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Hungary Country Summary

74.94 Country Rating /100
View full Ratings Table
Sanctions

No

FATF AML Deficient List

No

Terrorism
Corruption
US State ML Assessment
Criminal Markets (GI Index)
EU Tax Blacklist
Offshore Finance Center

Background Information


Anti Money Laundering

FATF Status

Hungary is not on the FATF List of Countries that have been identified as having strategic AML deficiencies

Compliance with FATF Recommendations

The latest follow up to the Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Hungary was undertaken in 2022. According to that Evaluation, Hungary was deemed Compliant for 5 and Largely Compliant for 32 of the FATF 40 Recommendations.​ It was deemed Highly effective for 0 and Substantially Effective for 2 of the Effectiveness & Technical Compliance ratings.

US Department of State Money Laundering assessment (INCSR)

Hungary was deemed a Jurisdiction of Concern by the US Department of State 2016 International Narcotics Control Strategy Report (INCSR). Key Findings from the report are as follows: -

Hungary is not considered a major financial center; however, its EU membership and location make it a link between the former Soviet Union and Western Europe. The country’s primarily cash-based economy and well-developed financial services industry make it attractive to foreign criminal organizations. Law enforcement has observed an increase in organized crime groups using Hungary and the region as a base of operation for cyber-related fraud, including social engineering fraud, and for laundering criminal proceeds through shell companies and the banking system. Hungarian officials believe cash transactions, offshore companies, and front companies are the largest money laundering and terrorism financing risks. The use of cash and false information regarding the identity of the accountholder hinders transparency, making it difficult to track funds derived from criminal activity.

Hungary has been identified as a transit country for illegal drugs coming from Turkey and Asia and moving to other European destinations. Particular vulnerabilities may exist on the Hungarian-Ukrainian border related to tobacco smuggling, which the National Tax and Customs Authority and the Police strive to prevent, and trafficking in persons.

Authorities believe money laundering cases mostly stem from financial and economic crimes, such as tax-related crimes, cyber-fraud, embezzlement, misappropriation of funds, and social security fraud. Illicit proceeds also result from narcotics trafficking, prostitution, trafficking in persons, and organized crime activities. Other prevalent economic and financial crimes include real estate fraud, forgery, and the copying/theft of bankcards. There is a black market for smuggled goods, primarily related to customs, excise, and value-added tax evasion. No international terrorist groups are known to operate in Hungary.

Sanctions

There are no international sanctions currently in force against this country.

Bribery & Corruption

Ratings                                                                                        (100-Good / 0-Bad)

Transparency International Corruption Rating                                      42

World Governance Indicator – Control of Corruption                           51

Corruption in Hungary presents a risk to business. Petty corruption is not widespread, but companies report that unofficial payments are sometimes necessary to resolve certain administrative tasks. Public procurement is vulnerable to irregularities at the local level because of strong informal relations between businesses and political actors. Hungary's Criminal Code forbids bribery in the public and private sectors, along with most other forms of corruption offences contained in international anti-corruption conventions. Criminal sanctions can be imposed on companies for acts of corruption committed by individuals working on their behalf, as well as if the individual carrying out the act is not prosecuted or convicted. There is no distinction between bribes and facilitation payments, and gifts and hospitality may be considered illegal depending on the intent and benefit obtained. The practice of bribery is widespread in Hungary. Anti-corruption enforcement gaps exist, especially in relation to foreign bribery cases. For further information - GAN Integrity Business Anti-Corruption Portal

Economy

Hungary’s central location in Europe and high-quality infrastructure have made it an attractive destination for Foreign Direct Investment (FDI), which Hungary’s government actively courts. After Germany and Austria, the United States was the third largest investor in 2020. About 450 U.S. companies are present in Hungary — mostly within the automotive, software development, and life sciences sectors — and in 2020 produced more jobs in Hungary than investment from any other country. The corporate tax rate is currently 9 percent, though the government dropped its veto to the EU directive to implement the OECD Global Minimum Tax agreement. Foreign investors generally report a productive dialogue with the government.

However, analysts remain concerned the Hungarian government unfairly promotes domestic ownership at the expense of foreign investors in the banking, media, energy, retail, utilities, telecommunications, and insurance sectors. Regarding the public procurement process, European Commission audits found an unusually high percentage of contracts were awarded after a single bidder (often government affiliated entrepreneurs) participated. In 2022, Hungary placed 77 worldwide and ranked last out of the 27 EU member states on Transparency International’s (TI) 2022 Corruption Perceptions Index, a deterioration.

The Hungarian government has granted itself uninterrupted state-of-emergency powers since November 2020 with authority to bypass Parliament and govern by decree despite the ruling party’s veto-proof two-thirds majority. Nearly all Hungary’s public development projects are EU-financed, and in the 2014-2020 budget cycle the EU funds amounted to about 3 percent of GDP. In April 2022, the European Commission launched the budget conditionality mechanism, blocking all of Hungary’s €22 billion ($23.8 billion) in 2021-2027 cohesion funds and €15.5 billion ($16.7 billion) of Recovery and Resilience funds until the country resolves concerns over the rule of law and “systemic irregularities, deficiencies and weaknesses in public procurement procedures.” The withholding of EU funds remains a significant economic risk for Hungary.

Hungary faces slowing economic growth, and high energy prices stemming from a mix of Russia’s invasion of Ukraine, government-mandated price caps on certain staple food items, the weakening of the forint, and “windfall” taxes imposed on certain economic sectors resulted in an inflation rate not seen since the 1990’s and the highest in the EU (25.7 percent year-on-year in January 2023). Analysts forecast at best an anemic 0.5 percent economic growth for the year. In July 2022 the United States cancelled the 1979 U.S.-Hungary bilateral tax treaty as of January 8, 2023. The Convention shall cease to have effect with respect to taxable periods beginning on or after January 1, 2024.

Hungary’s Green Public Procurement Strategy encourages public authorities to procure goods and services with a reduced environmental impact and aims for 30 percent of all public procurements in Hungary to be green. Although the Hungarian government plans to increase the country’s forest cover from 20 percent to 27 percent by 2030, the government loosened the rules for timber harvest even within protected areas because of the energy crisis. The government’s plan to expand the Paks nuclear power plant is years behind schedule, and significant investments are needed to accommodate more renewable energy in the power grid.

 

Country Links

Hungarian Financial Intelligence Unit (HFIU )

Magyar Nemzeti Bank (Central Bank of Hungary)

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