Financial Crime World

Hungary Tightens Anti-Money Laundering Laws as Economy Booms

Economic Growth and the Risk of Money Laundering

Hungary’s economy has experienced significant growth in recent years, with a GDP of over EUR 110 billion in 2015. The country’s financial sector, which includes thirty-two banks, plays a major role in this growth. However, as the economy expands, so does the risk of money laundering and terrorist financing.

Strengthening Anti-Money Laundering Laws

To combat these risks, Hungary has strengthened its anti-money laundering (AML) laws. In 2017, the government enacted legislation to enhance the country’s AML system, which was assessed by the Financial Action Task Force (FATF). The new law adheres to FATF guidelines, international and European standards, as well as EU Directives.

Key Areas of Risk Identified

The Hungarian National Risk Assessment identified key areas of risk, including:

  • Criminal organizations: Engaged in various illicit activities, such as drug trafficking, human smuggling, and extortion.
  • Offshore businesses: Companies registered in offshore jurisdictions, which can be used to conceal the true ownership and source of funds.
  • Money transfer services: Services that facilitate the transfer of large amounts of cash or digital currencies.
  • Lack of centralized registration of bank accounts: Making it difficult to track and monitor suspicious transactions.
  • Shell companies: Companies with little or no economic activity, often used to conceal the true ownership and source of funds.

Responsibilities of Reporting Entities

Under the AML Act, reporting entities have fundamental responsibilities, including:

  1. Customer due diligence (identity and verification of the customer): Verify the identity of customers and assess their risk profile.
  2. Identifying ultimate beneficial owners (UBOs) and individuals acting on behalf of customers: Identify the individuals who ultimately benefit from or control a company or organization.
  3. Gathering and archiving information and records: Collect and store information about customers, transactions, and other relevant data.
  4. Risk evaluation and categorization: Assess the risk level of customers and transactions based on various factors.
  5. Use of a screening system: Utilize software or systems to screen customers and transactions against sanctions lists and other watchlists.
  6. Sharing suspicious transaction or customer information: Report suspicious activities to the Hungarian Financial Intelligence Unit.

Central Authority for AML Compliance

The Hungarian Financial Intelligence Unit, which is part of the National Tax and Customs Administration (NAV), serves as the central authority for receiving, analyzing, and publishing suspicious transaction/activity information.

Oversight Agencies

Other agencies authorized to oversee compliance with the AML Act include:

  • The government
  • The Hungarian Bar Association
  • Real estate agencies or brokers 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

Restrictive Measures Act

The Restrictive Measures Act mandates the freezing of cash and other financial assets, as well as the ban on providing financial services. Service providers must compare their clients’ personal data with data from EU legal actions and relevant UN Security Council resolutions.

Implementing AML Compliance Software

To ensure compliance, organizations can utilize AML software, such as Sanction Scanner’s AML Compliance Software, which offers a risk-based strategy to analyze company risks and avoid sanctions. By implementing these measures, Hungary aims to protect its financial system from money laundering and terrorist financing while maintaining economic growth.