The Hungarian Competition Authority (GVH) recently launched a promotion campaign for its leniency programme, emphasising that "a cartel will not stay hidden, but one may get away with a leniency application". The campaign features a well-designed, informative website and several poster advertisements in Budapest, but the question remains: what exactly is behind this lofty promise?
The leniency programme was introduced into Hungarian competition law in 2003. The general principle underlying it is that by uncovering a cartel, the benefits (or lack of disadvantages) to consumers outweigh the effects of imposing fines on the undertakings. Therefore, the leniency programme aims to encourage the natural revelation of cartels by taking advantage of the inherent weaknesses of their structure and members. Although a significant number of cartel cases in Hungary are linked to leniency applications, the president of the GVH stated that as the number is still slightly below EU figures, it is important to promote the leniency programme and increase awareness of it among chief executive officers and managers. The GVH has taken this mission seriously and, in addition to its website and advertisements, has started a 'cartel chat' (available on the new leniency website), where questions may be raised and discussed anonymously with GVH representatives. In light of these great efforts on the GVH's part, it is crucial to examine the benefits and drawbacks of the leniency programme from the undertaking's perspective.
In submitting a successful leniency application, a company that reveals a cartel may receive full immunity (whereby the GVH imposes no fine) or partial immunity (which entails a fine reduction).
Full immunity is available only to the first leniency applicant who meets the relevant requirements, but the fine reduction may be available for other undertakings that subsequently apply for leniency. The essential requirement for these additional applicants (ie, applicants following the first applicant) is to provide evidence to the GVH that is of 'significant additional value' compared to the evidence already available to the GVH.
To incentivise early applications, the Competition Act provides for a cascade system with regard to the reduction of fines. Within this framework, the maximum level of reduction depends on where the applicant stands in the full line of applicants. For example, the first additional applicant may receive a maximum reduction of 50%, but the third (or subsequent) applicant must settle for a maximum 20% reduction.
As a crucial benefit, the GVH must exclude the additional applicant's submitted evidence from the calculation of the relevant fine to be imposed on this additional applicant. Depending on the additional value of the leniency applicant's evidence, it is possible that, for example, the third applicant receives a 20% reduction, while the second applicant receives only a 10% reduction.
Additional requirements for all applicants
All applicants must meet further requirements in order to benefit from leniency.
For the first leniency applicant, the submitted evidence must be sufficient to enable the GVH to conduct a dawn raid, provided that the GVH had no sufficient evidence to this end before the application was made. If a leniency application is submitted during or after a dawn raid, it can result in full immunity only if:
- enough evidence is provided to the GVH to prove the infringement;
- the GVH had insufficient evidence before the application for this purpose; and
- no other applicant has previously submitted a successful request for immunity.
Further requirements during the proceeding are that all applicants:
- cease their infringing behaviour;
- fully cooperate during the proceeding; and
- keep the application confidential.
A company can lose the conditional immunity granted to it at the beginning of the proceeding if it breaches any of these conditions.
Practical aspects and considerations
The GVH has already proved that it will not shy away from significant fines; the maximum fine which may be imposed is 10% of the undertaking's net turnover for the previous year (or that of the entire group of undertakings, where applicable). In 2013 the GVH imposed fines totalling more than €30 million on 12 banks. In a recent case the GVH imposed a fine of around €2.3 million on three companies; however, one of the participants received full immunity, while another received a significant reduction, proving that the leniency programme is one of the most effective tools to avoid high fines.
The leniency programme is also an effective and beneficial tool from the GVH's perspective. Most cartel cases are based on leniency applications. However, the GVH remains eager to find alternative ways to uncover cartels. Thus, the leniency programme may be regarded as a 'win-win' tool for both the GVH and (to a significant extent) infringing undertakings.
Remaining risks and obligations
Potential leniency applicants must not forget that leniency is a limited 'getaway', as successful applicants remain party to the proceeding and, if enough evidence has been provided, the GVH's final decision will still establish infringement charges against them. This entails a number of other consequences for successful leniency applicants. These other consequences sometimes contain exceptions for companies that have received full immunity, but not for those that have received partial immunity. Remaining consequences include the following:
- Actions for damages may be brought against the applicant. Secondary liability (where damages are first enforced against the other participants to the infringement, although the applicant remains liable for damages) is available only to applicants with full immunity.
- Criminal charges may be brought against individuals responsible for the cartel in connection with a public procurement procedure or activity that is subject to a concession (although successful leniency applications may free individuals from criminal penalties or mitigate penalties; however, as yet there is no settled legal practice in this regard).
- Undertakings that have previously participated in a cartel are excluded from participation in public procurement procedures (with certain exceptions for undertakings that received full – but not partial – immunity).
- Any contracts giving rise to cartel activities are to be considered null and void. Even a successful leniency applicant remains exposed to the negative consequences entailed by such nullity, as its status provides no exoneration in this regard.
- Undertakings will remain vulnerable to the negative effects on their reputation.
As can be seen from these consequences, leniency applications entail much more than simply disclosing the infringement to the GVH. Potential applicants must conclude an extensive assessment and preparations with regard to the available evidence – and do so in a timely fashion. It is highly recommended to seek professional guidance in this regard. Successful leniency applicants also face extensive cooperation obligations during the procedure. Nonetheless, a well-founded leniency application has the potential to save the company significant sums and can therefore serve as a way out of the most destructive negative consequence – the competition fine.
For further information on this topic please contact Anna Turi or András Nagy at Schoenherr by telephone (+36 1 8700 700) or email (firstname.lastname@example.org or email@example.com). The Schoenherr website can be accessed at www.schoenherr.eu.
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