerations are no stranger to the system either, as the pre-screening of JURI (composed of members in proportion to the political composition of the EP) is intended to ensure that a consensus within the EP, which will vote on the Members of the Commission by a single decision, is reached.

What went wrong for Mr Trócsányi?

At the same time, of course, there have to be factual grounds for finding a conflict of interest. The exact clarification of these in Mr Trócsányi’s case is not made easier by the fact that neither the JURI procedure nor Mr Sassoli’s letter to Commission President Ms Von der Leyen are public. Fortunately, however, Politico obtained the Commission’s letter at the first JURI hearing and published its substantive findings, so at least we know what the conclusion of the procedure was.

Excerpt from JURI

According to JURI, Mr Trócsányi’s political conflict of interest is based on four factors:

• (a) his “multiple and clear” involvement in the Nagy and Trócsányi Law Firm,
• (b) his connections to Russia, in particular, his role as Minister of Justice in the extradition to Russia of suspects also requested by the United States and „subsequently allegedly released”;
• c) as Minister of Justice, he was involved in a contract obtained by the Nagy and Trócsányi Law Firm in 2018 in relation to the Paks II Nuclear Power Plant project „despite the existence of a conflict of interest clause”,
• d) the appointment of a co-owner of Nagy and Trócsányi Law Firm as a personal advisor in the Ministry of Justice at a time when Mr Trócsányi still owned 12.6% of the law firm.

The Lyubishin case

The most detailed picture of the Russian element, the Lyubishin-case, can be obtained from the investigation of the Hungarian investigative team Direkt36. At the end of 2016, as a result of a secret action led by the US agency DEA with international preparation, two Russian arms dealers were captured and arrested by Hungarian special police forces in the Hungarian town of Tököl. The suspects could have been extradited by a ruling of a Hungarian court acting on US request, but they remained in Hungarian detention pending their asylum application. Meanwhile, Russia, partly citing other crimes, partly by mechanically translating the US extradition request (and setting the US covered agents as unknown perpetrators), also requested extradition, a request the suspects naturally did not oppose. A Hungarian court also approved the Russian extradition request, so Mr Trócsanyi, as Minister of Justice, had to decide the case. In the summer of 2018, he decided to extradite the Russians to Russia, justified by their nationality. This, in turn, seems to have led to the perpetrators not being adequately held accountable for the smuggling of weapons, at least the son from the father-son pair was already released from detention on the spring of 2019 according to Direkt36.

The facts of the case are difficult to dispute, but the consequence that Mr Trócsányi would be unsuitable as a commissioner on a basis of only one out of thousands of his discretionary decisions as a minister, can well be questioned. The mention of the case is hardly independent of the fact that the „softness” of the Hungarian government against Russian actions provokes a conflict not only with the US government but also with many European states. Of course, this decision in itself is hardly relevant to any personal interest of the Commissioner-designate, so it is at least questionable that it could serve as a sound basis for establishing a conflict of interest.

Conflict of interest regarding Nagy and Trócsányi Law Firm

It is safe to say that the main reasons mr Trócsányi missed the post in the Commission are the three other issues which were all about the law firm bearing his name. These cases all have the same decisive point in their judgement: Can Mr Trócsányi be held responsible, at least on a semi-moral level required for conflict of interest, for the activities of the firm? Did and does he have a personal interest in the firm that affects his independence?

Neither the EP nor the Commission has published the declarations of interests submitted to the present hearings, but the presumed content of László Trócsányi’s statement can be reasonably deduced from his ministerial asset declarations and the declaration of interests he made as a Member of the EP in July this year. Membership in Nagy and Trócsányi Law Firm is consistently reflected in ministerial declarations (16% ownership in declarations between January 2014 and January 2017, 12.62% ownership in January 2018 and – according to the firm’s statement, after „withdrawing the asset on nominal value” – with a 0% stake from July 2018), each time indicating that Mr Trócsányi’s status as a lawyer is suspended, and he has no share in the profits of the firm.

Bar Association records prove that Mr Trócsányi has suspended his lawyer’s activities since March 2007 – when he was elected as a member of the Constitutional Court –, so he indeed was not entitled to provide such legal services that require a membership in the Bar Association ever since. But information on the stakes in legal firms (with a shocking difference from the status of this information in any other legal entity) is not public under Hungarian law. However, in an answer to an interpellation question in the Hungarian Parliament in September 2018, Mr Trócsányi also added to his asset statements that his assets in Nagy and Trócsányi were liquidated not through a transfer but through a reduction in the law firm’s capital. Nevertheless, he maintained, that “I have the right to suspend my lawyer’s activities, as I also have the right to keep my [law firm] membership required by law [for the suspension]”, so he will not resign from his office.

The law firm probably had to have included in some form in the previous professional activities section of Mr Trócsányi’s declaration of interests as a Commissioner-Designate. However, in the absence of a mention of Nagy and Trócsányi in the MEPs’ statement, it seems clear that Mr Trócsányi did not regard his current relationship with the law firm, limited to passive membership without stakes since 2018, as a matter with public policy implications.

JURI, on the other hand, clearly thought otherwise: it’s first statement means that the fact that Mr Trócsányi’s „multiple and clear involvement” in itself resulted in a conflict of interest. It is important that this statement does not call into question whether Trócsányi had really been involved in the affairs of the office during his suspension of activities for more than a decade, or that he had no direct financial gain from the assignments of the firm. In this concept, a continuous membership itself can be an involvement, as well as the use of the name Trócsányi in the name and commercial activities of the law firm. It has been repeated as a mantra in EU conflict of interest policies that the existence of interests and relationships that undermine the appearance of independence may also be incompatible with positions: this is reflected in the definition cited above requiring that one also has to avoid situations which are reasonably be perceived as conflict of interest .

It would seem rational – not only to the press critical of Mr Trócsányi, but also to a client of the law firm, and even to a politician or a manager seeking a Commission relationship – not to assume Mr Trócsányi’s neutrality vis-à-vis the law firm among whose clients, given the firm’s profile and size, there are serious economic operators at European level. This impression exists even if Mr Trócsányi and the current management of the firm all have a high level of morale, and Mr Trócsányi’s professional bias means only that “knowing the qualities of the law firm, the fact that it has acted as an agent in the case reassures me“.

Of course, no matter how many different involvements were there according to JURI, an involvement could have been dealt with for the future, even if we knew from Mr Trócsányi’s previous statements that he had already thought the problem was properly solved. Although the name of the firm is based on a 1993 trademark registration of its own (the protection under the original application has expired, but there are still eight trademarks held by the law firm with the name Trócsányi), they would hardly have said no to a change of name, if it would have won the commissioner’s post.

It is precisely because of the possibility of elimination of involvement from the relationship that the two specific cases of Nagy and Trócsányi named in the JURI resolution are of particular importance since they cannot be dealt with for the future, as was the case with the Lyubishin decision.

The Paks II contract

JURI considers Trócsányi’s “contract involvement” incompatible in the law firm’s August 2018 Paks II assignment . The meaning of involvement here is not completely clear, but it is a fact that under the contractpublished by a former Hungarian MEP, Benedek Jávor, the law firm was commissioned to develop the legal arguments working with the Minister of Justice (who is primarily responsible for legal representation of the Hungarian government) in the lawsuit filed by Austria with the European Court of Justice against the European Commission concerning the legality of the financing of Hungary’s Paks II Nuclear Power plant project. Although the contracting partner was the Prime Minister’s Office and the professional correspondent was the Secretary of State for the Paks Minister without Portfolio, it is clear that the legal and professional judgment of the work and the use of its results were made in the Ministry of Justice, then led by Mr Trócsányi. In the contract, the firm declared its lack of conflict of interest using the usual terms in contracting practice.

At the time of signing the contract, Mr Trócsányi had not owned the office for several months, but as stated above, this does not mean that there was no conflict of interest according to JURI. In addition, in his statement, Nagy and Trócsányi Law Firm argued that this mandate arisesfrom a previous contract with the Prime Minister’s Office on Paks II issues signed before Mr Trócsányi’s tenure (a re-contracting for new tasks), so there is no new mandate, since Mr Trócsányi’s appointment as minister “the law firm has not taken on a new paid assignment from either the government or any of its ministries”. However, this is not a decisive argument, as not only was the task to be carried out in 2018 in cooperation with Mr Trócsányi, but it could only be decided upon in 2018, as Austria commenced court proceedings earlier that year. In addition, the text of the contract does not refer to the contractual history of the parties.

The perception of this situation, of course, depends on how we evaluate the relationship between the law firm and the minister, who is now a stakeless and inactive member. In any event, JURI’s interpretation is consistent with the fact that if there is a conflict of interest in the involvement in the law firm, then the 2018 contract also violated the conflict of interest requirement.

Ministerial Chief Counsellor Tibor Bogdán

The last objection clearly refers to Tibor Bogdán’s personal position as chief counsellor to the Minister of Justice. MrBogdán, who later also suspended his activities as a lawyer since his appointment as government commissioner in May 2019, has been the „personal chief counselor” to the minister for the whole period of Trócsányi’s ministerial tenure since 2014, while he was Nagy and Trócsányi’s active lawyer. At his ministerial hearing in June 2018, Trócsányi responded to a question about the role of Mr Bogdán as follows: “I really like to ask for Tibor Bogdán’s opinion, he is a smart legal expert, and if I meet a smart legal expert, I would be happy to ask him so I can learn from it ”. This is in line with the law firm’s response to this issue: their staff “advised the Ministry of Justice and László Trócsányi, among others, but the firm’s staff had never received any compensation”.

This is, of course, an important consideration, but notwithstanding the honourable lack of remuneration by Mr Bogdán, not only the designation of „chief counsellor” but also the apparent part of the duties actually performed indicates that Mr Bogdán’s involvement was very far from giving occasional personal advice. As the Ministry of Justice states in its own statement, “in this capacity, [Mr Bogdán] has been involved in the Ministry’s most important legislative work” and has appeared in numerous professional and official events on behalf of the Ministry of Justice, from cabinet sessions to meetings with the Hungarian Academy of Sciences on the reform of academic research institutions.

Again, this depends solely on the relationship between the law firm and the minister: since, according to JURI, the latter was a conflict of interest, it must have extended to Mr. Bogdán’s role as well.

The result is not so unexpected

The pro-government blog Pesti Srácok attributed to the lobby of the opposition Democratic Coalition (DK) that JURI “sat up for the agitation”. The claim is based on that they have found two of the three specific cases in DK’s lobbying material circulated to MEPs. However, these three cases did not emerge from nowhere, but were well-known stories in the Hungarian press about Mr Trócsányi’s ministerial time, just as the question of Mr Trócsányi’s relations with the law firm emerged in connection with all of the firm’s assignments from the state and against the state. Even when the candidate was announced in the spring, one would have guessed that these cases would come up during the hearings, so there was little chance of a smooth examination of the declaration of interests. That is why Mr Trócsányi’s situation is difficult, if he is serious about considering legal remedies: it seems hard to question the pure facts of the cases, while the conclusion is the result of an assessment of the facts that could hardly be overridden by any court of law.

On the whole, we do not believe that there would have been a scenario in which Mr Trócsányi goes through without steps taken to deal with the conflict of interest, in particular, without completely cutting his ties from the law firm. The EP’s inquiry could obviously have found a lighter solution than discarding, but it did not search for one in this case. To what extent this is due to the success of the domestic opposition firmly attacking Mr Trócsányi’s candidacy, and to what extent it a result of linking this case to the case of the Romanian Commissioner-designate, is difficult to judge.

However, it is certain that the case can provide a lesson for politicians with similarly high positions in Hungary and in other EU countries to choose bulletproof solutions, when they decide on the fate of their economic interests that are clearly incompatible with their public mandate.

Written and translated by Tibor Sepsi.

You can read the original, Hungarian language story here. Photo by MTI / Szilárd Koszticsák.