I. Corporate liability deriving from criminal activity
1. Nature of the liability (criminal, administrative) and basis (crimes committed by directors or representatives, in the interest of or for the advantage of the company)
Under Hungarian criminal law, crimes may be committed only by individuals. Therefore, the nature of companies’ liability is administrative and the criminal measures applicable to companies are actually administrative measures.
According to Act CIV of 2001 on Criminal Measures Applicable to Legal Entities, criminal measures may apply to companies in connection with individuals’ intentional criminal acts that were aimed at or have resulted in the company gaining benefit/s or to which the company was used, if either of these conditions are met:
- The criminal act was committed in connection with the company’s operation by an executive officer, other authorized representatives, board members or anybody else acting on their behalf.
- The criminal act was committed in connection with the company’s operations by an employee or owner and an appropriate management approach or effective supervision by the executive officers or board could have prevented the abovementioned criminal act.
The same measures are also applicable in connection with criminal acts, which have resulted in the company gaining benefits or to which the company was used, if an executive officer, other authorized representatives or board members had knowledge of the criminal act.
2. Type of crimes/administrative offenses from which, according to the legislature, corporate liability may arise
Hungarian law does not restrict corporate liability according to the type of the crime; therefore, corporate criminal liability may arise in connection with all intentional criminal acts.
3. Identification of companies and entities to which liability may apply
Liability may apply to all companies, civil associations and other legal entities, with the exception of public law entities.
4. Corporate liability for crimes committed abroad by its representatives or subsidiaries
Corporate criminal liability may apply only to individuals. Therefore, if the Hungarian criminal authorities have jurisdiction over the criminal act committed abroad by the representative of the company, corporate liability in the context of the criminal measures may also arise.
Subsidiaries may not commit crimes under Hungarian law, as only natural persons may; therefore, corporate liability will not apply to the parent company.
Nonetheless, criminal measures may be imposed on the parent company for the criminal act committed abroad by the representative of its subsidiary if the criminal act resulted in benefit/s for the parent company or the parent company was used to facilitate the criminal act committed by the representative of the subsidiary, and an executive officer, other authorized representatives or board member of the parent company had knowledge of the criminal act.
5. Corporate liability in the case of transactions taking place after the commission of a crime (acquisitions, mergers, demergers, etc.)
Hungarian law does not regulate the successor’s criminal liability in case of corporate transactions (acquisitions, mergers, demergers, etc.). Nonetheless, from the general corporate liability rules, it may be concluded that the legal successor of the company will be criminally liable. However, it is important to note that there is still no publicly available court practice in this regard.
II. Applicable sanctions
1. Type of sanctions applicable to the company
These sanctions apply to the company:
- Company closure
The court, as principal punishment, may order the winding-up of the company if it does not carry on economic activity and: (a) it was established for the purpose of covering up the crime; or (b) its activity serves to cover up the crime.
If a company carries out lawful economic activities, the court may still order the closure of the company if (a) or (b) can be established.
b. Restriction on the company’s activity
Restriction of the legal entity’s activity means that the legal entity: (a) may not receive government and other public subsidies from local or central governments, foreign states, the European Union or other international organizations; (b) is prohibited from participation in public procurement procedures; (c) may not carry out specific activities that the court prohibits; (d) may not enter into public concession contracts; (e) may not benefit from a nonprofit status; and (f) may not participate or engage in any other activities prohibited by the court.
Furthermore, if the legal entity has been ordered to restrict its activities after the judgment has become final, any public procurement and concessions contract that it has been awarded are to be rescinded and the legal entity is to be deprived of its non-profit status as well.
The duration of the restrictions may be between 1 and 3 years. Furthermore, the pending EU/government subsidized projects are to be deemed terminated and the legal entity must reimburse the money awarded from EU/government funds.
c. Fine imposed on the company
The maximum amount of fine is three times the financial gain acquired or intended to be acquired by the crime. The minimum amount of the fine is HUF 500,000 (approximately EUR 1,700).
2. Interim measures, cease and desist orders, bans and confiscatory measures
The company’s assets may be frozen at the earliest stage of the criminal investigation.
3. Liability of directors or managers for not having adopted (intentionally or negligently) measures for the prevention of the crime
Company executives may be criminally liable if they negligently fail to exercise proper oversight and such failure results in budget fraud or bribery. Failure to exercise proper oversight itself is not a crime, only if such failure results in a crime. Adopting preventive measures is an effective way to minimize company executives’ liability exposure.
III. Measures and “models” of prevention and effects of the same on corporate liability and applicable sanctions
1. Consequences of the adoption of a compliance “model” and effects on corporate liability for crimes committed by the company’s managers, directors or representatives (cases in which it is possible to obtain an exemption from liability or a mitigation of the sanction)
In general, no consequences are incurred under the Hungarian law with adopting and applying measures and “models” to prevent crimes.
However, if a criminal act is committed by an employee or owner of the company and no executive officer, other authorized representatives, board members or anybody else acting on their behalf are involved or have knowledge of the criminal act, an existing and properly implemented corporate compliance program is very likely to exempt the legal entity from criminal liability, or at least, mitigate the liability exposure.
No exemption may be granted if an executive officer, other authorized representative, board member or anybody else acting on their behalf are involved in the crime. However, a properly implemented corporate compliance program is likely to be considered as a mitigating circumstance in such cases as well.
As to personal criminal liability of company executives, an existing compliance program may provide exemption from personal criminal liability in connection with the negligent crime of failure to exercise proper oversight.
2. Modality according to which a compliance “model” must be adopted in order to benefit from exemption from responsibility or mitigated punishment (codes of ethics, procedures, etc.)
There is no relevant legislation. If a company or an individual presents in court a “compliance program defense,” the court may examine whether the compliance program was properly implemented or existed only on paper. Exemption may be granted only if the compliance program was effective enough to prevent criminal acts in general and the criminal act, being the subject of the procedure, can be deemed an unusual event rather than a systematic breakdown.
3. Monitoring: independent person or body to control/supervise, with the purpose of verifying the correct application of the “model”; mode of operation of such person or body
This is not applicable.
IV. Judicial proceedings to determine corporate liability
1. Court competent to decide the liability of and penalties applicable to the company
The court that is considered competent to decide whether the individual charged with the crime is guilty may also impose the criminal measures on the company.
2. Possibility of the application of interim measures
The court has a wide discretion when it comes to freezing the company’s assets.
3. Plea bargains and related effects on the corporate liability
No plea bargain is available to companies; however, cooperation during the criminal procedure may be a significant mitigating circumstance.
4. Imposition of sanctions against the company
See the abovementioned criminal measures.
5. Permanence of corporate liability if the crime is extinguished
In the event that the crime was aimed at or resulted in gaining an advantage for the company, or was carried out by using the company, criminal measures may still be imposed on the company even if the following conditions exist:
- The identity of the perpetrator could not be determined during the investigation, causing the investigation authority or the prosecutor to suspend the investigation.
- The prosecutor discontinued the investigation, either because the suspect did not commit the crime or it could not be established whether the suspect committed the crime.
- The court ruled that the accused had not committed the offense, or it could not be established based on the data of the procedure whether the accused committed the offense.
- The individual perpetrator may not be punished due to death, mental state, active repentance, coercion or intimidation.
- The procedure was suspended due to the perpetrator’s unknown location, serious illness, or mental illness, which occurred after the commission of the crime.
V. Corporate liability in multinational groups
1. Liability of parent companies located abroad in the case of offenses committed by directors, managers or representatives of the local company
This is not applicable.
2. Basis of liability and applicable sanctions
This is not applicable.
VI. Significant case law concerning corporate liability arising from crimes and draft laws under discussion
1. Significant case law, if any
This is not applicable.
2. Proposed or contemplated new legislation
Hungary is expected to introduce a new Criminal Procedure Code in 2018. An important legislative aim of the new Criminal Procedure Code will be to make asset recovery more effective. An anticipated effect of the new legislation is that corporate assets will more likely be frozen at an earlier stage of investigations.