Corporate Human Rights Responsibility in Illiberal Regimes: The Example of the Ukrainian Refugee Crisis in Hungary

Abstract

Following the first-ever rule of law conditionality procedure in September 2022, a resolution was adopted by the European Parliament which declared that Hungary could no longer be considered a full democracy, as it had turned into a ‘hybrid regime of electoral autocracy’. Against this background, this article explains the business and human rights (BHR) gap in Hungary and presents its consequences for the Ukrainian refugee crisis. We first provide a general overview of the role of business in the development and consolidation of the Orbán regime over the past 13 years, highlighting how businesses are both agents and victims of legal and political developments. The paper distinguishes four types of ‘business’: multinational and foreign companies that are direct beneficiaries of the regime; local companies that are direct beneficiaries of the regime; multinational companies that are targets of restrictive and repressive populist rhetoric and economic policies; and the ‘rest’, the remainder that try to avoid becoming targets of oligarchic takeovers. The article also documents how the state and other stakeholders are failing to meet their commitments under the United Nations Guiding Principles on Business and Human Rights (UNGPs). The next part of the article assesses how companies are responding to the refugee crisis caused by the war in Ukraine, Hungary’s neighbour. If the government does not adopt Pillar I and Pillar III of the UNGPs, what room for manoeuvre do companies have? The focus here is on how companies, domestic and foreign, multinational enterprises (MNEs) and small and medium enterprises (SMEs), engage in humanitarian (and human rights) crisis management.

I. Introduction

Hungary is a medium-developed Central and Eastern European (CEE) country with an European Union (EU)-dependent fragile economy, which has had an illiberal constitutional regime since the mid-2010s. Hungary’s economy has been growing steadily in recent years due to the regional economic climate, with a GDP growth rate of 5.2% in 2019. ¹ The COVID crisis in 2020, followed by Russian aggression and a full-scale war, however, has hit the economy hard. With the highest inflation rate in Europe in 2022 and 2023, the European Commission assessed that Hungary’s economy is characterized by a high level of external debt, low productivity, and a weak business environment. In the past decade, Hungary has pursued illiberal economic policies, emphasizing state intervention and protectionism. It is widely documented that the last decade, since Viktor Orbán became Prime Minister in 2010 and was re-elected three times with a two-thirds majority, has been characterized by a general constitutional decline and a crisis of the rule of law in Hungary. ² The government has implemented several measures to support domestic businesses, including tax cuts, subsidies and preferential treatment for Hungarian companies in public procurement. Furthermore, it has also taken steps to increase its control over key sectors of the economy, such as energy and media, and to change the business model in the health, sports, academic and cultural sectors. Critics argue that these policies have undermined competition and have led to a concentration of economic power in the hands of a few politically connected individuals (cronies). The international Business and Human Rights (BHR) agenda is also not backed up by concrete government policies. ³ The government has taken advantage of a decade of global economic prosperity, but has not bothered to implement the ‘Protect, Respect, Remedy’ framework in a comprehensive and systematic way. ⁴ Against this background, the article examines the management of the refugee crisis during the first 18 months of the war in Ukraine, highlighting the challenges and constraints faced by the captive business sector in the absence of clear BHR policies.

The assessment aims to fill a research gap by examining the impact of the war in Ukraine on Hungary, especially with regard to the (economic) integration of refugees fleeing the war, using a constitutional law methodology with a specific focus on BHR.

The article draws on the work of János Kornai, one of Hungary’s most internationally recognized economists, who examines the various spheres of society: political institutions, the rule of law and the interaction between the state and the market, as well as the world of ideology (education, science and the arts), and describes the impact of the U-turn on these spheres and on people’s lives. ⁵ We also draw on the extensive general BHR literature. ⁶

The first part of the article shows how stakeholders fail to meet commitments under the UNGPs framework. By developing a fourfold typology, we begin by exploring the role of businesses in the development and solidification of the self-identified illiberal Orbán regime over the past 13 years, and highlight how they are simultaneously agents and victims of the legal and political developments.

In the second part we assess how businesses reacted to the refugee crisis caused by the war against Ukraine, Hungary’s neighbour, which is host to an ethnic Hungarian Diaspora. Corporate involvement in supporting refugees from Ukraine is crucially influenced by Hungary’s illiberal economic governance and constitutional environment. The focus here is on corporate, mainly SME, engagement in humanitarian (and human rights-related) crisis management. We argue that their guiding motivation is mostly charity, at best corporate social responsibility combined with solidarity, but not conscious or publicly proclaimed ‘corporate responsibility to respect’ human rights in the sense of UNGP Pillar II.

In sum, the article shows how the economic difficulties caused by the COVID-19 pandemic and the economic crisis caused by Russia’s aggression against Ukraine accentuates the Hungarian systematic failures in the field of BHR.

II. Background: The State of Business and Human Rights in Hungary

In September 2022, in the first ever rule of law conditionality procedure, a resolution adopted by the European Parliament declared that Hungary could no longer be considered a full democracy, as it had become a ‘hybrid regime of electoral autocracy’. ⁷ This ‘hybridity’ has many components. From a business and human rights perspective, Hungary is characterized by strong state control over business (with particularities in certain sectors ⁸), limited transparency of state-owned enterprises, repressive tax policies against certain multinational companies, and the intimidation of human rights defenders. ⁹ We begin by explaining how our analysis typifies businesses under the Hungarian regime, which is specific compared with other hybrid and illiberal states because it is embedded in a highly integrated European economy, as a member state of the European Union. We also highlight constitutional issues and the position of human rights defenders as key actors in the management of the refugee crisis and as important collaborators with the business sector. The analysis in the first part, thus, puts into context the cases examined in the second part of the paper, and helps to understand the business sector’s response to the war in Ukraine and the resulting refugee crisis.

Businesses Under Illiberal Governance

In any state – whether a democracy or another (hybrid, illiberal) regime type – the business actors are very different, depending on (1) the means of access to capital; (2) local, national, and international production systems and access to product markets; (3) the relationship between politics and business; and (4) the ownership structure (segmented capitalism). ¹⁰ Rather than providing a comprehensive analysis of the Hungarian business sector, we present a typology of firms that takes into account the above-mentioned characteristics. From an analytical point of view, there are (at least) four types of ‘businesses’ in the Hungarian hybrid illiberal regime:

1. (1) Multinational and foreign companies that are direct beneficiaries (and operators) of the regime;

2. (2) Local companies that are direct beneficiaries (and operators) of the regime;

3. (3) (Mostly) multinational companies that are targets of populist rhetoric and economic policies; and

4. (4) The ‘rest’, namely, companies trying to navigate the regime and avoid becoming targets for oligarchic take-overs. This distinction is important not only because the different types create a distinct ‘path dependency’ for BHR activism, but also because it sheds light on the specificity and uniqueness of Hungarian illiberalism.

Despite apparent similarities, the Polish and other non-European illiberal regimes are arguably different from Hungary in that the latter is financed by the market, through EU funds and the massive involvement of multinational corporations, which receive significant state subsidies. What is peculiar to Hungary is the level of corruption and the way it is channelled to government-linked companies that underpin the political regime.

One of the unique features of the Hungarian case is that (at least until the post-war crisis in Ukraine) it has been a relative economic success, largely financed by the EU and multinationals. Whilst populist government rhetoric usually views multinationals as scapegoats and imposes restrictive taxes on some, the government offers generous tax cuts and direct incentives to others. As will be shown, some multinational and foreign companies, notably the German car industry, are being offered lucrative terms. The regime is also determined to build a strong, pro-government middle class, mostly by steering market regulation in its favour. The engine for this is the opaque procurement system for distributing EU funds. Oligarchs and trusted companies also take over unreliable local and multinational market shares. Companies are thus agents of state capture and indirect government take-overs. In this climate of intimidation and insecurity, companies (even strong multinationals) will think twice about supporting, even symbolically, human rights and democratic causes and issues that contradict or simply do not match government policy or rhetoric. In the following section, we will present some publicly documented facts and data to support the above.

Oppressive Legislation Against Certain (Multinational) Enterprises

Economics Professor László Csaba explains how the regime’s self-proclaimed ‘unorthodox’ economic policy mix includes ‘ad-hoc regulatory interventionism, nationalization followed sometimes by privatization to friends, marginalizing foreign ownership in banking, energy sector and trade, and super lax monetary policy’. ¹¹ Similarly, Sebők and Simons ¹² show how Hungary’s deviation from the orthodox-neoliberal convention is best characterized by a form of illiberal economic nationalism. This works through a disenchanted, post-crisis critical and counter-hegemonic rhetoric of global capitalism, and also involves the initial nationalization and then re-privatization of the given assets into the hands of regime-friendly capitalists. The illiberal and captured Hungarian state has encroached on a wide spectrum of economic life; in the subsequent section, we show some examples.

In order to regain autonomy and assure long-term political survival within a liberal EU context, Orbán explicitly stated his aim to increase domestic ownership in banking to over 50%. This drove the re-nationalization of the financial sector with resentment towards neoliberal banking practices through a grand strategy of reconstructing Hungarian capitalism. As part of these efforts, the government launched wide-scale mortgage rescue programs, ¹³ directly intervening with banking policies. Besides securing popular support, controlling finance also allowed the government to control large swathes of the media as state-guaranteed or private loans were secured to take over the second biggest commercial TV channel (TV2) and scores of newspapers and magazines were integrated into an Orbán-controlled foundation. ¹⁴ Some measures, such as special taxes on the internet in 2014 ¹⁵ or Sunday closures in 2016 were withdrawn, ¹⁶ while others, like special taxes on multinational retail and supermarket corporations endured. Widely documented policies included the restructuring of the pharmacy and the tobacco-sales market ¹⁷ in 2010 ¹⁸ and 2012, respectively, or the nationalization of private pension funds in 2010. ¹⁹ Under the 2012 ‘Plaza Ban-legislation’, owners of retail buildings and shopping malls with a gross floor area of over 400 square meters faced new permitting procedures and higher costs. The openly stated purpose of the law was to ‘prevent the spread of shopping malls’. ²⁰

More recently, following the emergence of the Ukraine war-induced economic crisis and in response to galloping inflation, the government froze gas prices (requiring gas stations to sell their fuel below market price) and capped the prices of basic goods like flour, sugar, oil and chicken. ²¹

Economics Professor Zoltán Ádám documents how Orbán levied industry-specific taxes on banking, energy provision, telecommunication, and retail trade. Besides raising budgetary revenues, these taxes incentivized large foreign companies to either leave the Hungarian market, or to bend to the government’s increasingly direct economic control, which manifested in the nationalization of banks, utility companies to be then re-privatized to friendly businesses: ‘The government (…) managed to restructure (…) food processing, construction, tourism, and passenger transportation. A controlling share in the market-leader national oil company was acquired, while the government’s controlling role in electricity production and provision was strengthened through nationalized power stations and utility companies’. ²²

The government had already introduced a special legal order because of the pandemic in 2020, and the Russian-Ukrainian war – with the amendment of the Fundamental Law of Hungary – led to the introduction of a new state of war emergency. This gave the government an exceptional mandate to govern by decree, effectively eclipsing parliamentary control.

Beneficiaries and Operators of the Regime

German automotive companies provide direct employment to almost 50,000 employees, generating about 2.5% of Hungary’s gross domestic product (GDP), according to the Hungarian Investment Promotion Agency (HIPA). ²³ The automotive sector is Hungary’s largest recipient of foreign direct investment. Between 2010 and 2019, the production value of the Hungarian automotive industry rose by 165%, thanks mostly to the expansion of German-owned companies. ²⁴ According to data collected by the Hungarian Central Statistical Office, car manufacturing accounts for 4.5% of Hungary’s GDP, and suppliers working for large car manufacturers account for another 5–8%. This means that every eighth to tenth forint produced in Hungary has a connection to the German-dominated car industry. ²⁵ Thus, car factories provide 2.6% of Hungarian jobs and their suppliers another 3–5%, according to civil society organization (CSO) data. ²⁶ Another advantage of ‘Orbanomics’ is that Hungary now has the lowest corporate tax rate in Europe, and German companies can expect higher subsidies and grants than in Germany. ²⁷

In fact, it has been argued that the reason why the new constitution (adopted by Orbán’s parliamentary supermajority in 2011) lacks a provision concerning ‘equal pay for equal work’ – despite the fact that it was included in the previous constitution – was to allow regional differences to favour wage-policies set forth by these strategically crucial factories. ²⁸ In addition, Orbán’s party also defends the interests of German car manufacturers in the European Council, and has also sought to strengthen the position of German defence investors in Hungary, especially since the full-scale war in Ukraine. ²⁹

In response, German companies have not hidden their gratitude. For example, Audi bankrolled an arena, close to their plant, as part of its ‘corporate social responsibility’ efforts. Orbán has been building such arenas all over Hungary as panem et circenses, or ‘bread and circuses’, are a key element of his approach to governing. ³⁰

As Shehadi points out, ‘it is hard to reconcile such investments with corporate claims for ESG responsibility (…) Transparency International’s Hungarian head claims that the “multinationals in Hungary do not seem to serve as any kind of check to the government in any respect for the rule of law and anti-corruption”’. ³¹

For example, ‘Magyar Hang’, one of the few remaining newspapers critical of the government, claims that in vain had it demonstrated to ‘have an ideal audience for German automotives, the paper has no chance of attracting advertising from the German car industry due to the informal power exercised by the government’. ³² The editor reports how a car industry representative admitted that ‘they can’t advertise (…) because they don’t want to risk the state subsidy given to their factory’. ³³ Similarly, in 2015, German-owned retail chain Aldi took a then government critical daily ‘Magyar Nemzet’ off the shelves of its shops and started selling the newly created pro-government ‘Magyar Idők’ instead. ³⁴ Corporate unwillingness to risk losing subsidies results in less funding available – through advert payments or donations – to the non-regime media outlets and other voices of the free society. Their visibility is also restricted when retail chains are not willing to sell such products and thereby they actually restrict people’s right to information. These companies thus engage in progressive self-censorship in order not to lose preferential treatment and subsidies, often in blatant contradiction to their published and cherished policies. ³⁵

Critics have pointed out how Germany’s self-proclaimed long-term economic policy of ‘Wandel durch Annäherung’ (promote change – democracy and human rights – through closer cooperation) and of ‘Wandel durch Handel’ (promote change through trade) by internationalizing the value chains of German goods has been destroyed. ³⁶

According to Csaba, ‘“strategic partnerships” signed by the government with big multinationals like Coca Cola or Deutsche Telekom (…) formalise mutual commitment to long-term co-operation, in exchange for lavish tax returns or investment subsidies. The size of the latter is mostly unknown, but in rare cases when those became available to the public, tax breaks or subsidies amount to 15% to 25% of the total investment costs’. ³⁷ Csaba adds that this is often complemented by other protective measures, securing profits and markets by warding off new entries. ³⁸

The regime’s economic encouragement is, of course, not limited to foreign and multinational companies. One of Orbán’s closest advisors, András Lánczi, openly claimed in 2015 that ‘[w]hat some call corruption is essentially the main policy of Fidesz’ (Orbán’s party); ‘By that I mean the government has set goals like forming a layer of domestic businessmen, building Pillars of a strong Hungary in rural areas or in industry’. ³⁹ The party’s economic doctrine includes a revolt against international capital and liberal values and nurturing a supportive national moneyed class. Pressure was certainly put on many foreign companies in sectors such as telecommunications, media, retail or banking, where domestic companies could take over their spot (unlike in the case of the German car industry). ⁴⁰

This model has been widely documented and in essence, there is no chance to drive the business and human rights agenda through public procurement as it is captured by the political regime. ⁴¹

The regime’s symbolic and iconic figure is the prime minister’s ally, Lőrinc Mészáros, who used to run a small gas installation enterprise and then served as mayor of the village where the Orbán family house is located. Now Mészáros is the richest Hungarian who has ever lived, and ‘his interests span well over 100 companies in seven major industries from construction and real estate to energy, media, banking, finance, tourism, sports, and agriculture’. ⁴² His wealth in 2022 amounted to $1.1 B. ⁴³

As a former member of the Hungarian and the European parliament comments,

‘The past decade has seen Orban’s oligarchs buy immense stakes in construction, agriculture and tourism, areas that receive huge EU funding. They aggressively acquired hundreds of Hungarian companies in these spheres. It was a land grab. (…) Ten business elites closest to Fidesz have won public procurement contracts worth nearly $8bn since Orbán assumed power in 2010.’ ⁴⁴

Businesses are, thus, simultaneously agents and victims of the regime. For example, the crack-down on independent media has been orchestrated via corporate takeovers, forcing (through repressive taxes), or making (via lucrative offers) national or multinational owners hand over their companies to pro-government businessmen. ⁴⁵

Having looked at the economic philosophy and reality of ‘Orbanomics’ through a few examples, it is worth considering how it is embedded in the constitutional and human rights regulatory environment.

Constitutional and BHR Environment

Hungary, as a Central-European EU Member State, should be committed to the UN Business and Human Rights agenda, but this commitment has been half-hearted to date. The Hungarian government has not adopted a National Action Plan ⁴⁶ on the basis of the UNGPs, ⁴⁷ and the Hungarian responses to the survey of the Business & Human Rights Resource Centre were also non-committal in character in 2014. ⁴⁸

It is worth mentioning that Hungary participates in the OECD Guidelines for MNEs ⁴⁹ and has established a National Contact Point (NCP), ⁵⁰ which has a website that is accessible in both English and Hungarian and contains the details of the complaint procedure. ⁵¹ However, it is not sufficiently informative and there is no database on Hungarian cases of complaints (perhaps due to the lack of recourse for the complaints mechanism). Similarly, according to OECD Watch, the anonymity of complaints is not clear under national legislation, procedural rules favour confidentiality over transparency, there is no indication that the government has applied or would be committed to sanction abusive complaints, and the government has not made any efforts to increase trust in the complaints procedure. The NCP operates within a ministerial framework that does not guarantee that conflict of interest is excluded. ⁵² Although it seems that the OECD NCP exists in Hungary, it does not work effectively.

In the last 12 years, it has been unclear in the governmental structure which ministry or ministries are responsible for BHR issues. Following the 2022 elections, economic governance is shared between at least six ministries in the new (and fifth) government formed by Viktor Orbán, ⁵³ which makes it difficult to cooperate with stakeholders in the BHR field.

Arguably, there is a strong connection between general constitutional rights protection and the erosion of the ‘state responsibility to protect’ in an illiberal governmental system, in relation to BHR issues.

Hungary’s democratic U-turn had been widely discussed in legal and political science literature. The regime has mostly been described as representative of a relatively new form of authoritarianism, coined as a ‘hybrid’, or an ‘elective autocracy’. ⁵⁴ It relies on both competitive elections and ‘abusive constitutionalism’, ⁵⁵ which involves the use of traditional constitutional instruments actually demolishing it. ‘Hegemonic preservation’, ‘authoritarian enclaves’ and ‘bionic appointments’ are terms used to describe the regime. Renáta Uitz – a well-known Hungarian comparative constitutional lawyer – explains how hybrid regimes rely on a trifecta of plebiscitary mobilization, ‘ruling by cheating’, and abusive constitutional borrowing from the global constitutional canon for the purposes of illiberal constitutional normalization. ⁵⁶ Illiberal constitutional learning strategically draws on the ideas, language and design of constitutions, but actually hijacks the vocabulary and imagination of constitutional democracy. ⁵⁷

An example of this illiberal turn came after the 2015 European refugee crisis, when the Orbán government defined Hungary as a bulwark against migration and refugees, not only rhetorically, but also in action. A razor-fence was erected on the southern border of Hungary, as well a ‘legal fence’ to keep away refugees. The newly created transit zones raised a number of compliance issues, and CJEU and ECtHR judgments accentuated that Hungary had violated international and European human rights norms of refugees. ⁵⁸

Hungarian constitutional backsliding – with all its symptoms, such as the cemented model of limited constitutional review, the broken constitutional continuity, the restrictions of transparency perpetuated by the practice of over-ruling the Constitutional Court’s decisions, ⁵⁹ and the negligence of EU and ECtHR standards ⁶⁰ – led to the elimination of the guarantees that would be essential to the successful adoption and implementation of the UNGPs. This illiberal exercise of power undermines the chance of multi-stakeholder collaboration to promote the development of norms and practices related to BHR.

The Hungarian government’s response to BHR challenges illustrate the limited impact of the UNGPs in illiberal states. ⁶¹ If the UN BHR agenda is not a priority in government policy and social partnerships are weak, the government can mask restrictive human rights measures and austerity tools as an evolution in business human rights protection, ⁶² even if they have negative impacts. This raises the following question, which is particularly relevant in an illiberal state: to what extent can local companies take on the responsibility to respect human rights under Pillar II of the UNGPs, given the state supremacy of Pillar I and the differences between national approaches and supranational market expectations?

Oppressive Legislation on Human Rights Defenders

The protection of human rights defenders is also an important factor in the implementation of the UNGP’s BHR principles. This is relevant in the Hungarian hybrid regime because civil society organizations, especially rights defenders, are important for the protection of the rights of migrant workers and, where applicable, refugees. However, instead of support and protection, ⁶³ the last decade has brought the intimidation of human rights defenders. For example, in June 2020, the Court of Justice of the European Union declared that the Putin-type Act LXXVI of 2017 on the Transparency of Organizations Supported from Abroad – which stigmatized certain CSOs by referring to them as ‘foreign-funded organizations’ – violated EU law. The subsequently adopted new law also authorized the State Audit Office to conduct targeted checks on dozens of NGOs, scrutinizing their accounting and cash management policies. ⁶⁴ Furthermore, government agencies were reportedly instructed not to cooperate with human rights defender NGOs, inter alia, under a new privacy law, they can refuse to provide information, and can levy excessive charges for public data requests. ⁶⁵ This is a problem from the viewpoint of the first Pillar of the UNGPs, as the restrictions make it very difficult to obtain data of public interest from state-owned or partly state-owned companies, and on transactions with domestic or EU public money.

NGOs defending the rights of refugees are special targets of the government. For example, Act XLI of 2018 imposes a special tax on migration-related activities and financing.

This was accentuated by an amendment to the Hungarian Penal Code in 2018, which criminalized activities typically carried out by human rights NGOs to assist asylum seekers. In its decision 3/2019, the Hungarian Constitutional Court (all members of which are nominated and elected by the ruling supermajority in the Parliament) ruled that the criminalization of ‘facilitating illegal immigration’ does not violate the Fundamental Law. ⁶⁶

The stigmatization of and threat to independent NGOs makes companies more cautious. As seen above, for example, multinational companies will be reluctant to advertise in independent press products and will also be less willing to support ‘pariah’ NGOs in order to protect their investments and business interests in Hungary.

In Sum: UNGPs Pillars I and III Failures

In Hungary, the UNGPs have faced challenges due to the country’s political environment. From a human rights perspective, the government has been criticized for restricting civil liberties, limiting media freedom, and undermining the independence of the judiciary. This limits the ability of individuals and organizations to effectively hold companies accountable for human rights abuses and makes it more difficult for companies to operate in a human rights-respecting manner. It should be recalled that the EU’s rule of law conditionality procedure against Hungary was initiated, inter alia, because of high levels of corruption, a lack of transparency in public procurement, weaknesses in audit and control requirements and risks to the independence of the judiciary. ⁶⁷

In addition, Hungary has a weak civil society and a limited regulatory framework, which make it difficult to implement the UNGPs effectively. Government efforts to restrict the work of NGOs and limit their sources of funding have also contributed to this problem.

The UNGPs do not impose affirmative obligations on companies to actively address human rights abuses by illiberal forces. However, there are obligations for companies to consider their human rights responsibilities when they are directly or indirectly responsible for, contribute to, or are directly associated with adverse human rights impacts. This arguably applies at least to multinational corporations that benefit from illiberal government policies, especially if that benefit is in return for political support either in the illiberal state itself or where the parent company is based. These ‘contributing’ and ‘actively associated’ MNEs should therefore be subject to more rigorous scrutiny of their indirect responsibility for human rights abuses in illiberal contexts. Local companies hoping to survive illiberal capture cannot reasonably be expected to take an activist approach to BHR issues that fall under the auspices of such illiberal encroachment. However, MNEs, even if they are victims of such developments, could be expected to ‘name and shame’ these attacks as they are also ‘associated with adverse human rights impacts’, and should at least identify the fourth, local beneficiary type of company for the cooperation of others, for example.

After a general characterization of the illiberal economic and constitutional environment, the article goes on to narrow the focus. In an illiberal system that is partially constrained from the outside (by EU and NATO membership), the government still maintains significant room for manoeuvre on migration and refugee policy. Against this backdrop, we assess the business-relevant factors of the government’s refugee policy and then examine the reactions of different types of companies to the refugee crisis that followed the outbreak of war in Ukraine. On the other hand, we will assess which normative requirements in an illiberal constitutional context could promote BHR standards, in particular the pursuit of Pillar II of the UNGPs, in the context of Russia’s war against Ukraine.

III. The Business and Human Rights Implications of the Government’s (Mostly) Anti-Refugee Policies

Government Policies Relevant to Businesses in the Refugee Crisis

The previous section showed the exposure of businesses to government encroachment and politics. This is the point of reference for assessing business engagement in aiding refugees. Why is refugee protection relevant from a BHR perspective? Pillar II of the UNGPs requires companies to respect all human rights in their operations and to assess the adverse impact of their activities on human rights. Those fleeing war zones and seeking asylum in a country intend to integrate as soon as possible and enter the labour market. This integration can be encouraged by companies through their own means and, better still, supported by public legal regulators. In this section, we first consider how government attitudes towards refugees and migration can influence business behaviour. We then look at examples related to the Ukrainian refugee crisis, in line with our business typology presented above, and outline possible business strategies for more conscious use of the UNGPs.

In order to understand the current situation, we need to jump back to the previous, 2015 refugee crisis. As mentioned above, the government launched a powerful anti-immigrant/refugee political campaign and practically refused to provide services to asylum seekers and irregular immigrants, leaving them to their own devices and the occasional help of volunteers, who acted against government policies. ⁶⁸

A significant body of literature ⁶⁹ discusses the surprisingly intensive civic engagement that followed, but commentary and documentation of for-profit activities is scarce. There were offers, which we can attest to from our personal experience as volunteers, but companies arguably preferred to remain anonymous to avoid openly going against government policy. As Svensson and colleagues show, business donations and practical support remained limited and low-profile, and was often given on the condition of anonymity. ⁷⁰ It is likely that companies were afraid to openly oppose the government’s anti-refugee policy, as doing so would have affected their subsidies, benefits and public procurement results. There is no indication that business enterprises in Hungary were aware or took into account the requirements of heightened human rights due diligence, despite operating in proximity to an international conflict (even though it was not taking place on state territory, its effects were direct), or guidance set forth by international soft law instruments such as the 2009 International Committee of the Red Cross Interpretive Guidance on the Notion of Direct Participation in Hostilities under International Humanitarian Law, ⁷¹ the UNDP Heightened Human Rights Due Diligence for Business in Conflict-Affected Contexts Guide, ⁷² or the Report of the Working Group on the Issue of Human Rights and Transnational Corporations and Other Business Enterprises on Business, Human Rights and Conflict-affected Regions: Towards Heightened Action. ⁷³

The 2022 Ukrainian war-crisis found Hungarian businesses in a different situation. First, the government’s political strategy, albeit complex and challenging, was inconsistent. While Hungary is formally on ‘Ukraine’s side’ in the war, the government is often a hesitant partner in supporting sanctions against Russia and maximizes efforts not to distance itself from Russia. ⁷⁴ On the other hand, as Zoltán Kovács, Secretary of State for International Communication and International Spokesman stated in a press release: ‘the situation of a large group of predominantly Afghan and Syrian young men arriving from the distant Middle East on the Hungary-Serbia border is significantly different from women and children escaping danger in neighbouring Ukraine (…)’. ⁷⁵ This new attitude was reflected in the government’s approach, which provided a range of social, medical, educational and transport services to those fleeing Ukraine. For example, on the day Russian aggression began against Ukraine, the Hungarian Government adopted a special decree providing exemptions from the Act on Asylum. Under Government Decree 56/2022 of 24 February (which is not in force anymore due to a common EU decision), Ukrainian citizens coming from the territory of Ukraine and third country nationals legally residing in Ukraine were entitled to get identity and travel documents for one exit and return to the territory of Hungary, along with a residence and work permit under the rules applicable to third country nationals, were allowed in a reception centre, and were eligible for health care and subsistence support. They also can apply for refugee status in Hungary. Later the Orbán government also agreed with EU Council Implementing Decision (EU) 2022/382 of 4 March 2022, which established the existence of a mass influx of displaced persons from Ukraine within the meaning of Article 5 of Directive 2001/55/EC, and introduced temporary protection. Furthermore, the state pays an allowance to employers if a Ukrainian employee has worked for the company for at least 90 days, arrived in Hungary after the outbreak of the war, and applied for or received asylum. ⁷⁶ While some kind of policy and law-making is what we would expect from the state under Pillar I to ensure respect for the human rights of refugees, the above measures were meant to be more of a support to employers.

The new approach, however, has sent a clear signal to the business community – that helping refugees will be accepted by the government and will not result in any reprisals/refusal of bids, etc.

At the same time, the threat abuse for migrant (and refugee) workers has increased. It is worth pointing out that while the Orbán government’s asylum policies have been increasingly restrictive since 2015, they have encouraged labour migration from non-EU countries due to labour shortages. Already before the outbreak of full-scale war against Ukraine, a large number of Ukrainian workers – 60,000 to 70,000 – were already working, especially in the construction sector. However, the outbreak of the war led to a decrease in the number of male workers from Ukraine, as many returned to fight for their country, while the number of women with young children fleeing the war increased. This increased the risks posed by recruitment agencies to migrant workers, refugees and beneficiaries of temporary protection. ⁷⁷ Even before the war, there were a number of Ukrainian-Hungarian ‘labour brokers’. These Ukrainian-Hungarian recruitment agencies jeopardize workers’ rights through exploitation, wage theft, and poor working conditions. These agencies often bring workers from Ukraine to Hungary to work in sectors such as agriculture, construction and manufacturing, where there is a high demand for labour. ⁷⁸ The first type (government crony business) is most common in these sectors. A form of wage theft may occur to workers being paid in cash, who are not provided with pay slips or other forms of documentation, making it difficult to prove the hours worked. This practice tends to take place in both small companies that are at the end of the subcontracting chain, as well as first-tier companies that have won public tenders. Additionally, workers brought to Hungary through these agencies are subjected to inadequate housing, a lack of access to healthcare, and dangerous working environments. Workers mostly lack access to basic labour protections, the right to form a union and negotiate fair wages and working conditions. ⁷⁹ These risks are heightened by the refugee crisis created by the war.

Simultaneously, companies using agencies have not changed their approach and have not applied more scrutiny towards workforce agencies. While on the one hand they were providing ad hoc support to refugees, even if on anonymous basis, their policies in terms of recruitment – which relied on the abuse of workers, including refugees – did not change. This reflects the fact that help to refugees was an ad hoc/morally spurred action, but one which did not result in a more strategic approach to human rights in the company’s own operations. There was no overt commitment from companies to the second Pillar of the BHR UNGPs, and their reactions were more related to philanthropy, solidarity, and CSR. ⁸⁰

But even this philanthropic, ad hoc assistance to refugees was not so obvious. Just like in 2015, ‘faith-based organizations and civil society actors stepped in and organized the welcome and basic services for the hundreds of thousands of people’. ⁸¹ Meanwhile, the government stepped in only ‘weeks into the war’ when it ‘(…) started to take a role in coordinating the multiple actors providing humanitarian assistance’. ⁸² Hence, also in 2022, civic, non-profit activism dominated. Despite a more positive government response, businesses were/are still cautious to engage openly in donations and other forms of aid for refugees, and if they do, they prefer to remain anonymous.

Responsibilities of the Enterprises under UNGPs Pillar II – Practices and Potential Strategies in a State-Controlled, Illiberal Economy

If a hybrid illiberal regime – such as Hungary – neglects the requirements of Pillars I and III of the UNGPs in the business world, it is still up to companies to fulfil their obligations under Pillars II and III. Here, human rights due diligence concerning refugee workers and business operations in conflict-affected areas comes into play. The latter is relevant in terms of the risks posed to companies’ human rights commitments, given that Russia is a belligerent aggressor; e.g., some multinational companies have withdrawn from or suspended their activities in Russia, some business activities are subject to economic sanctions, and business relations with Russian companies or subsidy activities should be scrutinized. In this section, we present and evaluate practices by the four types of companies (cronies, beneficiary MNEs, targeted MNEs and the ‘rest’) we introduced above, in relation to the refugee crisis in Hungary, and also outline possible strategies for them to better comply with the UNGPs.

(1) Domestic crony companies – such as OTP or Vodafone or Yettel – typically follow the government’s policy in relation to the war in Ukraine, and it is not typical for them to suspend their business activities in Russia.

For example, OTP, the largest Hungarian bank (lead by Hungary’s second richest man, ranked 2,190 on the Forbes list, with a net worth of $1.3 billion in 2022) ⁸³ has been added to the list of ‘war supporters’ in Ukraine (along with Austria’s Raiffeisen) because of its subsidiary in Russia. ⁸⁴ The bank announced that it is ‘constantly considering whether further changes are needed regarding OTP Group’s presence in Russia’. ⁸⁵ Also, it made open commitments to aid Ukraine ‘with the support of millions of euros, material donations, the collection of more than 1.5 million euros worth of humanitarian donations among our employees and clients, and the accommodation and care of 160 refugees’. ⁸⁶ Telecommunications companies (Vodafone and Yettel ⁸⁷) are offering free sim cards and roaming services, and support war-crisis related volunteering initiatives. ⁸⁸ These are good examples which show that companies are not approaching BHR in a strategic way, as an element of how they carry out their business activity and make profit, but rather that they treat it as a charitable activity.

However, these companies also have to follow EU policy in the European single market, of which the Hungarian government is a partner, and this includes the EU mandatory due diligence legislation in the long run. They can also, as part of their corporate social responsibility, support the undertakings of crony - i.e. government-supported - NGOs, such as the civil actions of Hungarian Interchurch Aid, Jesuit Refugee Service Hungary, and Hungarian Charity Service of the Order of Malta, which aid the poorest refugees near the Hungarian-Ukrainian border.

(2–3) Beneficiary and targeted MNEs – let us look at some examples of how foreign-owned and multinational companies have reacted to Ukrainian refugees in 2022.

Even in the absence of a state BHR framework, solidarity was shown in the case of ISD Dunaferr, a company that was in a state of bankruptcy at the end of 2021, but which employed 4,500 workers at the time. It can be classified as a foreign-owned crony company, with a very sensitive ownership background. In a nutshell, one of Hungary’s largest companies, the operator of the Dunaújváros ironworks, was sold by the Hungarian state to the Ukrainian-Swiss Donbass-Duferco Consortium in 2004, and was taken over by the Cypriot-registered offshore company Steelhold Limited in 2007. ⁸⁹ The majority shareholder of this company became the Russian state-owned foreign trade bank Vnesheconombank, which has been on the EU sanctions list since 23 February 2022. ⁹⁰ Despite its clear Russian ownership and numerous legal disputes between individuals linked to the former Ukrainian owner of the steelworks, ⁹¹ the company offered in March 2022 immediate employment and support to 100 people fleeing the crisis in Ukraine to Hungary.

Amongst the independent MNEs, we can also mention TESCO, which also offered job opportunities to Ukrainian refugees. ⁹²

There are other examples of charity, solidarity and CSR where companies and NGOs are actively working together to help refugees from Ukraine, but this is not a conscious application of the UNGPs. For example, there is a Facebook group ⁹³ with a huge number of members listing a variety of offers from companies and for-profit organizations. These include the Budapest Bar Association, with a continuous and efficient pro bono service, ⁹⁴ and free services offered by FINNAIR, WIZZAIR and Flixbus to certain destinations. Airbnb.org participates in offering free accommodation in several hotels and hostels. ⁹⁵ What stands out are initiatives that aim to raise refugee awareness of their rights on the labour market, and thus contribute to the prevention of negative human rights impacts. For example, there is a website on the employment of Ukrainian refugees in Hungary, which provides instructions on the simplified employment procedure and language courses available, as well as information on the Hungarian labour market. ⁹⁶ However, the case of Migration Aid’s Learning Without Borders ⁹⁷ is exemplary, not only because of the complex school program offered to 7- to 16-year-old refugees, but also because the name of OBI, the German DIY retailer that provided the venue, does not appear anywhere on the site or in the digital sphere. The reason for this may be that it is still not advantageous for a company to openly support a ‘pariah’ NGO in Hungary, and instead it is better to stay anonymous.

In terms of Pillar II strategies, multinational and foreign companies, whether supported or targeted by the regime, can also apply their domestic due diligence rules in the case of refugee workers, over and above Hungarian local rules, provided they have such legislation.

The growing number of attempts at extraterritorial enforcement, and the intense dialogue that has developed on the UN Framework, have already encouraged many states to reinforce companies’ human rights due diligence obligations through legislation. Examples include the French law on the duty of care of parent companies and subcontractors (2017), ⁹⁸ the German law on supply chain due diligence (Lieferkettensorgfaltspflichtengesetz) – which was adopted in 2021 and entered into force on 1 January 2023 – and the Norwegian law ensuring human rights and human rights transparency in employment. Similar efforts were undertaken in Switzerland, where the issue of due diligence legislation was put on the agenda in 2020, without success. ⁹⁹ All of these laws will give further impetus to binding measures to promote respect for human rights in business, including future EU legislation. ¹⁰⁰ Until mandatory due diligence legislation is widely adopted, companies can respond to the refugee crisis voluntarily, for example by funding non-crony NGOs or by improving the way they scrutinize the agencies through which they employ Ukrainians. MNEs (whether they are the beneficiaries of the Hungarian political regime or in its grip) should also follow their parent company’s policy regarding the cessation of business activities in Russia.

(4) ‘The Rest’ – independent SMEs can be involved in pro bono activities for refugees, whether it be legal services, schooling for children or even part-time work for parents. These companies can rely on the results of independent research to better understand how to help refugees and what their needs are. ¹⁰¹ Here we share the good practices of a micro-enterprise, which provides legal services specifically to support refugees from Ukraine. OPL gunnercooke, ¹⁰² the Budapest branch of the UK law firm, set up a pro bono legal initiative which includes a drop-in clinic in cooperation with OLIve (Open Learning Intiative), a Central European University (CEU)-affiliated project. The team developed comprehensive Q&A material concerning the most important topics for Ukrainian refugees. This information is regularly updated based on the most frequently asked questions and feedback. The most common issues include application for protected status, rights under the protected status, travel outside of Hungary, creation and termination of employment, social security and the health care system, as well as education in Hungary. However, such initial concerns are increasingly being replaced by more integral legal problems such as the use of a vehicle with Ukrainian registration plates in Hungary, the establishment of a Hungarian company and tax issues related to working in Hungary (e.g., as a Ukrainian tax resident that is working remotely from Hungary for a Ukrainian employer). In sum, help is often less legal and more practical and often needs to be done quickly; for example, someone needs urgent medical help, children need temporary supervision, people need to be linked to the right organizations to find accommodation, or a worrying false message pops up and they need to be reassured.

Based on the needs of the refugees, businesses independent of the regime (which refer to an increasingly small circle, mostly small and micro businesses) can seek access to non-governmental organizations (such as the Helsinki Committee Hungary or Menedék Egyesület/Shelter Association or the Transcarpathian Dragon Supply Community/Kárpátaljai Sárkányellátó). ¹⁰³

In the case of such independent small and micro enterprises, it would also be useful to address the recommendations of Pillar II of the UNGPs when assessing their own compliance and integrity. ¹⁰⁴ They can voluntarily scrutinize their partners with regard to their relations with Russian companies or offer work and services to refugees from Ukraine.

Although hundreds of thousands of people were involved in helping refugees flee war in the Middle East in 2015, the current (2022) scale of the movement is significantly higher than the 3% turnout recorded seven years ago. Approximately 70% of the population reportedly believe that Hungary has an obligation to accept refugees fleeing the war in Ukraine. In addition to humanitarianism, the arrival of refugees is seen as an economic benefit for the labour market. According to Eurobarometer, the majority of the population (56%) supports economic sanctions (which the Orbán government also decided to impose until December 2023), while 89% of Hungarians support humanitarian aid and 86% support aid for refugees. ¹⁰⁵ These data can convince all four types of businesses in Hungary that it is worth respecting the rights of refugees and helping them integrate into the labour market.

IV. Conclusion

To explain the constitutional environment of the Hungarian economy in a BHR context, in particular the impact of the war in Ukraine, this article distinguishes between the different positions in which businesses operate in Hungary’s hybrid illiberal regime, namely, as direct beneficiaries and operators, targets, and those who simply want to survive and stay in business. However, the country’s captured state and economic model calls for all companies that openly support human rights issues to exhibit caution. The overall assessment of the Hungarian case is as follows: the economy is largely controlled by the ruling party, with many consequences for business behaviour and has resulted in the non-implementation of the UNGPs. In addition, Western companies are eager to receive subsidies in exchange for disregarding their own commitments to responsible business. In this way, not only is the state failing in its duty to protect, but it is also trapping (or rather seducing) companies into quietly abandoning their responsibility to respect.

Regarding the 2022 refugee crisis, despite the lack of a BHR legal environment and supportive government communication, companies are open to helping those fleeing the war in Ukraine on the basis of solidarity. The constitutional environment, which can be defined as a state-led market economy, allows companies to provide direct support (fundraising) to refugees or to support their integration in Hungary by employing them with minimal state aid. However, there are differences in the attitudes of pro-government companies, multinationals and independent small and micro enterprises. The independent sector’s involvement in the refugee crisis is based on solidarity and not on the implementation of the UNGPs. This is tolerated rather than strongly supported by the illiberal government, where there is no systemic approach to BHR. All in all, there are currently more measures in place to support labour market integration than during the 2015 refugee crisis. However, it is particularly dangerous for the first Pillar of the UNGPs when the state does not take a clear position against an aggressor or when its communication on joint EU sanctions – which it formally supports – is contradictory. This attitude of the state has an impact on companies, which are not only reluctant to take the second Pillar of the UNGPs as a starting point but are also likely to refrain from solidarity actions.

This article shows the interdependence of constitutional and democratic decline: a crisis of the rule of law, with the capture of illiberal economic actors, also leads to a crisis of BHR. The proliferation of continental turbulence – war, economic and migration crises – further complicates the situation in Hungary.

The novelty and added value of this article to the BHR literature lies in its contribution to understanding different and nuanced BHR responsibilities of different types of firms in a country with a government like Hungary’s. We have also made the normative claim that, even if we accept that the room for manoeuvre of local companies is limited by the threat of illiberal economic capture, at least multinational companies that benefit from the government should apply more rigorous scrutiny of their indirect responsibility for illiberalism-related human rights abuses, as mandated and indeed required by BHR obligations.