Opinion of the Advocate General — ECLI:EU:C:2015:308
Date: 2015-05-07
Language of the case: Hungarian
Subject matter: Taxation;Free movement of capital;Approximation of laws
Procedure: Reference for a preliminary ruling
Origin: Hungary

summary, as the European Court of Human Rights has already ruled, in order for the fine imposed for failure to comply with the obligation to declare to be considered proportionate, it must ‘correspond to the gravity of the infringement, namely the failure to comply with the declaration requirement’. (32) 4. Compatibility of Law No XLVIII of 2007 with Regulation No 1889/2005 a) General considerations 65. It should be noted at the outset that, as the Commission explained at the hearing, the penalties laid down by the Member States pursuant to Article 9(1) of Regulation No 1889/2005 are very different as regards both the calculation of the fine (percentage of the undeclared sum or amount fixed by the competent authorities between a minimum and a maximum provided for by law) and the amounts those systems can produce (from EUR 1 200 in Estonia to a maximum fine of EUR 1 million in Germany). 66. Against this background, a system of fines like that introduced by the Hungarian legislature, which provides for graduated increases according to the size of the undeclared sum, would not seem to be unusual per se. b) Aspects other than the fine as such 67. However, certain aspects of this system would appear to be contrary to Regulation No 1889/2005. 68. First of all, as was confirmed at the hearing by the Nemzeti Adó- és Vámhivatal Dél-alföldi Regionális Vám- és Pénzügyőri Főigazgatósága, as the Hungarian legislation did not make use of the opportunity provided for in Article 4(2) of Regulation No 1889/2005 to detain the undeclared cash by administrative decision, the cash found on Mr Chmielewski when he crossed the Serbia-Hungary border was not seized temporarily by the Hungarian authorities. (33) 69. Furthermore, even though it would appear that Mr Chmielewski declared to Hungarian customs officers that he was in possession of the sum in question because he had planned to buy a house in Bulgaria, but was returning to Poland unsuccessful, it is not apparent from the documents before the Court that the Hungarian authorities attempted to establish the provenance of the cash in question. To that end, they could have requested assistance from the Polish authorities, which they did not do. In this regard, they failed to apply Article 3(2)(e) of Regulation No 1889/2005. 70. Since the main objective of Regulation No 1889/2005 is, inter alia through cooperation between the Member States facilitated by Article 6, to make combating money laundering and tax evasion more effective, it is imperative that the Member States investigate the origin and intended use of the funds in question, and not simply confine themselves to a finding that there has been an infringement and imposing a penalty for failure to comply with the obligation to declare, which means that those funds can be detained temporarily during that investigation. 71. Rather than laying down the conditions under which undeclared cash may be detained by administrative decision in accordance with Article 4(2) of Regulation No 1889/2005, under the system implementing that regulation introduced by Law No XLVIII of 2007 the possibility that the provenance and intended use of the undeclared cash are unlawful is simply reflected in the graduated increases in the fine. 72. In my view, however, a system combining, through a fine linked to the sums at issue, a presumption of unlawfulness as to their provenance or intended use with failure to comply with the obligation to declare seems contrary to Articles 3(2) and 4(2) of Regulation No 1889/2005. 73. By failing to require questions to be asked about the provenance and intended use of undeclared cash and by not permitting its temporary detention by administrative decision in order to allow the Hungarian authorities to decide whether the cash should be confiscated, (34) Law No XLVIII of 2007 does not comply with the rules laid down by the regulation and undermines its effectiveness. 74. It is against that background, where it is no longer possible for the referring court to seize temporarily the undeclared cash with a view to its confiscation if the unlawfulness of its provenance or intended use is proven, that the proportionality of the fine imposed should be examined, taking into account the abovementioned problems relating to the compatibility of Law No XLVIII of 2007 with Regulation No 1889/2005. c) The automatic relationship between the fine and the undeclared sum of cash 75. The system of fines introduced by Paragraph 5/A of Law No XLVIII of 2007 does not allow the competent authorities any leeway to depart from the predetermined amount of the fine. Furthermore, that amount increases automatically according to the size of the undeclared sum (namely 10% if the sum is between EUR 10 000 and EUR 20 000, 40% for sums between EUR 20 000 and EUR 50 000, and 60% for any sum above EUR 50 000). 76. The only scaling factor for the fine is therefore the size of the undeclared sum. 77. The Commission criticises this system for not allowing the competent authorities to take account of the circumstances of each individual case, such as intent or repeated offences of failure to declare, which, according to the Commission, could lead to the fine being reduced or even cancelled if the person who committed the offence was subsequently able to prove the lawfulness of the origin and intended use of the undeclared sum. In that case, notwithstanding the failure to comply with the obligation to declare, the Commission considers that the general interest would not have been prejudiced. 78. Although I have just mentioned that Regulation No 1889/2005 requires the provenance and intended use of the sum at issue to be investigated in the course of the controls provided for in Article 4(1) of Regulation No 1889/2005, I am not convinced by that criticism. 79. Even though Regulation No 1889/2005 does not preclude a system such as that proposed by the Commission, which would allow national customs authorities or national courts to take account of the specific circumstances of each individual case, it is not possible in any event, in my view, for such a system to result in there being no penalty for the offence of failure to comply with the obligation to declare laid down in Article 9(1) of Regulation No 1889/2005, which expressly provides that the Member States ‘shall introduce penalties to apply in the event of failure to comply with the obligation to declare laid down in Article 3’. 80. Moreover, systems which, like that provided for by Law No XLVIII of 2007, do not allow account to be taken of the specific circumstances of each individual case do not seem to be contrary to Regulation No 1889/2005 by virtue of that fact alone. Why allow the competent authorities discretion in respect of an administrative offence of failure to declare, which the Union legislature intended to be easy to establish and independent of other crimes such as money laundering, financing of terrorism, tax evasion, handling stolen goods, theft, benefiting from the proceeds of drug trafficking or smuggling, but also independent of any element of intent? 81. In my view, the Member States are entitled to establish a system of fines which is simple, effective and dissuasive and which treats all persons concerned in the same way, while adopting a differentiated approach to the prevention of offences other than failure to declare. d) Proportionality of the fine imposed in the main proceedings 82. Even though a fine which is graduated according to the sum of undeclared cash is appropriate for achieving its objective of encouraging compliance with the obligation to declare and penalising failure to comply with that obligation, I tend to think that the highest rate chosen by the Hungarian legislation is disproportionate. Although I do not think, as the European Court of Human Rights seems to do, (35) that the same percentage (in this case 25%) should be applied whatever the undeclared amount, I consider that a fine of 60% of the entire sum, where it is more than EUR 50 000 — perhaps motivated by the presumed existence of other offences or of intent to commit such offences — verges on a confiscation measure to penalise a mere failure to comply with the obligation to declare and does not strike a fair balance between the requirements of general interest and the requirement of the protection of the right to property enshrined in Article 17 of the Charter. 83. I will make two final remarks. Without wishing to make it a crucial element, I note from the statement made by the Commission at the hearing that of the Member States which, like Hungary, have opted for a fine equivalent to a percentage of the undeclared sum, none of them have imposed such a high rate, with figures ranging from 5 to 50%, the latter rate being reserved for exceptional circumstances in one Member State. 84. Lastly, I wish to point out that confiscation of all the funds at issue would be perfectly proportionate if it were not established that the origin and intended use of those sums were lawful, without prejudice to other penalties for any other offences established. VI – Conclusion 85. I therefore suggest that the Court answer the questions referred for a preliminary ruling by the Kecskeméti Közigazgatási és Munkaügyi Bíróság as follows: Article 9(1) of Regulation (EC) No 1889/2005 of the European Parliament and of the Council of 26 October 2005 on controls of cash entering or leaving the Community must be interpreted as precluding a penalty such as that provided for in Paragraph 5/A(1)(c) of Law No XLVIII of 2007, in so far as it imposes, without the possibility of detaining the undeclared sum during the time required to investigate its origin and intended use, a fine of 60% of that sum where it is more than EUR 50 000. 1 – Original language: French. 2 – OJ 2005 L 309, p. 9. 3 – See judgments in Bordessa and Others (C‑358/93 and C‑416/93, EU:C:1995:54, paragraph 31), and Sanz de Lera and Others (C‑163/94, C‑165/94 and C‑250/94, EU:C:1995:451, paragraph 39). 4 – Judgment in Louloudakis (C‑262/99, EU:C:2001:407, paragraph 67). See also, to that effect, judgments in Amsterdam Bulb (50/76, EU:C:1977:13, paragraphs 33 and 35); Commission v Greece (C‑210/91, EU:C:1992:525, paragraph 19); Siesse (C‑36/94, EU:C:1995:351, paragraph 21); de Andrade (C‑213/99, EU:C:2000:678, paragraph 20); Ntionik and Pikoulas (C‑430/05, EU:C:2007:410, paragraph 54); and Urbán (C‑210/10, EU:C:2012:64, paragraph 53). 5 – Judgment in Commission v Greece (C‑210/91, EU:C:1992:525, paragraph 20). See also, to that effect, judgments in Casati (203/80, EU:C:1981:261, paragraph 27); Luisi and Carbone (286/82 and 26/83, EU:C:1984:35, paragraphs 34 and 35); Commission v Greece (68/88, EU:C:1989:339, paragraph 24); Louloudakis (C‑262/99, EU:C:2001:407, paragraph 67); Ntionik and Pikoulas (C‑430/05, EU:C:2007:410, paragraph 53); and Urbán (C‑210/10, EU:C:2012:64, paragraph 53). 6 – See judgment in Urbán (C‑210/10, EU:C:2012:64, paragraphs 55 to 58). See in particular paragraph 56, in which the Court ruled that ‘the Hungarian penalty system appears to be disproportionate, particularly in a case such as that in the main proceedings, in which only one out of the 15 discs checked was found not to have been completed properly, in that the kilometre count on arrival had not been recorded’ and that ‘the failure to complete the recording disc at issue in the main proceedings could not have constituted an abuse inasmuch as the information missing from the record sheet was in fact set out on the bill of lading’. See also paragraph 58, in which, after noting that ‘the measure imposing a penalty must not be disproportionate’, the Court points out that the amount of the fine ‘is almost equivalent to the average monthly net income of an employee in Hungary’. 7 – See, inter alia, judgments in Louloudakis (C‑262/99, EU:C:2001:407, paragraph 70) and Ntionik and Pikoulas (C‑430/05, EU:C:2007:410, paragraph 54). 8 – That case concerned the lawfulness of the flat-rate penalty of EUR 100 imposed by Article 16(3) of Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC (OJ 2003 L 275 p. 32) for each tonne of carbon dioxide equivalent emitted by an installation for which the operator has not surrendered allowances. 9 – See paragraph 37. 10 – Ibid. (paragraph 38). 11 – See Article 52(3) of the Charter. 12 – ECHR, Ismayilov v. Russia, 6 November 2008 (judgment not published in Reports of Judgments and Decisions, available on the Court’s website http://hudoc.echr.coe.int/sites/eng/pages/search.aspx?i= 001-89412). 13 – ECHR, Grifhorst v. France, 26 February 2009 (judgment not published in Reports of Judgments and Decisions, available on the Court’s website http://hudoc.echr.coe.int/sites/eng/pages/search.aspx?i= 001-91448). 14 – ECHR, Moon v. France, 9 July 2009 (judgment not published in Reports of Judgments and Decisions, available on the Court’s website http://hudoc.echr.coe.int/sites/eng/pages/search.aspx?i= 001-93522). 15 – ECHR, Ismayilov v. Russia, 6 November 2008, § 38. 16 – Ibid. 17 – Ibid. 18 – ECHR, Grifhorst v. France, 26 February 2009, § 98. 19 – Ibid., § 102. 20 – Ibid., § 103. 21 – Ibid. 22 – Ibid., § 105. 23 – ECHR, Moon v. France, 9 July 2009, §§ 48 to 52. 24 – See, inter alia, Article 1 and recitals 2 and 3 in the preamble to Regulation No 1889/2005. 25 – See Article 3(1) of Regulation No 1889/2005. 26 – Ibid., Article 9(1). 27 – Ibid., Article 4(2). I would point out that such detention is temporary, as its duration may not exceed the time strictly necessary to establish whether there are grounds for confiscating the undeclared sum. 28 – I wish to point out to the Court and to the referring court that Article 2(2) of Law No XLVIII of 2007, which does not include the provenance and intended use of the cash in the information covered by the declaration, is contrary to the express wording of Article 3(2)(e) of Regulation No 1889/2005 and must therefore be disregarded. 29 – See point 40 of this Opinion. The sum held by Mr Ismayilov when he crossed the Russian border represented the proceeds from the sale of a house in Baku (Azerbaijan) which he had inherited from his mother. 30 – See ECHR, Moon v. France, 9 July 2009, §§ 9 and 12. During the control at the France-Switzerland border, Mr Moon stated that the sum he held (28 240 pounds sterling (GBP)) came from a loan which he had been granted by a Geneva-based company and that it was intended for the purchase of a house in France or, if he did not find one, the purchase of a sports car in England. The Tribunal correctionnel de Thonon-les-Bains (Criminal Court, Thonon-les-Bains, France), before which Mr Moon was summoned to appear, found that Mr Moon had proved that his income and his personal assets enabled him to have such a sum. 31 – See points 47 and 50 of this Opinion. Despite the fact that, according to the Netherlands authorities, Mr Grifhorst had been suspected of illegal activities in the past, those authorities stated that the only known activity of Mr Grifhorst was in connection with property and that an international investigation had not produced any firm evidence. 32 – ECHR, Ismayilov v. Russia, 6 November 2008, § 38, Grifhorst v. France, 26 February 2009, §§ 98 and 102, Moon v. France, 9 July 2009, § 49. 33 – This may be surprising as it is strange that Mr Chmielewski intended to use, to a large extent, Romanian lei and Turkish lira to buy a house in Bulgaria and apparently did not explain why he was taking the risk of making such a long journey by train (from Poland to Bulgaria and back) carrying such a large sum of money, rather than making a bank transfer. 34 – See point 68 of this Opinion. 35 – See ECHR, Grifhorst v. France, 26 February 2009, § 103. See also, to that effect, ECHR, Moon v. France, 9 July 2009, §§ 48 to 52.