Hungary: Detecting Cartels

Author: | Published: 1 Oct 2010
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The amendment of Act No LVII of 1996 on the Prohibition of Unfair Trading Practices and Unfair Competition (the Competition Act) introduces a new measure to improve the detection of cartels. This measure is the informant reward, which entered into force on April 1 2010. The amendment aims at creating a clear, predictable and transparent reward system.

As the reasoning relating to the amendment explains, the fight against cartels is a high priority for the Hungarian Competition Authority on account of the serious damage they cause to businesses and the economy, not to mention the financial cost to consumers. In Hungary, the policy of leniency has not been as successful as expected. Since the Hungarian Competition Authority is not vested with appropriate tools to discover cartels and prove their existence (unlike, for example, the tax authority) it is a fair assumption that there is a significant number of cartels operating in secret that the Hungarian Competition Authority is unable to detect. It is for this exact reason that the legislator introduced the informant reward – a system that is already known and used in certain other countries such as the United Kingdom or Korea.

Under the new system, if the requirements set forth in the new sections 79/A-79/B of the Competition Act are met, a person or persons who provide indispensable information on hardcore cartels may be entitled to receive a reward.

The creation of cartels is prohibited by Article 101 of the Treaty on the Functioning of the European Union (the TFEU) and also by Article 11(2) of the Competition Act. As a general rule, the Hungarian Competition Authority proceeds on the basis of the Competition Act. However, if trade between Member States is affected, the basis of the procedure is Article 101 of the TFEU.

Hardcore cartels mean the following types of agreements and concerted practices between competitors:

(i) Price fixing;

(ii) Sharing of markets;

(iii) Agreements between competitors which aim at fixing production or sales quotas; and

(iv) Bid rigging of the competitors.

Indispensable information means: (i) written evidence qualifying as indispensable and (ii) information (not necessarily written) on the basis of which dawn raids (on-spot inspections of the Hungarian Competition Authority carried out on the basis of court warrant as set forth in Section 65/A of the Competition Act) are approved by the court and the Hungarian Competition Authority manages to obtain written evidence qualifying as indispensable during the on-spot inspection. Written evidence is a document as defined in Act CXL of 2004 on the General Rules of Public Administrative Procedures and Services (the Public Administration Act), ie any object that carries recorded data.

Indispensability of the information covers cases where the information is needed to establish and prove the infringement itself by the Hungarian Competition Authority (eg the information relates to the parties to the cartel, or to the fact that the cartel came into existence earlier than was assumed by the Hungarian Competition Authority, or it included additional products or services) but not the cases where the information relates to the gravity of the infringement and the determination of the amount of fine (eg effects of the infringement, relation of the infringing company to the infringement). Typically, informants are expected to deliver insider information. As the Hungarian Competition Authority's FAQ on the informant reward emphasises, no reward is granted where general information referring to an alleged infringement is provided by undertakings or by consumers about undertakings in connection with them, since these pieces of information usually do not qualify as indispensable evidence substantiating the infringement.

However, it is important to note that – in favour of the informant – the Competition Act introduces the rule of chronological order. This means that indispensable information provided by the informant will qualify as indispensable even if it can be substituted by another piece of information obtained by the Hungarian Competition Authority from another source at a later stage of the proceedings.

When deciding on a reward, the Hungarian Competition Authority makes its decision within 30 days of deciding on the merits of the case. If a reward is to be granted, it will be due within thirty days of this decision becoming final and binding.

However, before deciding on the merits of the case and thus on the reward, any person can ask the Hungarian Competition Authority to assess whether the document in his or her possession could entitle him or her to a reward at all without revealing his or her personal identity.

In such case, the Hungarian Competition Authority must pre-examine whether the information provided is potentially capable of substantiating the claim for the reward. In this context, the Hungarian Competition Authority must draw the potential informant's attention to the fact that the Authority's assessment is preliminary and not binding, since the final assessment can be made and included in the decision on the merits of the case. The reason for this is that Hungarian Competition Authority will only be in a position to assess whether the information is indispensable in the light of the entire proceedings and the legal qualification of the case. The Hungarian Competition Authority must also inform the informant of the rules applying to the reward.

The potential informant, ie the person who provides evidence that could qualify as indispensable, must submit an application for reward within five days of receiving the information of the rules applying to the reward. If this deadline is not met, he or she is not entitled to the reward.

The person claiming the informant reward must be informed by the Hungarian Competition Authority that he or she can be heard as a witness and that he or she may ask for confidential treatment of his or her personal identification data. Although this request for confidentiality cannot be refused, the person requesting it must be aware that the confidential treatment of his or her personal identification data may have an effect on the probative force of the documents provided.

If a document provided in the course of an ongoing competition supervision procedure is incapable of proving the infringement and is therefore unlikely to qualify as indispensable information, the Hungarian Competition Authority will inform the person who provided the document within the framework of a hearing, and upon his or her request the Hungarian Competition Authority passes a separate decision on the refusal of the document. The memorandum of the hearing and the separate decision will not be accessible among the files of the case. No legal remedy may be sought against this decision.

The reward will only be granted if the decision on the merits of the case establishes the infringement and imposes a fine. Therefore, if the case is initiated by the Hungarian Competition Authority but is subsequently dealt with on the level of the European Commission (a rather rare case) the European Commission will impose the fine as opposed to the Hungarian Competition Authority and no reward shall be paid, since the basis (and also the source) of the reward is the fine imposed by the Hungarian Competition Authority.

The amount of the reward shall be 1% of the fine imposed in the case, but HUF 50 million ($227,000) is the maximum. According to the reasoning of the amendment, the relatively high level of fine is justified with the financial risks that are connected to the activities of the informant.

The amount of the fine imposed in the case and therefore the amount of the reward are influenced by several factors. These factors are listed in the Competition Act and include for example the duration of the infringement, whether the infringement has ceased or is still ongoing, the relevant market share of the undertaking, etc. The basis of the reward is the total amount of the fines imposed, ie the total of fines imposed on each of the parties.

There is also a separate reward for each natural person who provides indispensable evidence separately from others. However, each person may receive only one award.

Nevertheless, an informant reward shall not be paid to more than one person if it can be established, on the data available, that the numerous pieces of evidence concerned actually originate from a single source and have been divided with the sole purpose of obtaining multiple informant rewards. In this case the simple amount of the informant reward shall be equally divided among those who are entitled to it.

The reward can also be granted to natural persons who are employed by a participant of the cartel. Nonetheless it must be emphasised that the legal representative of the undertaking that applied for leniency is not entitled to the reward.

In order to avoid abuse of the informant reward, the regulation introduced in connection therewith includes certain further guarantees. For example, the amendment sets forth that no award can be paid if the evidence is obtained through a criminal offence or a misdemeanour, because the reward should not motivate potential informants to infringe legal rules. This provision therefore aims at preventing those who are close to the relevant information and motivated by the reward from committing serious violations of the law. Naturally it is not the Hungarian Competition Authority that is entitled to establish such infringements, but the competent authorities dealing with criminal and administrative offences.

In cases where the criminal proceeding or offence proceeding has been initiated before the payment of the informant reward, the payment shall be suspended until the proceeding is closed. If a crime or an offence is established by a final and binding decision, the informant reward paid in the meantime must be reimbursed by the informant to the Hungarian Competition Authority.

According to the reasoning of the amendment, it would not be justifiable if the informant also bore the risk of the change or annulment of the Hungarian Competition Authority's decision by the competent courts. Therefore, the award should not be reimbursed if a decision adopted by the Hungarian Competition Authority is changed or annulled by the competent court, unless the reason for the change or annulment is the illegal conduct of the informant in connection with the indispensable information.

The person(s) concerned may seek separate legal remedy against the decision on the informant reward in accordance with Section 82 of the Competition Act. This means that they can file an application for a separate legal remedy within five working days and this application shall be adjudicated by the Metropolitan Court of Budapest.

An informant can be heard as a witness in the course of the competition supervision proceedings before the Hungarian Competition Authority. As a general rule, the informant cannot refuse to be heard as witness except in cases where he or she is exempted based on the Public Administration Act and the Competition Act.

A person may not be required to testify (a) if he or she is unlikely to provide any admissible evidence or (b) in respect of any protected data/privileged information (except for the business secrets of the party under investigation) if he or she has not been released from the obligation of confidentiality by the entity authorised. In addition, the testimony may be refused if the witness (a) is a relative of any of the clients, or (b) implicated to accuse him/herself or his or her relative in some criminal activity.

According to Act IV of 1978 on the Criminal Code (the Criminal Code), cartel practices made in the course of a public procurement or concession procedure (either perpetrator, accomplice or abettor) are subject to punishment and may be imprisoned for up to five years.

The Criminal Code provides for the possibility of exemption if a person participating in a cartel in a public procurement or concession procedure reports to one of the competent authorities (the police authorities, the Hungarian Competition Authority, the financial supervisory or the public procurement supervisory authority) about the cartel activity. Thus, if the informant provides the Hungarian Competition Authority with indispensable information as set forth above, then it is not excluded that the informant could be exempted from the criminal sanctions. This, however, must be decided by the competent police authorities.

About the author

Dr. Anikó Keller is a Hungarian attorney admitted to the Budapest Bar. She received her JD, summa cum laude, from Eötvös Loránd Faculty of State and Legal Sciences in 2000. She is a contributing author for Oceana Publications and author of a number of articles on competition law. She currently specialises in competition law, state aid, advertising law, consumer protection, e-commerce and employment law. She is fluent in English and German. Dr. Keller is member of the German-Hungarian Jurist-Union.

Contact information

Dr. Anikó Keller
Szecskay Attorneys at Law
Kossuth Squ 16-17. III.
H-1055 Budapest
Hungary

Tel: +36 (1) 472-3000
Fax: +36 (1) 472-3001
Email:info@szecskay.com
Web:www.szecskay.hu