OPINION OF ADVOCATE GENERAL

WATHELET

delivered on 7 May 2015 ( 1 )

Case C‑255/14

Robert Michal Chmielewski

v

Nemzeti Adó- és Vámhivatal Dél-alföldi Regionális Vám- és Pénzügyőri Főigazgatósága

(Request for a preliminary ruling from the Kecskeméti Közigazgatási és Munkaügyi Bíróság (Hungary))

‛Controls of cash entering or leaving the European Union — Regulation (EC) No 1889/2005 — Breach of the obligation to declare — Proportionality of penalties — Free movement of capital and payments’

I – Introduction

1. This request for a preliminary ruling concerns the proportionality of an administrative fine provided for under Hungarian law as a penalty for breach of the obligation to declare under Article 3 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. ( 2 )

II – Legislative framework

A – Union law

1. The Charter of Fundamental Rights of the European Union

2. In Article 17, entitled ‘Right to property’, the Charter of Fundamental Rights of the European Union (‘the Charter’) establishes and protects the right to property, in paragraph 1, as follows: ‘Everyone has the right to own, use, dispose of and bequeath his or her lawfully acquired possessions. No one may be deprived of his or her possessions, except in the public interest and in the cases and under the conditions provided for by law, subject to fair compensation being paid in good time for their loss. The use of property may be regulated by law in so far as is necessary for the general interest.’

2. Regulation No 1889/2005

3. According to paragraph 1 of Article 1, entitled ‘Objective’: ‘This Regulation complements the provisions of Directive 91/308/EEC concerning transactions through financial and credit institutions and certain professions by laying down harmonised rules for the control, by the competent authorities, of cash entering or leaving the [European Union].’

4. Article 3, entitled ‘Obligation to declare’, provides: ‘1. Any natural person entering or leaving the [Union] and carrying cash of a value of EUR 10000 or more shall declare that sum to the competent authorities of the Member State through which he is entering or leaving the [Union] in accordance with this Regulation. The obligation to declare shall not have been fulfilled if the information provided is incorrect or incomplete. 2. The declaration referred to in paragraph 1 shall contain details of: ... (e) the provenance and intended use of the cash; ...’

5. Article 4, entitled ‘Powers of the competent authorities’, provides as follows in paragraph 2: ‘In the event of failure to comply with the obligation to declare laid down in Article 3, cash may be detained by administrative decision in accordance with the conditions laid down under national legislation.’

6. Under Article 6, entitled ‘Exchange of information’: ‘1. Where there are indications that the sums of cash are related to any illegal activity associated with the movement of cash, as referred to in Directive 91/308/EEC, the information obtained through the declaration provided for in Article 3 or the controls provided for in Article 4 may be transmitted to competent authorities in other Member States. Regulation (EC) No 515/97 shall apply mutatis mutandis. 2. Where there are indications that the sums of cash involve the proceeds of fraud or any other illegal activity adversely affecting the financial interests of the Community, the information shall also be transmitted to the Commission.’

7. Article 7, entitled ‘Exchange of information with third countries’, provides: ‘In the framework of mutual administrative assistance, the information obtained under this Regulation may be communicated by Member States or by the Commission to a third country, subject to the consent of the competent authorities which obtained the information pursuant to Article 3 and/or Article 4 and to compliance with the relevant national and Community provisions on the transfer of personal data to third countries. Member States shall notify the Commission of such exchanges of information where particularly relevant for the implementation of this Regulation.’

8. Article 9, entitled ‘Penalties’, provides, in paragraph 1: ‘Each Member State shall introduce penalties to apply in the event of failure to comply with the obligation to declare laid down in Article 3. Such penalties shall be effective, proportionate and dissuasive.’

B – European Convention for the Protection of Human Rights and Fundamental Freedoms

9. Under Article 1 of Protocol No 1 to the Convention for the Protection of Human Rights and Fundamental Freedoms, signed in Rome on 4 November 1950, entitled ‘Protection of property’: ‘Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law. The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.’

C – Hungarian law

10. Paragraph 2 of Law No XLVIII of 2007 provides: ‘1. The obligation to declare laid down in Article 3 of Regulation [No 1889/2005] shall be fulfilled in writing. 2. The full name and address of the owner of the cash pursuant to Article 3(2)(b) of Regulation [No 1889/2005], the full name and address of the intended recipient of that cash pursuant to Article 3(2)(c) [of that] regulation and the means of transport used, and in the case of a motor vehicle its registration number, pursuant to Article 3(2)(g) [of that] regulation shall be indicated. ...’

11. Paragraph 5/A of Law No XLVIII of 2007 provides: ‘Any natural person entering or leaving the [Union] who does not fully and correctly fulfil the obligation to declare laid down in Article 3(1) of Regulation [No 1889/2005] in respect of the cash he is carrying, as defined in Article 2(2) of Regulation [No 1889/2005], or who does not fulfil that obligation at all, shall, as required by Article 9 of Regulation [No 1889/2005], pay an on-the-spot fine in forints [HUF], amounting to: (a) 10% of the amount held, where the sum of cash is EUR 10000 or more but less than EUR 20000, (b) 40% of the amount held, where the sum of cash is EUR 20000 or more, but less than EUR 50000, (c) 60% of the amount held, where the sum of cash is more than EUR 50000.’

III – The main proceedings and the questions referred for a preliminary ruling

12. On 9 August 2012, Mr Chmielewski entered Hungary from Serbia, without declaring the sum of cash he was carrying, which totalled EUR 147492, consisting of 249150 Bulgarian leva (BGN) (approximately EUR 127400), 30000 Turkish lira (TRY) (approximately EUR 6500) and 29394 Romanian lei (RON) (approximately EUR 13600).

13. According to the Commission, Mr Chmielewski informed customs officers during the control that he was in possession of this large sum of money because he had planned to buy a house in Bulgaria, but was returning to Poland without having had any success.

14. At the hearing, the Nemzeti Adó- és Vámhivatal Dél-alföldi Regionális Vám- és Pénzügyőri Főigazgatósága (Regional Customs and Tax Directorate of Del-alföld, forming part of the National Treasury and Customs Authority) stated that 60% of the sum held by Mr Chmielewski (equivalent to HUF 24532000) was detained for the purposes of the fine introduced by Paragraph 5/A(1)(c) of Law No XLVIII of 2007 for failure to declare.

15. By decision of 4 October 2013, the Nemzeti Adó- és Vámhivatal Dél-alföldi Regionális Vám- és Pénzügyőri Főigazgatósága rejected Mr Chmielewski’s claim that he should be exempt from the fine in the light of his personal circumstances and confirmed the administrative fine of HUF 24532000 imposed on him by the customs officers, as, having failed to declare that sum when he entered the European Union, he had not complied with the obligation imposed on him by Regulation No 1889/2005 and by Law No XLVIII of 2007.

16. Mr Chmielewski brought an appeal against that decision before the Kecskeméti Közigazgatási és Munkaügyi Bíróság (Administrative and Labour Court, Kecskemét), claiming inter alia that the provisions of Law No XLVIII of 2007 were contrary to Union law.

17. In these circumstances, the Kecskeméti Közigazgatási és Munkaügyi Bíróság decided to stay the proceedings and to refer the following questions to the Court for a preliminary ruling: ‘(1) Is the amount of the fine imposed by Paragraph 5/A of Law XLVIII of 2007 implementing Regulation ... No 1889/2005 ... commensurate with the requirement laid down in Article 9(1) of that regulation, according to which the penalties imposed by national law must be effective, dissuasive and, at the same time, proportionate to the infringement and to the objective pursued? (2) Does Paragraph 5/A of [Law No XLVIII of 2007] not infringe, as a result of the amount of the fines it provides for, the prohibition on disguised restrictions on the free movement of capital in the Treaty on European Union and in Article 65(3) [TFEU]?’

IV – The procedure before the Court

18. The present request for a preliminary ruling was lodged at the Court on 27 May 2014. The Hungarian, Belgian, Spanish and Italian Governments and the European Commission submitted written observations.

19. A hearing was held on 18 March 2015, during which the Nemzeti Adó- és Vámhivatal Dél-alföldi Regionális Vám- és Pénzügyőri Főigazgatósága, which had not submitted written observations, the Hungarian, Belgian and Spanish Governments, and the Commission presented oral argument.

V – Analysis

A – Preliminary remarks

20. Although, in accordance with the principle of free movement of capital guaranteed by Article 63 et seq. TFEU, Union law does not prohibit international transfers of cash, the Court has ruled that such free movement of capital does not preclude the export of coins, banknotes or bearer cheques being made conditional on a prior declaration. ( 3 ) This rule is also found in EU legislation on the same subject, such as Regulation No 1889/2005, more specifically in Article 3 thereof.

21. Consequently, the question concerning the penalty laid down in Hungarian law can be examined having regard to both Article 9(1) of Regulation No 1889/2005 and Article 65(3) TFEU, which prohibits disguised restrictions on the free movement of capital.

22. As the Commission proposes in its written observations, I will examine the two questions referred for a preliminary ruling together.

B – The arguments of the parties

23. It is common ground between the parties to the proceedings before the Court that the penalties laid down in Paragraph 5/A(1) of Law No XLVIII of 2007 are effective and dissuasive within the meaning of Article 9(1) of Regulation No 1889/2005. However, unlike the Hungarian, Belgian, Spanish and Italian Governments, which consider that those penalties are also proportionate, the Commission takes the view that the penalties laid down in points (b) and (c) of that provision, namely 40% for an undeclared sum between EUR 20000 and EUR 50000 and 60% for an undeclared sum above EUR 50000, are not consistent with the principle of proportionality.

24. According to the Commission, the fines are disproportionate both because Paragraph 5/A(1) of Law No XLVIII of 2007 does not allow the administration or the national court any discretion to take account of the specific circumstances of each individual situation when determining the amount of the fine and because it provides for such high amounts that it seems to presume an intention to mislead on the part of the person who committed the administrative offence in question.

25. On the other hand, the Hungarian, Belgian, Spanish and Italian Governments argue that the penalty system introduced by Paragraph 5/A(1) of Law No XLVIII of 2007 is proportionate by reference to its effective and dissuasive character and the fact that the fines are increased gradually according to the size of the undeclared amounts.

C – Assessment

1. The Court’s case-law on the proportionality of penalties

26. The question of the proportionality of penalties in case of failure to comply with EU law has already been addressed by the Court in several judgments.

27. It is thus settled case-law that ‘in the absence of harmonisation of [Union] legislation in the field of the penalties applicable where conditions laid down by arrangements under such legislation are not observed, the Member States are empowered to choose the penalties which seem appropriate to them. They must, however, exercise that power in accordance with [Union] law and its general principles, and consequently with the principle of proportionality’. ( 4 )

28. ‘As the Court has repeatedly held, the administrative measures or penalties must not go beyond what is strictly necessary for the objectives pursued and the control procedures must not be accompanied by a penalty which is so disproportionate to the gravity of the infringement that it becomes an obstacle to the freedoms enshrined in the [FEU] Treaty.’ ( 5 )

29. However, the Court has rarely ruled specifically on the proportionality of the national penalties at issue in each case. It did so in Urbán (C‑210/10, EU:C:2012:64), but in that case the unlawful conduct penalised was not remotely akin to abuse or even serious, whereas the amount of the fine was very high, which led the Court itself to find that the fine in question was disproportionate. ( 6 )

30. Usually the Court entrusts responsibility for reviewing proportionality to the referring court, providing it with useful guidance to enable it to carry out that review. ( 7 )

31. In Louloudakis (C‑262/99, EU:C:2001:407), the Court ruled, in paragraph 69, that ‘although overriding requirements of enforcement and prevention may justify national legislation setting penalties at a certain level of severity, it is nevertheless possible that [such penalties] may prove to be disproportionate and constitute an obstacle to the said freedom [in that case free movement of goods and persons], inasmuch as they include flat-rate penalties fixed solely on the basis of the vehicle’s cubic capacity, without account being taken of the vehicle’s age, and increased duty which may be as much as ten times the charges at issue. A penalty based on the sole criterion of cubic capacity could be disproportionate to the gravity of the infringement, in particular where it is associated with another heavy penalty, imposed in respect of the same infringement. The same could be true of a penalty amounting to a multiple of the charges at issue, for example ten times such charges’.

32. Perfectly logically, the Court decides the matter itself in the case of penalties laid down in Union law itself without reference to the national court.

33. For example, in Billerud Karlsborg and Billerud Skärblacka (C‑203/12, EU:C:2013:664), ( 8 ) the Court held that ‘the proportionality of a European Union measure cannot depend on retrospective assessment of its efficacy. Where, as in the present case, the EU legislature has to assess the future effects of legislation to be enacted although those effects cannot be accurately foreseen, its assessment is open to criticism only if it appears manifestly incorrect in the light of the information available to it at the time of the adoption of the legislation in question’. ( 9 )

34. On that basis, the Court found that ‘the penalty for excess emissions provided for by Directive 2003/87 cannot be considered to be contrary to the principle of proportionality on the ground that there is no possibility for the amount to be varied by a national court’. ( 10 ) I note that in Louloudakis (C‑262/99, EU:C:2001:407) the Court had held that flat-rate penalties which took no account of a number of criteria might ‘prove to be disproportionate’ (see paragraphs 69 to 71).

35. In the light of these observations, it would seem that the Court’s case-law on the proportionality of penalties, which leaves it for national courts to review proportionality, essentially has regard to the specific individual circumstances of each individual case, taking into account the type and seriousness of the infringement, the degree of ease with which the authorities can foresee how effective the penalties will be, the method for calculating the penalty and the criteria to which it is subject.

2. The proportionality of penalties from the point of view of the right to property

36. As the Commission states in its written observations, administrative fines penalising failure to declare cash at the border have been examined by the European Court of Human Rights in the light of Article 1 of Protocol No 1 to the European Convention for the Protection of Human Rights and Fundamental Freedoms.

37. In my view, the present case should also be examined from the point of view of the right to property enshrined in Article 17 of the Charter, especially since Regulation No 1889/2005 states, in recital 15 in its preamble, that it ‘respects the fundamental rights and observes the principles ... reflected in the [Charter]’, which, according to Article 51(1) thereof, is applicable when the Member States are implementing Union law.

38. As Article 17 of the Charter corresponds to Article 1 of Protocol No 1 to that Convention, the case-law of the European Court of Human Rights in this regard could be helpful in the present case, given that, under the Charter, Union law may provide ‘more extensive protection’. ( 11 )

39. The European Court of Human Rights has dealt with three cases with facts almost identical to those in the present case: Ismayilov v. Russia, ( 12 )Grifhorst v. France ( 13 ) and Moon v. France. ( 14 )

a) Ismayilov v. Russia

40. On 17 November 2002, Mr Ismayilov, an Azerbaijani national, arrived in Moscow, carrying with him USD 21348, representing the proceeds from the sale of a house in Baku (Azerbaijan) which he had inherited from his mother. He nevertheless declared to customs officers that he was carrying only USD 48, even though Russian law required that any amount exceeding USD 10000 had to be declared. A subsequent control uncovered the remaining amount in his luggage. He was then charged with smuggling and the sum in question was seized as evidence. Mr Ismayilov was given a suspended sentence conditional on probation and the Russian courts awarded the sum in question to the customs authorities which confiscated it.

41. According to the European Court of Human Rights, ‘in order to be considered proportionate, the interference [with the right to property] should correspond to the gravity of the infringement, namely the failure to comply with the declaration requirement, rather than to the gravity of any presumed infringement which had not however been actually established, such as an offence of money laundering or tax evasion’. ( 15 )

42. The European Court of Human Rights added that the confiscation measure was not intended as pecuniary compensation for damage suffered by the State ‘as the State had not suffered any loss as a result of the applicant’s failure to declare the money — but was deterrent and punitive in its purpose’. ( 16 )

43. The European Court of Human Rights concluded that ‘[i]t has not been convincingly shown or indeed argued by the [Russian] Government that that sanction alone [imprisonment] was not sufficient to achieve the desired deterrent and punitive effect and prevent violations of the declaration requirement. In these circumstances, the imposition of a confiscation measure as an additional sanction was ... disproportionate, in that it imposed an “individual and excessive burden” on the applicant’. ( 17 )

b) Grifhorst v. France

44. Grifhorst v. France is similar to the present case in that the provisions of French law at issue in that case (in particular Articles 464 and 465 of the Code des douanes (Customs Code)) are the provisions that implement Articles 3 and 9 of Regulation No 1889/2005 in France.

45. On 29 January 1996, on the France-Andorra border, Mr Grifhorst was subject to a control carried out by French customs. As in the case in the main proceedings, when asked by customs officers, in English and in Spanish, if he had any money to declare, Mr Grifhorst replied that he did not. The vehicle and Mr Grifhorst were searched and the customs officers found 500000 Dutch guilders (NLG) in the vehicle’s map pockets, equivalent to EUR 233056. When questioned, Mr Grifhorst stated that he resided in Andorra and had withdrawn the sum from Cre'dit Andorra' in order to buy a property in Amsterdam.

46. Unlike what happened in the case in the main proceedings, the customs officers seized the entire sum held by Mr Grifhorst.

47. Subsequently, and unlike the Hungarian authorities in the case in the main proceedings, the French authorities consulted the Netherlands authorities regarding Mr Grifhorst’s activities, and were informed that Mr Grifhorst was known to them, in particular for offences of blackmail and extortion, kidnapping and possession of a firearm, committed in 1983. The Netherlands authorities also stated that the only known activity of Mr Grifhorst was in connection with property, that an international investigation into his activities conducted by the Kingdom of Spain, the French Republic and the Kingdom of the Netherlands had not made progress, and that he was suspected of money laundering for third parties, but that it was not possible to provide any additional firm evidence.

48. Mr Grifhorst was summoned to appear before the Tribunal correctionnel de Perpignan (Criminal Court, Perpignan, France), which, by judgment of 8 October 1998, found him guilty of the offence of failure to comply with the obligation to declare money, stocks or securities under Article 464 of the Code des douanes, ordered the confiscation of the entire sum and ordered Mr Grifhorst to pay a fine equivalent to half the undeclared sum (NLG 225000 or EUR 116828) on the basis of Article 465 of the Code des douanes.

49. That judgment was upheld by the Cour d’appel de Montpellier (Court of Appeal, Montpellier, France), which refused his request to refer the case to the Court for a preliminary ruling. The Cour de cassation (Court of Cassation, France) also dismissed his appeal. Following the dismissal of the appeal, Mr Grifhorst made an application to the European Court of Human Rights alleging violation of his right to property guaranteed by Article 1 of Protocol No 1 to the European Convention for the Protection of Human Rights and Fundamental Freedoms.

50. The European Court of Human Rights stated, first of all, that the only wrongful conduct of which Mr Grifhorst could be accused was that he had failed to declare the cash he was carrying when he crossed the France-Andorra border, and the Government had not claimed, moreover, that the sums carried were the proceeds of illicit activities or were intended for such activities. ( 18 )

51. Adopting the approach taken by the Commission in the reasoned opinion which it had sent to the French Republic regarding the compatibility of Article 465 of the Code des douanes with Union law, the European Court of Human Rights also stated that the penalty should be commensurate with the gravity of the infringement, namely the failure to comply with the declaration requirement, rather than with the gravity of any presumed infringement which had not actually been established, such as an offence of money laundering or tax evasion. ( 19 )

52. The European Court of Human Rights then took note of the amendment to the wording of Article 465 in 2004, following the Commission’s reasoned opinion. Under the new wording, confiscation was no longer automatic and could now be ordered, at the latest at the end of a maximum period of six months during which the undeclared sum was detained, only if there was evidence or plausible grounds to think that the person concerned had committed other offences in contravention of the Code des douanes. The fine was fixed at 25% of the sum to which the offence related. ( 20 )

53. In those circumstances, the European Court of Human Rights ruled that a system like that introduced by the 2004 amendment allowed a fair balance to be maintained between requirements of the public interest and the protection of the fundamental rights of the individual, ( 21 ) whilst the imposition of a fine as well as confiscation was disproportionate having regard to the infringement committed. ( 22 )

c) Moon v. France

54. Moon v. France raised the same problem as Grifhorst v. France, the only significant difference being that the fine imposed was fixed at 25% of the undeclared sum.

55. The European Court of Human Rights confirmed its judgment in Grifhorst v. France, ruling that the penalty of confiscation in conjunction with a fine amounted to 125% of the undeclared sum and that it was therefore disproportionate. ( 23 )

3. The penalty system introduced by Articles 4(2) and 9(1) of Regulation No 1889/2005

56. As the Commission suggests, the objective of Regulation No 1889/2005 is to supplement the existing mechanism under Union law for the prevention of money laundering by ensuring a certain level of control of movements of cash crossing EU borders and to gather information on such cash movements. ( 24 )

57. The system of controls introduced by Regulation No 1889/2005 thus lays down the obligation to declare any sum equivalent to or above EUR 10000. ( 25 ) Under that system, failure to comply with that obligation must be subject to ‘effective, proportionate and dissuasive’ penalties which the Member States must introduce in their national law ( 26 ) and which may be accompanied by the detention of the undeclared cash by administrative decision in accordance with the conditions laid down under national legislation. ( 27 )

58. It is therefore clear from the structure of this system that, as the Commission states, the fines introduced by the Member States are meant to penalise only the infringement established, namely the failure to comply with the obligation to declare, rather than any infringement which has not been established, such as money laundering or tax evasion.

59. As indicated in Article 3(2)(e) of Regulation No 1889/2005, ( 28 ) it is for the national authorities in each case to verify, as the French authorities did in Grifhorst v. France, the provenance and intended use of undeclared cash, a task which is simplified by the provisions on exchange of information contained in Articles 6 and 7 of that regulation.

60. At the hearing, the Nemzeti Adó- és Vámhivatal Dél-alföldi Regionális Vám- és Pénzügyőri Főigazgatósága pointed out that it was difficult for customs officers to gather evidence at the border of criminal offences connected with undeclared cash, such as money laundering or tax evasion. However, it is precisely to facilitate this task that Article 4(2) of Regulation No 1889/2005 provides that cash may be temporarily detained by administrative decision.

61. If it is established that the provenance and intended use of the undeclared cash are lawful, as was the case in Ismayilov v. Russia ( 29 ) and Moon v. France, ( 30 ) or cannot be challenged, as was the case in Grifhorst v. France, ( 31 ) only the penalty laid down in national law pursuant to Article 9(1) of Regulation No 1889/2005, in this case a fine, may be imposed.

62. On the other hand, the penalty of confiscation may be imposed if it is established that the provenance or intended use of the cash in question is unlawful, in accordance with the provisions of national law, and be applied in conjunction with the penalty provided for under national law pursuant to Article 9(1) of Regulation No 1889/2005.

63. It must be stated that, as the fine does not relate to the provenance or intended use of the undeclared cash, it cannot be varied depending on whether or not the provenance or use of the sum in question is lawful.

64. In 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 1200 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 10000 and EUR 20000, 40% for sums between EUR 20000 and EUR 50000, and 60% for any sum above EUR 50000).

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 50000 — 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 50000.

( 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 (28240 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.