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Hungary Tackles Financial Crimes in Banking Industry
Despite being a predominantly cash-based economy, Hungary has a thriving financial services sector, with its banking industry accounting for a significant share of the country’s GDP. However, this growth has also raised concerns about the potential for financial crimes.
Key Risks to Financial Stability
According to the Hungarian National Risk Assessment, which was last updated in 2018, there are several key risks that have been identified as posing a threat to the country’s financial stability:
- Criminal organizations: Engaged in money laundering and terrorist financing activities
- Offshore businesses: Operating outside of Hungary’s regulatory framework
- Money transfer services: Facilitating suspicious transactions
- Absence of centralized registration of bank accounts: Making it difficult to track financial activity
- Shell companies: Used for money laundering and other illicit activities
Legislation to Prevent Money Laundering and Terrorist Financing
To address these concerns, Hungary has enacted legislation to prevent and combat money laundering and terrorist financing. This legislation was introduced in 2017 following an assessment by the Financial Action Task Force (FATF), which aimed to enhance Hungary’s anti-money laundering system.
AML Framework Adheres to International Standards
The existing framework adheres to FATF guidelines, worldwide and European standards, as well as Council of Europe and European Union (EU) Directives. The fundamental responsibilities of reporting entities under the AML Act are outlined in the 4th and 5th AML Directives.
These include:
- Customer due diligence: Verifying customer identity and information
- UBO and person working on customer’s behalf: Identifying ultimate beneficial owners and individuals acting on their behalf
- Gathering and archiving of information and records: Maintaining accurate records of customer transactions and activities
- Risk evaluation and categorization: Assessing the level of risk associated with each customer and transaction
- Use of a screening system: Screening customers against lists of known or suspected terrorists and money launderers
- Sharing (reporting) of information on suspicious transactions/customers: Reporting suspicious activity to the Hungarian Financial Intelligence Unit
Role of the Hungarian Financial Intelligence Unit
The Hungarian Financial Intelligence Unit, which is a stake of the Primary Management of the National Tax and Customs Administration (NAV), is the central authority in the responsibility of receiving, analyzing, and publishing suspicious transaction/activity information.
Other agencies authorized to oversee compliance with the AML Act and the Restrictive Measures Act are:
- The government: Ensuring that all government entities comply with AML regulations
- The Hungarian Bar Association: Regulating legal professionals and ensuring they adhere to AML standards
- Law firms with many members: Verifying compliance among their member law firms
Real Estate Agency Oversight
The NAV also oversees real estate agency or brokering and associated services; bookkeepers, tax experts, tax counselors, suppliers of exchange services between virtual currencies and legal tenders, custodian wallet providers, and providers of corporate headquarters services.
AML Regulations Include Restrictive Measures Act
AML Regulations include the Restrictive Measures Act, which mandates the freezing of cash and other financial assets, as well as the ban on providing financial services. To fully implement EU legal actions and relevant United Nations Security Council resolutions imposing restrictive measures on liquid assets and other economic interests, service providers must compare the personal data of their total clientele on file with the data of the persons named in EU legal actions and relevant UN Security Council resolutions.
If the screening results show that a person is subject to a restrictive measure relating to liquid assets or other financial interests, or if their data matches the data of an entity or person on the consolidated list of effective restrictive measures imposed on the European Union or the United Nations, the service provider must notify the NAV.