1. What is the relevant legislation containing the leniency policy and what is the enforcing body?
Competition law in Hungary, including rules on illegal cartel activity, is regulated by Act LVII of 1996 on the Prohibition of Unfair Trade Practices and Restriction of Competition (as amended several times, the ‘Competition Act’).
The Competition Act authorises the Office of Economic Competition (‘Competition Office’) with nation-wide authority to act as administrative authority in Hungary in all issues which fall under the scope of the Competition Act. The independent decision-making body of the Competition Office is the Competition Council.
The Competition Act itself does not contain regulations about the leniency policy, however, the entire leniency policy is based on section 78(3) of the Act, according to which the cooperation of a market participant under investigation which helps the proceedings must be taken into account when establishing its fine. Nevertheless, there was a need to establish the guidelines regulating which cases, under what conditions, and to what extent the Competition Office is authorised to reduce the fine of a cartel participant who promotes the investigation of the authority and in fact provides underlying evidence about the activity of a cartel.
According to section 36(6) of the Competition Act, the president of the Competition Office and the president of the Competition Council together are authorised to issue guidelines with respect to the enforcement policies followed by the Competition Office. Such guidelines do not create an obligation on the Competition Office or on the Competition Council, their function is merely to provide information to the public on the interpretation and implementation of law as well as the practice followed in the past and preferred to be followed in the future in connection with different key issues of the Competition Act.
The leniency policy in Hungary was first introduced in 2003 by guideline 3/2003 which was slightly modified in 2006 by guideline 1/2006 (the Leniency Guidelines). Guideline 2/2003 on the principles of fining policy also contains reference to the possibility of not introducing or reducing the fine based on leniency under certain circumstances. When establishing the rules of the leniency policy to be followed in Hungary, the authorities also took into account the 1996 leniency notice of the EC Commission, as amended in 2002.
The goal of the Leniency Guidelines is to establish detailed rules and conditions under which a cartel participant can be exempted from a fine or may expect a fine reduction. The goals of issuing the Guidelines include the strengthening of rule of law in the field of competition law, increasing transparency and predictability of the practice of the Competition Office and to promote unified and nondiscriminatory law enforcement.
Therefore the Guidelines:
1 With thanks and appreciation to Mr Péter Szolnoki, head of the Cartel Department of the Competition Office for the opportunity of consultation on practical aspects of the topic.
The hope has been that through the Guidelines market participants will foresee the benefits provided by the leniency policy and can take into consideration such benefits. By publishing the terms and details of the rules to be applied in the framework of the leniency policy the Competition Office hopes that it can fight more effectively against secret cartels and can fulfil its job maintaining and protecting competition and welfare of the consumers.
2. What are the basic tenets of a leniency/immunity programme?
Maintaining secrecy and destroying evidence are basic characteristics of cartel activities. Under these circumstances it is extremely difficult to fight cartels with the regular tools of law enforcement. The key issue of successful actions against cartels is to break such secrecy and establish a different method of collecting evidence. Under the leniency policy the cartel members are made interested in revealing the cartel activity to the authority and can rely on more favourable treatment in the proceedings if they collect and hand over evidence to the authorities. The assumption behind the leniency policy is that there are cartel members who would like to quit their illegal activity and would be willing to provide information to the authorities about the activity of the cartel if they could rely with certainty on being exempted from the legal consequences of their previous participation or at least could expect a reduction in their individual sanctions.
According to the Leniency Guidelines, its rules can be applied when two or more competitors established a cartel or concerted their practices with the intention to directly or indirectly fix the prices, divide the market (including rid bidding), or establish quotas in the field of manufacturing or sales.
The leniency policy provides for two possibilities to the cartel members: complete exemption from the fine or reduction of the fine. A complete exemption from the fine is possible where the cartel member arrives first to the authority and provides decisive assistance sufficient to the commencement of the investigation proceedings, and/or the establishment of the illegal activity, provided that it meets other conditions detailed in the Guidelines. Reduction of the fine is possible for cartel members whose assistance significantly contributed to the revelation of the cartel and establishment of the illegal activity. This latter category contains different levels of fine reduction, ranging between 5020 per cent, depending on the actual circumstances, timing and content of revealing information and the efficiency of assisting the authority.
It is important to note that the Leniency Guidelines do not bind the authority, its rules can be considered only as guidelines.
3. How many cartels have been unveiled and punished since the adoption of the leniency policy?
There are no public statistics available on how many cartels have been unveiled since 2003, the original introduction of the leniency policy. We learned from Mr Szolnoki, head of the Cartel Department of the Competition Office that there have been seven different cases in which the Leniency Guidelines have been applied, based on the fact that one cartel member reported information to the authority about the activities of the cartel before the Competition Office began an investigation against the cartel members.
4. What is needed to be a successful leniency applicant? Is documentary evidence required or is testimonial evidence sufficient?
There are no specific requirements in the Leniency Guidelines with respect to the actual types of evidence required. The criteria of evidence acceptable for reduction of a fine is regulated more with respect to their value and novelty and are valued more on the basis of how much they contributed to the discovery of the case and the establishment of the illegality of the acts under investigation.
Accordingly, the evidence of a ‘first in’ applicant has to be substantial enough to enable the Competition Office to commence an investigation, or, in the case of an already ongoing proceeding, it has to be such evidence that is new to the Competition Office and is sufficient to establish the illegality of the acts under investigation. In the case of second and subsequent applicants, the evidence provided has to represent ‘clearly added value’ with respect to the evidence already in possession of the Competition Office. In this context, added value means evidence which will facilitate fact finding in the case which is more complete and thorough and goes more in depth by its nature, or which is supplementary to the evidence already available. The Guidelines conclude that: ‘In practice, principally the production of written documents with probative force, in particular documents with full probative force, may give rise to the reduction of a fine’.
A further requirement is that the applicant has to furnish all evidence it has in its possession in connection with the case – partial disclosure will not make the candidate eligible for the immunity or the fine reduction.
In addition to providing evidence at the time and of the value required above, the Leniency Guidelines set forth further requirements and conditions which have to be met by each applicant in order to be eligible for the immunity from or reduction of the fine.
Immunity from or a reduction of the fine will be granted by the Competition Office only to an undertaking which, in addition to those set out above, meets the following conditions:
It is important to note that the Competition Office does not issue an interim resolution with respect to the decision on the immunity or eligibility for fine reduction. The Competition Office will grant immunity or reduce a fine if, at the end of the proceedings, the satisfaction of the conditions set out in the Leniency Guidelines can be established. Until that time, the preliminary promise by the Competition Office to grant immunity or reduce fines shall be considered as conditional.
TIMING
5. What are the benefits of being ‘first in’ to cooperate?
There are different benefits attached to the ‘first in’ status of a leniency applicant. Most importantly, only the leniency applicant that qualifies as ‘first in’ is eligible to be exempted from the entirety of the fine provided that it meets all further requirements established by the Leniency Guidelines. Furthermore, only the first leniency applicant is eligible to be exempted from the criminal sanctions, both as an undertaking and under certain circumstances as an individual, provided again that it (or he/she) meets the preconditions of release from criminal liability, as discussed in detail under question 15 below.
The Competition Office will grant immunity to the undertaking from the whole fine if:
Even the first applicant is eligible to be exempted from the fine only if it meets all additional conditions set by the Leniency Guidelines detailed under question 4 above.
6. What are the consequences of being ‘second’? Is there an ‘immunity plus’ or ‘amnesty plus’ option?
Leniency applicants who are second may receive a significant reduction in their fines if they cooperate with the authority to the extent required by the Guidelines, and further provided that they meet all additional requirements established by the Leniency Guidelines as detailed under question 4 above.
If in connection with a particular case the Competition Office has already granted conditional immunity from the fine to an undertaking, the application of another cooperating undertaking could not satisfy the criteria set out for a ‘first in’ candidate, therefore the Competition Office will not grant it immunity from the fine, but will only appropriately reduce the fine as set out in the Leniency Guidelines in exchange for the evidence supplied, on the condition that the undertaking provides it with evidence which represents ‘clearly added value’ with respect to the evidence already in the possession of the Competition Office. In this context ‘added value’ means evidence which will facilitate a fact finding in the case which is more complete and thorough and goes more in-depth by its nature, or which is supplementary to the evidence already available.
The level of reduction in the amount of the fine is between 30–50 per cent for the second applicant.
7. Are subsequent firms given any beneficial treatment if they make a useful contribution? How are ‘useful contributions’ defined?
An undertaking that provides evidence to the Competition Office as third applicant may receive a reduction in the amount of a fine between 20–30 per cent, in case the evidence it provided has ‘clearly added value’ to the proceedings, and the undertaking meets the requirements described in question 4 above. Any subsequent applicant providing evidence of clearly added value for the proceedings and meeting the requirements described in question 4 above may be granted with a fine reduction up to 20 per cent compared to the fine set in accordance with the general rules.
In addition, if an undertaking provides evidence relating to facts unknown to the Competition Office which have a ‘direct bearing on the gravity and duration of the suspected agreement’, the Competition Office will not take this aggravating evidence into account when setting the fine to be imposed on the undertaking which provided this evidence.
There are no immunity plus or amnesty plus programmes provided by the Guidelines.
SCOPE/FULL LENIENCY
8. Is it possible to receive full leniency? And, if so, what are the conditions required to receive full leniency?
In order to receive full leniency, ie full immunity from the fine, the applicant has to meet all of the following requirements:
9. How many companies have received full immunity from fines to date?
We were informed by Mr Szolnoki, head of the Cartel Department of the Competition Office, that so far all seven companies relying on the Leniency Guidelines have received full immunity.
PROCEDURE/CONFIDENTIALITY
10. What are the practical steps required to apply for leniency?
The undertaking that wishes to apply for immunity from the fine has to contact the Competition Office. There are two possible ways to do so:
The Competition Office then provides, in either of the above cases, a written acknowledgment of receipt of the application, confirming the exact date of receipt of the application (indicating year, month, day, hour and minute).
In the event of an ‘anonymous’ filing the Competition Office will first review the submitted information and list of evidence and if the content of the filing meets the requirements of a ‘first in’ application, it informs the applicant accordingly, within eight days from the receipt of the filing, and sets a deadline for the filing of the evidence. Upon receipt of the evidence filed in accordance with the above, the Competition Office reviews all evidence in depth, decides whether it is in compliance with the list of evidence filed by the applicant previously, and if it finds that the filing and the provided information meet the requirements of a ‘first in’ application, it informs the applicant within 15 days that if it meets the requirements of the Leniency Guidelines, it will grant full immunity to the applicant from the fine.
In the case of a ‘direct’ application the Competition Office has 20 days to review the filed materials and then it sends notification to the applicant with the information whether, if the applicant meets all requirements of the Leniency Guidelines, it will exempt the applicant from the entirety of the fine.
It is important to note that any notification from the Competition Office at this stage about the provision of immunity from the fine is conditional and will be granted only if the applicant meets all conditions of the Leniency Guidelines throughout the entire proceeding, with special emphasis to the conditions detailed under question 4 above.
The Competition Office assesses all applications in the sequence of their receipt, and it will not consider a submission filed later until it has evaluated the applications received earlier in connection with the same infringement. An undertaking that does not receive a conditional promise of immunity may withdraw its application and the submitted evidence, however, it will not prevent the Competition Office from using its investigative power in order to obtain the same information. If the applicant does not withdraw its application, it will be reclassified by the Competition Office as an application for the reduction of a fine.
Accordingly, reduction of a fine may be the result of either the reclassification of an immunity filing if it is not eligible for full release from the fine, or by the undertaking filing a reduction claim, accompanied by the relevant evidence in the possession of the applicant. In this latter case the Competition Office evaluates the filed evidence and formulates an opinion on whether it constitutes ‘clearly added value’ compared to the evidence already on hand in the Office. Based on that the Office informs the applicant within 20 days whether he is eligible for a reduction and to what extent, provided that it meets all other requirements of the Leniency Guidelines.
At the end of the proceedings the competition council, after having decided whether the applicant met all the relevant requirements of the Leniency Guidelines, decides on the granting of full immunity or reduction of the fine. Such decision is incorporated into the same decision that is issued by the competition council on the merits of the case.
11. Is there an optimal time to approach the regulatory authority?
There is no formula for how to time a leniency application, obviously the best treatment and receipt of full immunity is possible only for those undertakings which qualify as ‘first in’ candidates (see question 8 above). If an undertaking receives information about an ongoing investigation, it is worth thinking through whether it can be an applicant for leniency and provide substantial added value to the evidence already on hand at the Competition Office. It requires a very quick evaluation of the situation and decision in order to receive a fairly good position as applicant, at least for the reduction of fines. But it is also worth considering at this stage whether the undertaking can provide important evidence that is decisive in establishing the illegal actions of the cartel participants, and thereby whether it will be eligible for immunity (provided that it is the first applicant) or a fine reduction.
12. What guarantees of leniency exist if a party cooperates?
According to the language of the Leniency Guidelines, if the applicant meets all if its conditions, the Competition Office ‘will’ provide the applicant with immunity or fine reduction, whichever the case may be. At the same time the legal nature of the Leniency Guidelines are that its terms do not create an obligation on the authority, therefore, the Competition Office is not bound by the provisions of the Guidelines. Nevertheless, there is no reason to believe that the Competition Office would have any reason to deprive the applicant of the benefits of the Guidelines, provided that the applicant acts in all respects in accordance with the requirements of the Guidelines, most importantly, it fully cooperates throughout the entire proceedings with the Competition Office, provides all evidence it has in its possession and it stops its cartel activity at the time as agreed upon with the Competition Office. In accordance with the process described under question 10 above, the Competition Office deals with each application individually, in the sequence of receipt of the application and informs the applicant whether its application is accepted as ‘first in’, or second, or a subsequent application. As discussed above, such acceptance does not mean that the applicant will receive the benefits of the Leniency Guidelines. The actual resolution on granting of immunity or any benefit is communicated by the Competition Office only at the end of the proceedings, in the final decision on the merit, when the competition council can already take into account all aspects of the application request, the actual level of cooperation of the applicant and the value of the evidence provided by the applicant.
13. Is confidentiality afforded to the leniency applicant and other cooperating parties? If so, to what extent?
There are two types of confidentiality in this context that need to be discussed. Most importantly, the Leniency Guidelines provide that it will ensure until the starting date for the respondents’ access to the file, the secrecy of the identity of the cooperating undertaking (leniency applicant) and the fact of its cooperation. According to the Competition Act (Article 55 (1)), the party under investigation and its representative may have access to the documents of the proceedings after the completion of the investigation, following the date set by the competition council and they may make copies and take notes of it. Specifying the documents concerned, the competition council may give its consent to the party or its representative having access to the documents before the completion of the investigation where this does not jeopardise the effectiveness of the proceedings. This means that, typically, the identity of the leniency applicant and the statements and other evidence made by it are kept confidential by the Competition Office until the end of the investigation phase of the proceedings.
In addition to the above rule, the leniency applicant may request under the general rules of confidentiality that certain reports, evidence, statements, etc be handled confidentially in the proceedings. According to Article 55(3) of the Competition Act the party under investigation may request, based on protection of business secrets, the confidential treatment of some documents by establishing why the given document qualifies as a business secret. Leniency applicants may use this opportunity to limit the possibility of other parties to the proceedings reviewing some of the filed documents and other evidence. In practice confidentiality is granted only to the extent it does not jeopardise the defence of other participants. If the request for confidential treatment of certain business secrets is granted by the Competition Office, the applicant typically has to file a confidential and a non-confidential version of the same brief.
CONSEQUENCES
14. What effect does leniency granted to a corporate defendant have on the defendant’s employees?
A request for the application of the leniency policy shall be accepted by the Competition Office only from the official representatives of an undertaking. In the event that officers or employees of the undertaking participated in the cartel and want to gain immunity from the criminal sanctions (see question 15 below), they have to participate in the reporting personally. Reporting made by the management of the undertaking does not shield the employees or other officers of the company from criminal sanctions. Furthermore, employees and officers of an undertaking receive immunity from criminal sanctions only if the reporting occurs at a time when none of the authorities (Competition Office, financial authorities, public procurement authorities, etc) has knowledge about the criminal act. Consequently, only those persons where the reporter was not only ‘first in’ at the authority, but also, no authority had knowledge about the act will be exempted from criminal sanctions.
15. Does leniency bar further criminal or private enforcement?
Leniency does not bar private enforcement.
With respect to criminal sanctions the situation is more complex. Section 296/B of the Criminal Code rules that:
It is important to point out that only cartels related to public procurement tenders and concession contracts are subject to criminal punishment. In the case of these cartels the persons acting on behalf of the undertaking in the cartel, or involved in the decision-making process, whether an officer or an employee, are punishable. Any person who participates in the decision-making process (directors, members of the board, managing directors, heads of divisions, etc) making the undertaking involved in a cartel is punishable. In order to gain immunity from the criminal punishment the person who is punishable has to report the criminal act, individually or together with the management of the company, as ‘first in’, at a stage when none of the authorities has knowledge about the criminal act yet. Only the first comer (not only to the Competition Office, but to any authority mentioned in the Criminal Code) may relay on immunity. Reporting only by the management of the undertaking does not create immunity from criminal sanctions for the employees and officers involved in the acts. The Competition Office accepts leniency applications only from the official representative of an undertaking. Therefore, it is possible that reporting by an employee may create immunity from criminal sanctions for the employee, while such reporting, in lack of official form and representation, will not exempt the undertaking from either the competition law fine or the criminal sanctions. Undertakings are also subject to criminal sanctions under Hungarian law (the sanctions may be a fine, termination of the company or limitation of its activities for a certain period).
RELATIONSHIP WITH THE EUROPEAN COMMISSION’S LENIENCY NOTICE AND LENIENCY POLICY IN OTHER EU MEMBER STATES
16. Does the policy address the interaction with applications under the Commission Leniency Notice? If so, how?
The Leniency Guidelines do not address the interaction with applications under the Commission Leniency Notice. It states clearly that application of the leniency policy in competition proceedings does not provide the applicant with immunity from any fines that may be imposed by other (foreign) competition authorities.
17. Does the policy address the interaction with applications for leniency in other EU member states? If so, how?
The Leniency Guidelines do not address the interaction with applications made at other EU member states. It states clearly that application of the leniency policy in competition proceedings does not provide the applicant immunity from any fines that may be imposed by other (foreign) competition authorities.
REFORM/LATEST DEVELOPMENTS
18. Is there a reform underway to revisit the leniency policy? What are the latest developments?
The Competition Office plans to implement during 2007 the new leniency model programme of the European Commission of 2006. This will result in either the modification of the now existing Leniency Guidelines or the issuance of completely new guidelines. Among other changes along the model programme, this may bring significant changes to the possibilities of making joint filings simultaneously at different EU member states and the Commission in more simplified proceedings.
