Internal corporate investigations are no longer occasional procedures but essential elements of organizational integrity and risk management. In Hungary, where labor law, data protection, and criminal law intersect, companies must handle investigations with diligence. While whistleblowing systems are mandatory for certain Hungarian organizations, effectively managing reports remains challenging. Establishing robust internal policies and adhering to data protection standards from the outset are the best safeguards against corporate liability risks, as improperly handled evidence may be inadmissible in legal proceedings. As a result, internal investigations must emphasize transparency, proportionality, and lawful data management, particularly when competition law or criminal law issues arise.
The Need for a Defined Internal Investigation Process
In Hungary, employers are not required to notify authorities about criminal offenses, even in cases requiring public prosecution. Most economic offenses are pursued privately, allowing employers some discretion in deciding how to address alleged misconduct. Defined internal investigative processes mitigate ad hoc decision-making risks, which could lead to legal disputes or claims of unfair treatment. They also ensure compliance with data processing and labor law regulations. Such policies protect both employers and employees by ensuring that investigations are conducted fairly and proportionately. This transparency strengthens employee confidence and enhances the company’s ethical standing. It also safeguards employers against potential liability, as thorough documentation demonstrates proper and impartial investigations. As these grow more complex, especially when competition law or criminal law elements are involved, structured procedures become indispensable.
Data Protection and the Credibility of Evidence
One of the primary challenges in Hungarian internal investigations is managing personal data. Hungarian data protection laws and the EU General Data Protection Regulation (GDPR) impose stringent requirements on processing employee data during investigations. Personal data collection must have a valid legal basis, such as fulfilling legal obligations or pursuing legitimate corporate interests. From the outset, companies must ensure that data collection is lawful, proportionate, and confidential. Noncompliance can lead to fines, legal challenges, and the exclusion of evidence in legal proceedings. Employers must securely store investigative records and restrict access to authorized personnel only. This is particularly important in whistleblowing cases, where protecting both the reporting individual and the accused employee is essential. Mishandling personal data could render an entire investigation legally invalid, placing the employer at significant risk.
Competition Law Risks and the Business Impact of Internal Investigations
Competition law violations can result in severe penalties, especially in connection with cartel agreements or the abuse of a dominant market position. An internal report may reveal conduct such as price-fixing or market allocation. In such cases, Hungarian companies must decide whether voluntary collaboration with competition authorities is warranted to mitigate potential sanctions. Where accusations involve abuse of market dominance, investigations should rely on objective and provable data to avoid liability. Reports may also expose misconduct by business partners, suggesting potential contract breaches or anti-competitive behavior. Given these implications, companies must proceed cautiously to ensure compliance with competition law when handling confidential commercial data.
The Role of Artificial Intelligence in Internal Investigations
Hungarian businesses are beginning to explore artificial intelligence (AI) tools to enhance compliance monitoring and investigative procedures. AI can efficiently detect financial anomalies, flag suspicious communications, and identify potential fraud. However, these tools come with ethical and legal considerations. Algorithms trained on biased or incomplete data may result in unfair outcomes for employees under investigation or fail to recognize critical nuances in workplace behavior. Under Hungarian law, employees have the right to be informed about the data collected about them and to contest decisions made based on automated processing. Therefore, employers must ensure transparency in AI-based methods, whereby human judgment remains central to investigative decisions, to evaluate broader contexts, consider mitigating factors, and ensure fairness and compliance with legal standards.
Conclusion: Why Internal Policies Are the Best Safeguard for Companies
Ultimately, a robust internal policy is the best safeguard in navigating the complex investigative process involving labor law, data protection, and competition law, among other legal considerations. This policy should outline clear reporting mechanisms, ensure data protection compliance, define investigation procedures, and establish escalation protocols for legal violations. In doing so, companies reduce legal risks, ensure fair treatment of all parties, and maintain regulatory compliance. Such policies protect the company while also promoting a culture of integrity, transparency, and trust, strengthening long-term business resilience and reputation among employees, customers, and partners. With transparency, lawful data handling, and procedural fairness at the center, a robust internal policy lays the groundwork for a more ethical and sustainable corporate environment.
By Nora Ovary-Papp, Head of Employment, Baker McKenzie
This article was originally published in Issue 12.3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
