As in all EU jurisdictions, companies in Hungary involved in a cartel that is either yet undetected or already being investigated by the Hungarian Competition Authority (‘HCA’) have the option to report themselves to the authorities and hand over evidence in exchange for full or partial immunity from fines the HCA would otherwise impose on them. Such self-reporting may take place within the HCA’s leniency programme, which is similar to the one operated by the European Commission.
The HCA somewhat deviated from its previous practice in a recent decision and clarified in greater detail what is expected of leniency applicants in order to receive immunity or a reduced fine. We summarize the new approach of the HCA below.
Leniency in general
The Hungarian Competition Act. (Articles 78/A to 78/E) provides the legal grounds for leniency, while the detailed rules and their interpretation are set out in the HCA’s Leniency Notice.
By submitting a leniency application, the first applicant that fulfils all the conditions of such an application may be completely exempted from fines by the authority (‘immunity’), while the next applicants fulfilling the conditions may be granted a significant reduction in the fine, up to 50% (‘leniency’). In both cases, one of the requirements for reduction is to disclose the infringing conduct and the applicant’s participation in it. It is also crucial that the applicants cooperate ‘continuously, fully and in good faith’ with the HCA throughout the whole proceeding; otherwise, their application may be rejected and if they lose the benefits of leniency, they may get heavily fined.
The "Tempel case"
Case No. VJ/10/2018 ended with the HCA finding that the leniency applications were insufficient due to inappropriate cooperation by the applicants (Tempel Ltd., Normtec Ltd. and Premium Line s.r.o.), which are mainly active in the agricultural machinery and spare parts sector. Tempel, Normtec and Premium Line had engaged in unlawful negotiations to avoid competition in at least 16 different public tenders, where their bidding behaviour was tantamount to concerted practices and thus they divided the market up between themselves.
In addition to reports received from public procurement authorities, the procedure started after leniency applications: two of the companies dis-closed their own cartel activities to the HCA only a few days apart, yet later the investigation revealed that the companies provided incomplete, and therefore misleading, information. As a consequence of not cooperating with the HCA in good faith, the companies could not benefit from immunity or be granted a reduction in fines. In addition, according to Hungarian procurement law, the participants cannot participate in any public procurement procedures for three years.
What was the problem with the applications?
In their applications, the companies described the infringing negotiations as merely isolated cases, but did not disclose that they had in fact systemat-ically coordinated their procurement activities (e.g. through weekly and monthly meetings) to the extent that one person was responsible for procurement decisions and the same employees prepared tender offers in the name of all three companies, even having access to each other's email addresses.
On top of that, despite handing over data carriers containing written evidence of the cartel, they also denied the existence of such evidence, claiming that there had only been oral negotiations between the companies.
What should they have done differently?
According to the HCA’s decision, the requirement to disclose the infringing conduct implies a detailed, comprehensive, and substantiated statement that is supported by evidence. The HCA also pointed out in the decision that leniency applicants should not only cooperate with the authority during the official investigation, but they should do so even before they submit their application in order to be granted immunity.
This means, for example, that an applicant must not destroy evidence right before submitting its application or disclose the fact that it intends to submit an application to the other cartel participants. Furthermore, in the case of a single, complex and continuous infringement, a leniency applicant is obliged to cooperate in relation to the entire infringement, which practically means that the applicant must admit and present the whole complex infringement in its entirety.
The HCA added that this does not necessarily require the applicant to classify the infringement in line with recent competition law case law, but at the same time it is essential for the applicant to disclose the overall anticompetitive plan, the essential elements of the cooperation, the background and forums of the negotiations and in this particular case, the interrelationships between the individual tenders, the system of relations between the companies, especially if they were formed and maintained with the participation and/or knowledge of the senior employees currently working for the applicant.
The HCA found that the companies suppressed significant information that they should have voluntarily disclosed to the HCA prior to the proceeding without any special request, as such information constituted an essential element of the infringing conduct, while its presentation would have not required any special awareness of competition law and was undoubtedly available to the companies.
Consequences of non-cooperation
As a consequence, although the fact that the two companies voluntarily provided evidence and did not contest the facts found by the HCA was rewarded with a reduction of their fines by up to 12%, a much higher fine (approx. EUR 350 000 in total) was imposed on them than the amount that would have been imposed if they had fully complied with their cooperation obligation as leniency applicants, and it also led to the exclusion of all three companies from public procurement procedures.
The Tempel decision means that the HCA took a stricter approach towards leniency applicants by requiring them to determine that the cartel they participated in constituted a single and continuous infringement – even if such explicit categorization does not have to be stated in the application – because in that case they not only have to provide a few selected pieces of evidence (which would otherwise still lead to the establishment of a cartel infringement), but they also have to gather and hand over all the evidence available to them, without any request for information by the authority, along with revealing all the essential elements of the entire infringement. Special attention must be paid to schemes, personnel and the flow of information, and individual meetings must also be reported to the HCA in great detail.
Ultimately, it is still worth considering self-reporting to the authority, because it offers an opportunity to avoid the great financial burden that a possible fine and exclusion from public procurement can entail. On the other hand, it is essential for businesses to meet all the conditions of the application. For this, we highly recommend seeking assistance from an expert in competition law and the practice of the HCA because the latest case law clearly shows just how easy it is, even with the best of intentions, to get a leniency application wrong.
 Act LVII of 1996 on the Prohibition of Unfair and Restrictive Market Practices (‘Competition Act’)
 Notice No 14/2017 of the President of the Hungarian Com-petition Authority and the Chair of the Competition Council of the Hungarian Competition Authority on the application of the rules on leniency pursuant to Article 78/A of Act LVII of 1996 on the Prohibition of Unfair and Restrictive Market Practices; see: https://www.HCA.hu/pfile/file?path=/en/for_professional_users/notices/14_2017_leniency_notice_en_final&inline=true (last accessed 25/3/2022)
 In order to receive full immunity, the leniency applicant must contribute to the proceeding in a manner that serves as grounds for launching an unannounced inspection (‘dawn raid’), or if the investigation has already been initiat-ed, the application in itself must be sufficient to prove the infringement entirely, provided that, in both cases, at the time the evidence is provided, the HCA does not yet pos-sess sufficient evidence. [78/A. § (2) of Competition Act]
 The second leniency applicant may be granted a reduction of 30-50%, the third applicant a reduction of 20-30%, the fourth and subsequent applicants a reduction up to 20% in the fine. The amount of the fine may be reduced if the com-pany provides evidence constituting ‘significant added value’ relative to the evidence already in the authority’s possession. The extent of the fine reduction reflects the degree to which the cooperation of the party, in terms of its quality and timing, has contributed to the establishment of the infringement. [78/A. § (3)-(5) of Competition Act]
 78/A. § (1), (7) b) of Competition Act
 CERHA HEMPEL Budapest was not involved in any way during this procedure, this blogpost is only based on the publicly available decision of the HCA.
 See the final decision Vj-10/2018/373: https://www.gvh.hu/dontesek/versenyhivatali_dontesek/dontesek_2018/vj-102018373 (last accessed 25/3/2022)
 62. § (1) n) of Act CXLIII of 2015 on Public Procurement
 Sections 328, 333-334 of the decision in the Tempel case, no. Vj-10/2018/37