It’s always dawn raid season – but now also for transactions

Issues

The Hungarian Competition Authority (HCA) has never shied away from using its most effective investigative tool: the dawn raid. Since 2017, the possibility to search the premises and all devices, documents and data of an undertaking are available not only in those cases where the HCA suspects that an anticompetitive agreement or abuse of dominance has taken place, but also when a merger is under scrutiny by the competition enforcer.

András Nagy, Competition Law Specialist, Schönherr Hetényi Attorneys at Law

Dawn raids in a nutshell

A dawn raid involves the case handlers of the HCA showing up at the doors of the company and conducting a systematic search for evidence regarding an alleged infringement. A significant number of the HCA’s investigations are initiated with such a raid. The HCA needs to obtain a court warrant to conduct such an intrusive action; courts have proved to be rather permissive in this respect. The case handlers have exceptionally wide-ranging rights on site and may request access to any workstation or document storage, irrespective of the level of confidentiality. The company gets no time to prepare (the dawn raid is never announced) and the case handlers have no obligation to wait for the lawyers of the company to arrive. There is a constraint, however, to their wide-ranging investigative rights: case handlers may not read and use communication between the company and its external legal counsel (a law firm) and the documents the company trusted the external counsel with. This is due to the company’s basic right of defense.

Anna Turi, Head of Competition Law, Schönherr Hetényi Attorneys at Law

The DIGI-Invitel case

The HCA decided to initiate a merger control dawn raid in the DIGI-Invitel case for the first time. DIGI Távközlési és Szolgáltató Kft. (DIGI) and Invitel Távközlési Zrt. (Invitel) are two major telecommunication companies. DIGI announced in 2017 that it intends to acquire Invitel and filed a notification to the HCA in August 2017. The HCA initiated an in-depth investigation, where it also requested DIGI to disclose documents regarding the preparatory phases of the transaction. DIGI failed to disclose such internal documents, while the case handlers took the view that it is likely that such information exists. The case handlers subsequently decided that a dawn raid was necessary. The raid was concluded at DIGI’s seat on November 15, 2017. The HCA has subsequently approved the concentration but imposed significant obligations on the parties.

Comments

There are two important notes to the above:

• The HCA has seemed to take merger control investigations to a new level in the last few years. With the incorporation of an additional, investigative merger control threshold, the HCA may initiate an investigation to look into practically any transaction which meets the HUF 5 billion overall turnover threshold and the HCA deems it potentially anticompetitive (provided they are not notified voluntarily to the HCA). The competition enforcer has recently shown that it is willing to initiate such ex officio investigations. Also, after the introduction of the new short(er) filing form, the HCA is not shying away from imposing a procedural fine and even withdrawing merger control clearance from a company it considers not to have disclosed all the requested data.

• Dawn raids are a major tool in the HCA’s investigative toolbox and several investigations are initiated with dawn raids. Considering the developments above, it is likely that we will see ex-officio merger control Investigations initiated with unexpected raids. This may not only constitute a sizeable surprise for undertakings but may also halt a transaction significantly and lead to unexpected damages. We may only hope that the HCA will continue to use this tool responsibly.

Companies can, of course, prepare for the above. Transactions which may be of interest for the HCA due to their effect on competition may be notified voluntarily. Companies should also ensure that all information which is necessary for the assessment of the merger is disclosed to the HCA. Compliance training and mock dawn raids are also proven preventive measures for companies in order to ensure that the proper functioning of the company is not unnecessarily interrupted by such an investigation. 

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