Financial Crime World

Preventing Financial Crimes in Hungary: Understanding the Risks and Regulations

Hungary’s economy has experienced significant growth in recent years, with a GDP of around EUR 110.1 billion in 2015. While the country may not be considered a financial center, its banking industry plays a vital role in the economy, with over thirty-two banks operating in the sector. However, like many countries, Hungary is not immune to the threat of financial crimes.

Key Risks Identified by the Hungarian National Risk Assessment

In 2015, the Hungarian National Risk Assessment was established to identify and assess the risks associated with financial crimes in the country. The assessment, updated in 2018, identified the following primary dangers:

  • Criminal organization: Hungary has seen an increase in organized crime groups involved in money laundering and other financial crimes.
  • Offshore businesses: The use of offshore companies to launder money or evade taxes is a significant concern in Hungary.
  • Money transfer services: Money transfer services have been used by individuals and organizations to facilitate illicit activities.
  • The absence of centralized registration of bank accounts: The lack of a centralized register of bank accounts makes it difficult for authorities to track financial transactions.
  • Shell companies: Shell companies, which have no real business activity, are often used to launder money or evade taxes.

Legislation and Regulations

To combat these risks, Hungary has enacted legislation to prevent and combat money laundering and terrorist financing. The law requires reporting entities, such as banks, to carry out customer due diligence, identify and verify the beneficial owner of a company, gather and archive information, and report suspicious transactions to the Hungarian Financial Intelligence Unit (FIU).

Key Responsibilities of Reporting Entities

The 4th and 5th AML Directives outline the fundamental responsibilities of reporting entities under the AML Act:

  • Customer due diligence: Identify and verify the customer, including their identity and beneficial owner.
  • Risk evaluation and categorization: Assess the risk associated with each customer and transaction.
  • Use of a screening system: Use a screening system to detect suspicious transactions.
  • Sharing (reporting) information on suspicious transactions/customers: Report suspicious transactions or customers to the FIU.

Supervisory Authority

The Hungarian AML Supervisory Authority, NAV, is responsible for receiving, analyzing, and publishing suspicious transaction/activity information. The NAV works in collaboration with other investigating bodies, including the Prosecutor General’s Office and the National Courts Office.

Other Agencies Authorized to Oversee Compliance

In addition to the NAV, the following agencies are authorized to oversee compliance with the AML Act:

  • Government: The government is responsible for implementing and enforcing the AML Act.
  • Hungarian Bar Association: The Hungarian Bar Association has issued rules requiring individual practitioners and one-person law firms to comply with the AML Act.
  • NAV: The NAV oversees real estate agencies or brokering 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

The Restrictive Measures Act 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.

Preventing Financial Crimes

To prevent financial crimes in Hungary, organizations must:

  • Conduct thorough risk assessments: Identify and assess the risks associated with each customer and transaction.
  • Implement robust compliance programs: Establish policies and procedures to detect and report suspicious transactions.
  • Train staff: Educate employees on AML regulations and requirements.
  • Monitor transactions: Continuously monitor financial transactions for suspicious activity.

By understanding the risks and regulations in Hungary, organizations can take proactive steps to prevent financial crimes and ensure compliance with AML laws.