In late 2017, the Hungarian Competition Office (HCO) announced that it adopted new notices on incentives and reduced fines to encourage companies guilty of violating competition law to improve their practices and achieve compliance.
The HCO will reward violating companies that are willing to remedy any damages their infringements caused consumers, and willing to implement competition law compliance programs in their businesses.
In line with recommendations from experts and reforms successfully implemented elsewhere in Europe, in antitrust cases the HCO is offering a fine reduction up to 10% if a company has terminated its involvement in the wrongdoing as a result of its own compliance program, or can provide evidence to the HCO supporting the infringement.
In consumer protection cases, the HCO may grant a 20% to 30% reduction in fines for companies that admit to an infringement or provide supporting evidence. In addition, if a company implements compliance reforms during a HCO investigation, this business is in line to receive a fine reduction of up to 20%, depending on the procedure.
The HCO recently applied these new rules when granting a significant fine reduction to Vodafone in response to the company’s cooperation with the investigation, and its efforts to compensate consumers. In this case, the HCO reduced Vodafone’s fine by more than 50% to HUF 200 million (EUR 645,000).
By adopting the new possibilities of fine reduction, the HCO is offering incentives for companies to take their own steps to remedy any damage caused to consumers and to take compliance measures. These developments clearly highlight how incentivising compliance has become a central element in enforcement.
CMS urges every market player to make a serious effort to comply with competition law, and in the event of a HCO investigation, to take all steps necessary to receive a reduced fine.
The HCO may impose fines of up to 10% of a given company’s or group’s net turnover generated in the financial year preceding a decision. The rules, calculations and principles regarding these penalties are set out in the Hungarian Competition Act and in HCO notices. Although notices are not binding, the HCO will provide reasons if there is any deviation from standard procedures. On 21 December 2017, the HCO published the new Antitrust Fine Notice and the Consumer Protection Fine Notice (Notices). In addition to future procedures, the Antitrust Fine Notice is applicable – with slight reservations – also in ongoing procedures where the HCO’s preliminary standpoint was not issued until 21 December 2017. This also applies to the Consumer Protection Fine Notice. With these Notices and the new fine-reduction policies, the HCO hopes to motivate companies to cooperate with investigations and seek competition law compliance.
New key elements
Although basic principles and how the HCO calculates fines remain unchanged, the Notices provide guidelines for calculating the actual reduction that can be achieved in exchange for cooperation and compliance. The most relevant elements are highlighted in the table below:
Noting that a pre-existing compliance program alone is not sufficient, each Notice also provides for additional requirements:
- According to the Antitrust Fine Notice, in order to benefit for a reduction, the company shall (i) prove that suitable compliance efforts have been implemented, (ii) stop the infringement after being detected internally, and (iii) substantiate with objective and authentic evidence that it ceased its infringement as a result of its compliance program.
- The Consumer Protection Fine Notice requires the company to demonstrate substantive compliance efforts by way of providing documentation. Efforts are considered substantive if the company under investigation can demonstrate that it obtained a resolution without contradicting the applicable law and HCO practices, that it intends to comply prior to the determination and/or publishing of the incriminated commercial practice and that it followed the instructions. Such an opinion may be obtained from an independent external professional body, such as an attorney or law firm.
Furthermore, in both types of procedures, internationally accepted standards must be observed, such as a clear, defined and public commitment for compliance by top management.
Other relevant amendments
Besides changes that reward companies willing to cooperate and comply, the HCO also introduced new elements in the Notices, which are seriously detrimental to violators. In the Antitrust Fine Notice, the starting amount of the fine may be as high as 30% of net turnover, while according to the Consumer Protection Fine Notice, the starting amount for net turnover-based fines (in the absence of actual turnover data linked to violations) will be doubled from 5% to 10% of the company’s total net turnover, generated during the period of the violations. Presumably, both changes will result in higher overall fines. Moreover, the HCO intends to consider as a fine aggravating factor the fact if a chief executive officer was involved in a violation, or if the violator fails to comply with a previously introduced compliance program. The HCO will consider a company a repeat offender if it was guilty of a violation during a ten-year period before the next violation, and in certain cases, the practices and decisions of affiliated companies may be considered.