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The Czech Government recently submitted a proposal to amend the Czech Penal Code (the “PC”) and the Code of Criminal Procedure (the “CCP”) in respect of, among others¹, the non-prosecution of bribery under certain circumstances. The proposal² was adopted within a month and will come into effect on 1 July 2016 (the “Amendment”).

This article summarises the purpose and scope of the part of the Amendment pertaining to the non-prosecution of bribery. 

Purpose

The purpose of the Amendment is to strengthen the motivation for offenders to report bribery³.

Under the current legislation, active⁴ and passive corruption⁵ are both punishable, so of-fenders are not motivated to report such behaviour to law enforcement authorities. The Amendment should make up for the fact that the PC so far lacks any special effective remorse provision (in Czech: úcinná lítost) for bribery and indirect corruption⁶. Offenders naturally have little reason to report their behaviour and to cooperate with law enforcement authorities, especially when someone else has asked or compelled them to commit bribery. 

The Amendment should serve as a significant instrument in more effectively pursuing of-fenders of corruption, and dealing with corruption as a whole.

How it works

The Amendment allows for a diversion from the ordinary course in criminal proceedings. The police will decide on temporary deferral of criminal prosecution of a suspect under the following conditions:

• the suspect has made or promised to make a bribe only on request of another per-son (ie not voluntarily, at its sole discretion);
• the suspect reports the bribery to the police or the public prosecutor voluntarily without undue delay;
• the suspect reports all the facts that he knows about the criminal activities of the person who requested the bribe from him, to the police; and
• the suspect undertakes to testify in the preparation proceedings as well as before the court.

If the suspect fulfils his commitment to cooperate with the authorities, the public prosecutor can decide not to prosecute him. This means that if the suspect cooperates with law enforcement authorities, he will not be prosecuted, a final decision will be reached (shortening and simplifying the procedure) and in these cases, the suspect will have guaranteed impunity.

On the other hand, if the suspect does not fulfil his commitment to cooperate, the public prosecutor will decide on non-fulfilment of his commitments and criminal prosecution will be initiated against the suspect.

Summary

The promise of impunity under the Amendment should motivate offenders to report bribery in cases where someone else asked them to commit a bribe. Offenders who co-operate with the authorities will not be prosecuted and will have guaranteed impunity. This Amendment should serve as a significant instrument in more effectively pursuing of-fenders of corruption, and dealing with corruption as a whole.

1. The other areas that have been modified are the limitation of criminal immunity of Members of Parliament, senators and Constitutional Court judges and the criminalisation of the preparation for a crime of Reduction of Taxes, Fees and other Similar Mandatory Payments.
2. Act No. 163/2006 Coll.
3. Sec. 332 of the Penal Code: Bribery is the provision, offering or promising of a bribe for another person in connection with the procurement of goods of general interest, or the provision, offering or promising of a bribe to another person in connection with their own or another’s business.
4. Meaning the provision of an unsolicited bribe.
5. Meaning the provision of a solicited bribe. 
6. Sec. 333 of the Penal Code: Indirect bribery is the requesting, acceptance of the promise of or acceptance of a bribe, in order to gain influence over a public official or through a third party, or when they have already done so.

By Eva Purgerova, Attorney at Law, Schoenherr

Allen & Overy is advising Erste Group Bank AG on the investment of the Hungarian State (represented by state-owned entity Corvinus Zrt.) and the EBRD in Erste Bank Hungary Zrt. DLA Piper and K&L Gates advised the EBRD and Dentons advised the Hungarian State on the deal, which is said to represent the largest equity transaction in the EBRD’s history in a Hungarian bank — and the largest equity transaction of any kind that the EBRD has done in Hungary.

Pursuant to the February 2015 Memorandum of Understanding entered into by the Prime Minister of Hungary, the EBRD, and Erste Group Bank AG, the Hungarian State will reduce the bank levy, and the Hungarian State and EBRD will each acquire a stake of 15% in Erste Bank Hungary.  The HUF 77.78 billion purchase price for the (total) 30% stake in Erste Bank Hungary was negotiated between Erste Group and the two buyers based on market valuation methods after the performance of due diligence. Following the capital increase, the purchase price translates to a P/BV multiple of 1.1. EBRD and Corvinus Zrt will pay the same price.  

The conclusion of the transaction, which is expected by autumn, is subject to all necessary approvals required from Hungarian and European banking supervisory and competition authorities, as well as the fulflilment of various conditions by the involved parties, including the conclusion of the capital increase by Erste Group within Erste Bank Hungary. The Hungarian Government already fulfilled what it had pledged when it successfully concluded the legislative process and provided for a further reduction in Hungary’s banking tax in 2017 — in line with the 2015 Memorandum of Understanding. Erste Bank Hungary will remain majority-owned by Erste Group, managed and controlled in line with Erste Group Governance principles. On the basis of their proportionate rights as minority shareholder, the Hungarian Government and the EBRD will each be able to appoint one non-executive member of Erste Bank Hungary’s Board of Directors and one member of the bank’s Supervisory Board.

The parties have also agreed to a pre-determined exit mechanism for the involved minority shareholdings: the put and call option scheme grants Corvinus Zrt. the right to exit any time and Erste Group the right to exercise the call option 5 years after the sale at the earliest; in the case of EBRD, the put and call option are exercisable any time between 5-9 years after the acquisition.

Phil Bennett, First Vice President of the EBRD, commented: “With our investment we are strengthening and supporting a private bank which has successfully overcome the effects of the global financial crisis and is committed to the region. The stronger capital base will allow Erste Bank Hungary to implement its growth plan, including lending to local SMEs, thus contributing to improved financial intermediation and supporting the real economy.”

The Hungarian Minister for National Economy, Mihaly Varga, signing for the Hungarian State, commented: “With the transaction, the most important objective of the Hungarian Government is to foster growth, by boosting lending and helping the Hungarian banking system contribute to expansion through a stable background.  Erste Bank had already declared its intension to significantly increase lending and has long-term plans in Hungary. This deal will further improve trust between one of the largest Hungarian banks and the Government.”

And Friedrich Rodler, Chairman of the Erste Group Supervisory Board, commented: “Erste Group’s decision to invite the State of Hungary and the EBRD to become minority shareholders in our Hungarian banking subsidiary reflects our positive expectations for the continued development of the Hungarian banking market”.  

The A&O team was led by Partner Hugh Owen, assisted by Senior Associate Marton Eorsi and trainee David Ramocsa. State aid advice was provided by Senior Associate Attila Komives.

The Dentons team advising the Hungarian State consisted of Managing Partner Istvan Reczicza, supported by Partner Edward Keller, Counsels Zita Albert and Gabor Kiraly, and Associates Tunde Gonczol, Reka Szaloky, and Ivan Jelocnik.

The DLA Piper team advising the EBRD consisted of Milan-based Partner Paolo Zamberletti (advising on English law), working with Budapest-based Partner Gabor Molnar and Senior Associate Gabor Spitz, on Hungarian law matters. Zamberletti moved to K&L Gates on May 1, 2016 and continued assisting the EBRD on the English law part of this transaction, with the assistance of K&L Gates Associate Serena Germani.

Editor’s Note: After this article was published, Allen & Overy Partner Hugh Owen elaborated on the significance of the deal: “This deal is interesting for Hungary because it has wider implications beyond just being a (big) investment into a bank in Hungary.  In the wake of the financial crisis the Hungarian government relied on sectorial levies to help balance its books, and the banking sector was hit with a bank levy and a financial transaction tax. The Hungarian government recognizes that a healthy financial sector is key to the functioning of the real economy and growth. The government expects that the reduction of the bank levy will result in credit growth. The EBRD was also keen to play a role on this and the Memorandum of Understanding of February 2015 was the first step in that process. The more complicated step was to actually hammer out the deal.  Since there were three parties involved, our role for Erste Bank was to negotiate that deal with both Corvinus and at the same time with the EBRD, both of whom could be expected to have firm views during negotiations (which lasted some time).  We are very proud that Erste Bank turned to Allen & Overy for this critical deal and that we managed to navigate this seminal and complex transaction to signing.”

According to Kochanski Zieba & Partners (KZP), the European Court of Human Rights has allowed an application lodged on behalf of KZP client Krzysztof Koniuszewski, a journalist from the weekly Auto Swiat magazine, against the Polish Government.

KZP explained that, in 2006, Auto Swiat published five articles by Koniuszewski regarding the quality of fuel at petrol stations in Poland. The articles were based on an official report by the Office of Competition and Consumer Protection (“OCCP”), which was attached to the articles, and which included a survey of the quality of supplied diesel oil and gasoline. In the report, a petrol station owned by an individual that had brought a private prosecution was among the petrol stations identified as failing to meet fuel quality standards upon the taking of samples. The report revealed that the station provided good quality of diesel oil, yet poor quality of gasoline. The station’s owner accused Koniuszewski of making defamatory statements in his article, and Koniuszewski was convicted of the charge by the Polish courts.

After considering KZP’s arguments, however, the ECHR held that Koniuszewski’s conviction amounted to a violation of the right to freedom of expression as guaranteed by Article 10 of the European Convention on Human Rights and Fundamental Freedoms and ordered the Polish Government to pay damages.

According to KZP, the ECHR stressed that the articles had been prepared for “a legitimate public aim and served the public debate on unfair practices applied by petrol stations,” and found that “the articles were prepared on the basis of official data published on the OCCP website and contained true information.” The ECHR stressed, KZP reported, “that a journalist must have the right to publish and comment on official data provided by public institutions, and also to consider such information as true and accurate.” 

“According to the ECHR,” KZP concluded, “sanctions imposed on the journalist by the Polish criminal courts amounted to a restriction of press freedom in matters of significant public concern, and the conviction caused the journalist to suffer damage.”

The KZP team representing Koniuszewski consisted of Partners Tobiasz Szychowski and Konrad Orlik.

It is commonly accepted that the financial, social, and political transition of Albania into the post-communist era not only failed to address a major long-standing problem related to private property rights but actually further jumbled up real estate ownership relationships.

The fuzzy legal framework governing property rights and the absence of a proper administrative system remain major obstacles to the growth of the Albanian economy, holding up the regeneration of the real estate market.

So far, judicial practice has played a detrimental role in the process, with many judges disregarding key issues and failing to contribute to clearing up a complex overall system. As a result, there has been a surge in Albanian property rights claims raised before the European Court of Human Rights, with an unusually high number of favorable decisions. A similarly complicated landscape exists in the banking sector, where a considerable number of non-performing loans were collateralized with real estate properties in the construction industry. The International Monetary Fund and the World Bank have ranked the real estate issue as one of Albania’s most urgent problems.

Over the last year, the Albanian Government has initiated a series of strategic steps in an attempt to improve the service of its subordinate institutions/authorities and facilitate legislative procedures in real estate. For one thing, the February 2016 amendment to the Law on the Registration of Real Estate shifts the rules affecting the registration of construction contracts by making mandatory the formerly optional registration with the competent register office. Unless construction contracts are duly registered, banks will not be entitled to claim any priority rights against third parties. The new regime also aims to put an end to the abusive practices formerly applied by construction companies against banks and their clients (double sales, issuance of loan guarantees on already sold properties, issuance of guarantees on land plots belonging to the owners of the land, and so on), by extending construction companies’ obligation to register not only the construction permit but also the construction contract, thus enhancing the legal protection for such type of collaterals.

In addition, the amended legal framework allows a building’s carcass – the skeleton structure – to be registered following the transfer of its ownership to the bank. The legal status of carcasses was not previously regulated, exposing banks to the entire risk, as they were unable to deal with such real estate properties. Following the latest amendments of the law and upon fulfillment of certain conditions stipulated therein, the banks now enjoy enhanced protection in these transactions.

On the same note, an important efficiency-driven initiative –building an online application platform – has been jointly undertaken by the National Chamber of Notaries and the Register Office to simplify the real estate registration process carried out by the notary public. This initiative is expected not only to eliminate existing bureaucratic barriers to the registration process but, at the same time, to obviate the need of direct interaction between interested parties and public clerks, preventing potential bribery practices. Interested parties will enjoy constant and immediate online access to their application and will be able to track any upcoming deadlines. The online application system is the first step in the digitalization of the entire Register Office, a project expected to be completed by the end of 2016.

Finally, a key contentious issue remains involving property restitution and compensation of former owners who lost their ownership rights following nationalization of properties during1945-1990. The new legislation on the matter has encountered strong opposition from interested parties and former owners claiming that actual compensation is much lower than the market value of their properties. The law has been contested before the Constitutional Court, which may require the Albanian Property Treatment Agency, among others, to amend its regulatory framework, leading to further delays in addressing the compensation issues of owners already waiting for many years.

Now more than ever, Albania needs to come up with a permanent solution to all outstanding and/or controversial real estate issues by not only stitching up regulatory gaps but also by fundamentally adapting the entire system to international practices and coordinating a well grounded and standardized legislative procedure. Time may be running out, but it is up to Albania to prove that, after all, it can successfully meet this challenge.

By Besnik Duraj, Partner, Drakopoulos

This Article was originally published in Issue 3.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Daniel Mattos, who moved to Vienna in March, 2015, is a long way from his home in Brazil. Mattos is the only member of the Corporate Legal team at InterCement in Austria, where he is responsible for creating and implementing anti-corruption and anti-trust training and compliance programs. He is also responsible for key engineering, research and development, and innovation agreements and plays a key role in audits, monitoring, and creation/implementation of corporate standards across InterCement’s operations in Europe, Brazil, Egypt, South Africa, Argentina, and Portugal.

D.M. I’ve been working for my current company for a few years now. Before I came to Austria I was in an insane working rhythm – 12, 14, 16-hour shifts, mainly with strategic agreements and compliance. I had just gotten through a divorce, and work was my safe port. And you know what they say about work: the more involved you are, the more heart and soul you give, the more you receive in return. So in that context I’ve created an anti-corruption training to be implemented by the company. It worked, and in one year almost five thousand people were trained. It was so successful that we decided to implement it in all the countries where we were present, including Portugal and countries in Africa and South America. 

Now getting to your question: Why Austria? Austria is very central in our business, because it is close to Africa, it’s in the middle of Europe, it is not that far from South America, so it makes sense to have the kind of work that I do, here. I need to always have in mind the different cultures that we deal with (not just the languages – it’s far more complex than that) and Austria gives me that. I love Austria, I would be here forever if it would depend solely on me. Here I found my heart.

D.M.: We are a multinational present in many countries. The main product that we produce is cement. Cement has to be sold very near to where it is produced – which is to say that we are always expanding, always looking to new markets and opportunities. Austria gives us that. So we concentrate our holding here.

D.M.: I was sent here to carry on my duties from a more central position, looking to Africa, but also looking to Europe, looking to South America, but also looking to any new territory. My major is in law, but I also have two postgraduate degrees: one in corporate business and another in strategic agreements. Those were two of the qualities that were responsible for me being here.

When you work in a strategic agreement – involving, for instance, Egypt and Brazil – you have to keep in mind both the laws of both countries but also the international laws and cultural aspects. That is what I do. Also, as I’ve mentioned in the beginning, I am responsible for the compliance area, and compliance per se speaks an international language. In a multinational, you can’t impose the culture of one single country over the others. 

D.M.: In Austria I’m the only member of the corporate legal team, but of course we have a large team across our international structure.

D.M.: Unfortunately, no.

D.M.: I love Austria. I found my heart and soul here. I love the smell of bread on every corner, I love the architecture and the people, how organized and clean everything is. To be able to rely on public transportation and safety. Only people who come from countries that do not have these things will understand how fortunate Austrians are. You can tell me “yes, but we pay a lot for that,” and I will answer, “in most countries we also pay quite high (30, 40%) but we don’t get anything at all.” Austria, and especially Vienna, is a place where these experiences can be exchanged. I am constantly involved in discussion groups where we have these enriching experiences.

D.M.: I think the most challenging aspect is the cultural differences. I come from a place where it is common to have hundreds of friends. A barbecue in your house, for instances, goes for 10-12 hours and can easily include 100 people, for no special occasion, only because we want to see each other. Is very common to have hugs, kisses, loud laughs, not much regard for personal space. Here it is a little different. To break this first barrier takes time and a lot of work. But once is done, it is worth it. I have great and amazing friends here.

D.M.: I will be here until the executives at InterCement want to send me somewhere else – but if it depended solely on me, forever.

This Article was originally published in Issue 3.2. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Until a few years ago companies in the Life Science sector achieved growth by acquisition. The objective was to become larger and thus to become a market leader in the sector or to expand existing market leadership. As this could often not be reached by organic growth only, there was much M&A activity, particularly before the financial crisis started.

Post-Merger Integration was Often Insufficient

In pursuing this strategy many companies ignored the fact that each acquisition – even of a competitor – involves the purchase of business segments that are not part of the existing core business of the purchased company. In the course of a post-merger integration companies focused on creating synergies within core businesses to justify the acquisitions to their owners. The other business segments that were acquired as part of the same transaction remained unchanged in most of cases as they were not part of the strategic focus. This phenomenon was most frequently seen in the pharma and medical devices industries within the Life Science sector.

Consequence: Worse Profitability

These (in terms of acquisitions) very active companies, in particular, did not succeed over the past few years in maintaining their former efficiency despite the growth and expansion of their market position. Thus, paradoxically, despite the expansion of their market positions, they did not achieve the desired profitability, as the variety of products outside the core business that were developed by multiple acquisitions often resulted in a reduction of profitability. This effect occurred relatively soon in most cases. However, the worst fact for the companies concerned was a consequence that occurred in the medium term: namely that the companies lacked the resources and the financial means to conduct sufficient research and development in their core business due to the enlarged (but less profitable) product portfolio. As a consequence the market position that had been improved for a short while by acquisitions worsened severely in the medium term. Increased international competition (predominantly from Asia) even accelerated this development.

Downsizing: Reduction to Core Business 

The trend that resulted from the development described above has been to “downsize” in the past few years. This means that companies are undertaking massive reorganizations in order to segregate business segments that do not pertain to the core business into separate companies and to sell them off either via the stock exchange or in the course of a tender procedure. These companies are often present in multiple countries, so outsourcing the business segments that are not part of the core business in preparation for sale requires global reorganization advice that is agreed upon in detail. The same applies to the sale itself. Quite a large number of companies have therefore currently developed a strategy to consciously become smaller in order to focus exclusively on the core business. 

Downsizing is in most cases successful only if the proceeds achieved from the sale of business segments that do not pertain to the core business are for the most part used not for immediate profit but instead put back into research and development of the core business. This is quite difficult to put into practice because sale proceeds often trigger greed on the part of the owners and other stakeholders. However, such investments are often essential in order to regain leadership through adequate innovation. These trends result in an extremely interesting environment for activities of lawyers, in which innovative companies seek global legal advice for reorganizations and M&A.

By Christoph Mager, Partner and Head of Corporate, DLA Piper Weiss-Tessbach

This Article was originally published in Issue 3.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Szilvia Bognar is the General Counsel – Law and Compliance at Bayer Hungaria. She first joined the pharmaceutical company in February 2014. Before that, she was a counsel with Nestle between August 2006 and January 2014. Bognar’s experience includes traineeships with the Krankovics Panszky Arva Law Firm, Heinzelmann and Partners Attorneys-at-law Hengeler Mueller, and the Constitutional Court of the Republic of Hungary.

S.B.: The insight I gained during my university years oriented my attention towards law firms, so I worked for them for two years after graduating. I focused mainly on civil law, but my valuable first experience included a good and general manner of approach (how to deal with any kind of legal matters). As I found it not appealing to become one of umpteen attorneys, I strove for excellence so that I would have greater chances of success when faced with the fierce competition of the legal services market. As an in-house counsel I got closer to the business side, which enabled me to render more tailor-made solutions – which I would emphasize as one of the great added values of working for a company. I appreciate that I had the chance to work not only on the local level, but also in the headquarters of the company, dealing with issues from a different perspective. Moving back to Hungary, I wanted to leverage my knowledge, but it appeared I had great opportunities to grow more outside Nestle, so I joined Bayer Hungaria to set up its in-house legal function.

S.B.: In my view it is not extra challenging if an industry is heavily regulated. However, it does increase the level of complexity in many instances. I think one must accept this fact and show sensitivity to certain issues and develop a great compliance culture. You may set up a new work stream in weeks, but attitude may take years to change.

S.B.: Right now there are three qualified lawyers working in-house, but we may take external legal services for specific issues (for example we would not have the capacity to deal with litigation issues on top of the daily legal consultancy we provide).

Besides the area of Legal, I am also responsible for Compliance, Export Control, and Data Privacy.   

S.B.: Export Control refers to my tasks on the monitoring of foreign trade, which is, normally, unrestricted. However, there are certain national and international restrictions to observe regarding the export of physical goods, software, technology, and services. Our function really is one that I’d describe more as an information-sharing one. We focus on staying apprised of such restrictions and, whenever a new one pops up, or if another is relieved, we process the ramifications and pass on the information to our operational colleagues.  

S.B.: It must be due to historic reasons. Data Privacy used to be handled by the IT Departments of Bayer. We now keep it separate because of its evolving significance, in particular in the digital era.  

S.B.: One of my objectives is to foster cross-functional cooperation, and I have a great working rapport with many internal teams and stakeholders. I find this crucial to achieve efficiency, reduce complexity (if possible), and find the most appropriate solutions. My personal opinion is that it is also key to have clear roles and responsibilities for the separate enabling functions; therefore, I prefer to have them as separate functions, but I fully concur that the more they cooperate, the better added value they deliver to the business.

S.B.: I have noticed that the legal services market has changed a lot in Hungary. I believe most companies have already decided to establish an in-house legal function, not only due to budget constraints, but because of the tailor-made solutions designed for business and other competitive advantages that a legal function can add.

Many of our businesses are set-up in regional clusters, and I detect this trend for law firms as well. Furthermore, more and more they need to feature valuable expertise in specific areas so that they can maintain constant collaboration with their clients and they must also be creative as to how to make their qualities visible for potential clients.

Having a reasonable and consistent approach pays back in the long run, in my opinion.

S.B.: As I mentioned earlier, ideally compliance should not appear purely as a function, but as the way of doing business. The respective compliance colleagues are sort of mechanics who offer a wide variety of instruments. In general the compliance function is more straightforward in regulated industries, but this does not always apply, as the field of compliance is evolving fast. The trend requires not only compliance with laws but also preventive measures to identify and mitigate risks. For this reason, there are great examples from regulated industries of companies who have a strong and well-established compliance culture.

S.B.: Right now, as Bayer is a life science company, I mainly follow the related fields of law (e.g., pharmaceuticals and crop-protection legislation), but there are some golden key areas like antitrust or data privacy.

S.B.: As I am pleased to be a lawyer, I have never thoroughly considered this, but, in all likelihood, I would have become a surgeon should things have been different.

This Article was originally published in Issue 3.2. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Daniel Szabo is the Country Legal Counsel for Hungary at Hewlett Packard Enterprise, where he has been for almost two and a half years. Prior to that he worked for Magyar Telekom as Legal Counsel, Foreign Subs and M&A for almost 5 years. Earlier still he worked in private practice as a Junior Lawyer with both Allen & Overy and Nagy es Trocsanyi.

D.S.: I knew I wanted to be a private sector lawyer, and I was fortunate to have had the opportunity to explore a number of career paths. I started off with a brief tenure at Nagy es Trocsanyi, a renowned local law firm famous for its dispute resolution practice. I felt that I wanted to be closer to business than I was as a trial lawyer, and I transitioned to Allen & Overy’s Budapest office, where I was did mainly M&A and transactional work. This turned out to be my ticket to join the team of lawyers at Deutsche Telekom’s Hungarian subsidiary, Magyar Telekom. I spent close to five years overseeing M&A transactions and the key legal matters of MT’s foreign subsidiaries. It was at this time that I realized an in-house position fits my personality and interests best. I was therefore very glad to step up to the next level as country counsel for Hungary with Hewlett Packard. I am responsible for HPE’s local legal affairs and am a member of the country leadership team. 

D.S.: The pace at which the industry is evolving is head-spinning. One must be very open-minded, otherwise one cannot adapt at the rate and frequency that the market dictates. This is true for an IT lawyer as well. Just as cutting edge IT becomes a top priority for other industries, technology is transforming the way lawyers work. Document and case management systems and time tracking and approval tools and similar innovations can dramatically increase efficiency and transparency. This in turn may mean fewer lawyers or different legal roles. I learned to embrace change and understand that it is likely to have a significant effect on my career. The future of law is more exciting and more in a state of flux than ever.

D.S.: Given the hectic and ever-changing nature of the TMT industry we must be very focused. Saying no unnecessarily is just as costly as taking unjustified risk. A deal stopped for lack of focus is just as wasteful as unnecessarily postponing innovation for the same reason – for example by insisting on cumbersome wet ink signatures when they are not really needed. So while striking the right balance may be particularly challenging in this fast-paced environment, we must be just as committed to lawful and ethical decision-making as GCs of any other sustainable and complex business are.   

D.S.: Some of the most exciting and advanced legal work we do in Hungary is selling complex integrated IT solutions to solve our customer’s problems. To put it simply, [providing] business outcomes rather than just servers or services or software. Such complex contracts require legal expertise in the areas of intellectual property, licensing of proprietary and open source software, commercial contracting, revenue recognition, and so on. The Hungarian team consists of a deal-support attorney and myself, and we work with external counsel on a regular basis. I think that around 80% of our work is deal support and the rest goes to supporting our functions, including HR, finance, real estate, procurement, ethics and compliance, and other areas. I also dedicate some of my time to country management tasks on the country leadership team. The team is also doing pro bono work for NGOs in need of legal advice in cooperation with Pal Szabo of Weil Gotshal & Manges Budapest. 

D.S.: Hewlett Packard Enterprise and HP Inc. adopted different strategies in relation to their Hungarian legal operations. The former, which has a larger footprint in the country, chose to keep the team as is, though with adequately adjusted resources. The latter, being locally a smaller business operation with mostly indirect contracts, opted for a different operating model. An experienced regional legal counsel based outside the country is overseeing its legal affairs, with the help of local external counsel. It was interesting that up to the split we owed a fiduciary duty to the shareholders of the united company and we had to set both splitting companies up for success. There was no room for switching to the perspective of your future company before the split. 

D.S.: The company adopted different approaches to legal support in Hungary over the years, and I joined after a period in which the company had no local country counsel. Setting up the legal operation, getting acquainted with a dazzlingly complex business, and establishing myself with senior sales people and the country leadership team was the toughest challenge. I just managed in time for helping with the company split. While I am confident that I am doing well, you don’t grow into such a role in a couple of months. It takes a long time and constant effort.

D.S.: I cannot point to a specific skill gap but I have a general comment to make. My impression is that we tend to have a local rather than an international mindset. By this I mean that we are measuring our skills, performance, and career aspirations against benchmarks on the Hungarian market whereas in multinational companies the playing field is a lot wider.

D.S.: I traveled parts of the Trans-Siberian Railway with my mother and sister when I was a child. My dream is to do the whole trip from Moscow to the Pacific Ocean one day, and perhaps go on to Japan.

This Article was originally published in Issue 3.2. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

At the end of 2015, significant amendments to Hungary’s social housing subsidy were introduced, further stimulating the residential property market and lowering the VAT on certain new residential properties.

Summary of the New Subsidy

The new amendments widened the scope of subsidies available for families purchasing or constructing new residential properties that were originally introduced on July 1, 2015. (In addition to these amendments, a further subsidy was implemented regarding the purchase of or building of extensions to already existing residential properties.)

The amended provisions for the purchase or construction of new residential properties provide the following benefits: (i) a lump-sum non-refundable state subsidy (the so-called “CSOK”); (ii) a tax refund; and (iii) an interest-rate subsidy for families with three or more children.

The CSOK is a non-refundable state subsidy for constructing or purchasing new residential properties, available for young (in certain cases only married) couples, the amount of which depends on the number of children they have or undertake to have within a determined period.

To be eligible, the applicant must have had social security for at least 180 days, no criminal record, and no public debt.

Both the maximum amount of the subsidy and the minimum useful net floor area of the real property which can be constructed or purchased through the CSOK depends on the number of children in the family. For example, in families with only one child, the CSOK requires a minimum 40 square meters as useful net floor area and provides a subsidy in the amount of HUF 600,000, while families with two children are entitled to a subsidy of HUF 2,600,000, and families with three children are entitled to HUF 10 million).

A further condition is that the subsidized persons and their children must reside in the constructed/purchased new apartment for 10 years.

The Expected Impact of CSOK on the Market

In line with the improving investment climate in the Central European region, and as Budapest is currently one of the most attractive European cities for property investors, the recent legislative changes are expected to further stimulate the market.

Investments postponed by investors in recent years are expected to commence in this and upcoming years, and the CSOK will further increase the number of private investments – an expectation bolstered by the increasing number of obtained building permits. However, these constructions have not yet begun, and the first of these construction projects is expected to be finished in early 2017.

The Hungarian savings bank TakarekBank revealed in February that it has registered some 15,000 clients potentially interested in CSOK.

Based on its own estimation, OTP Bank expects to receive a large portion of the applications. According to OTP’s Director, Zoltan Kormos, only 9% of the bank’s clients were planning to purchase a newly built property.

With regard to the amount applied for, only a small proportion of the applicants applied for the highest amount of CSOK (i.e., for HUF 10 million). However, the number of those who are interested but who have not yet applied is high (e.g., 30,000 from OTP Bank).

At the beginning of this year, several procedural difficulties slowed down the application for CSOK (e.g., obtaining verification that the applicant has had social security for 180 days, the underestimation or overestimation of construction costs). The good news is that these initial difficulties are starting to wear off. According to credit intermediaries, the review of an application now takes only five to six weeks.

For the remainder of the year, most experts expect a boom of CSOK applications (e.g., OTP Bank expects 40,000 applicants), which would have a further beneficial impact on the already positive investment climate.

By Monika Frank, Managing Associate, Andreko Kinstellar Ugyvedi Iroda

This Article was originally published in Issue 3.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Last October an amendment to the Act on Informational Self-Determination and the Freedom of Information (Info Act) entered into force in Hungary. Certainly the most important aspect of this modification for the business sector was the introduction of Binding Corporate Rules (“BCRs”) into Hungarian law.

BCRs are internal rules adopted by multinational companies to apply to international transfers of personal data within the same corporate group to entities located in countries which do not provide an adequate level of protection for the rights and freedoms of data subjects in the processing of personal data. BCRs ensure that all transfers made within a group benefit from an adequate level of protection, which is required by European Union Directive 95/46/EC for transferring personal data to third countries. This is an alternative to the company having to sign standard contractual clauses each time it needs to transfer data to a member of its group.

Although the new rules of the Info Act on BCRs suffer from certain deficiencies, privacy professionals have welcomed the introduction of BCRs into Hungarian law, as their absence has in the past resulted in a significant competitive disadvantage for Hungary. 

After many years of waiting for the introduction of BCRs into Hungarian law, the timing of the amendment was impeccable. Almost at the same time the new BCR regulation came into force in Hungary, the Court of Justice of the European Union declared, in a ground-breaking decision, that the US Safe Harbor scheme was invalid. The US Safe Harbor framework was established 15 years ago to provide a mechanism by which European businesses could validly transfer personal data from the EU to the US. It was commonly adopted to support data transfers needed to support intra-group operations, for example to assist a US parent in managing EU based activities.

The Article 29 Working Party – the independent advisory body that brings together representatives of all Data Protection Authorities of the Member States as well as the European Data Protection Supervisor – and the European Commission quickly made it clear that while data transfers can no longer be based on Safe Harbor certification, standard contractual clauses and BCRs can in the meantime still be used as a basis for data transfers.

As a result of these changes, the role of BCRs has become more important, and the first couple of BCRs have already been approved by the Hungarian Data Protection Authority and published on its webpage. 

Compliance has also become more important in Hungary, because the amendment also doubled the penalty that can be imposed by the Authority – up to HUF 20 million (about EUR 67,000) in case of non-compliance with data protection laws. Data Protection Authorities in other EU countries (e.g., in Germany) have already initiated proceedings against multinational companies that were unable to provide alternative safeguards instead of Safe Harbor. 

Since BCRs may only provide a solution for transferring personal data within the same corporate group, the new US-EU Privacy Shield program, which is intended to replace the now defunct US-EU Safe Harbor program, is eagerly awaited. The importance of the standard contractual clauses (model clauses) for data transfers is unquestionable, but the use of the model clauses can still be burdensome for big data controllers and may raise issues for US organizations, since the implications are hard to assess in advance (e.g., what rights the EU Data Protection Authorities have in connection with their entitlement to conduct an audit of the data importer). 

Although the US Commerce Department and the European Commission released the details of the new Privacy Shield program at the end of February, 2016, it is still too early to tell whether EU authorities will agree with the details of the program.

By Zoltan Kozma, Counsel, Horvath & Partners DLA Piper

This Article was originally published in Issue 3.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.