FATF AML Deficiency List
US Dept of State Money Laundering assessment
Non - Compliance with FATF 40 + 9 Recommendations
Corruption Index (Transparency International & W.G.I.)
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 2019. According to that Evaluation, Hungary was deemed Compliant for 6 and Largely Compliant for 28 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.
There are no international sanctions currently in force against this country.
BRIBERY & CORRUPTION
Index Rating (100-Good / 0-Bad)
Transparency International Corruption Index 44
World Governance Indicator – Control of Corruption 58
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
Hungary has made the transition from a centrally planned to a market economy, with a per capita income nearly two-thirds that of the EU-28 average.
In late 2008, Hungary's impending inability to service its short-term debt - brought on by the global financial crisis - led Budapest to obtain an IMF/EU/World Bank-arranged financial assistance package worth over $25 billion. The global economic downturn, declining exports, and low domestic consumption and investment, dampened by government austerity measures, resulted in a severe economic contraction in 2009. In 2010, the new government implemented a number of changes including cutting business and personal income taxes, but imposed "crisis taxes" on financial institutions, energy and telecom companies, and retailers. The IMF/EU bailout program lapsed at the end of 2010 and was replaced by Post Program Monitoring and Article IV Consultations on overall economic and fiscal processes. At the end of 2011 the government turned to the IMF and the EU to obtain a financial backstop to support its efforts to refinance foreign currency debt and bond obligations in 2012 and beyond, but Budapest's rejection of EU and IMF economic policy recommendations led to a breakdown in talks with the lenders in late 2012. Global demand for high yield has since helped Hungary to obtain funds on international markets.
Hungary’s progress reducing its deficit to under 3% of GDP led the European Commission in 2013 to permit Hungary for the first time since joining the EU in 2004 to exit the Excessive Deficit Procedure. The government remains committed to keeping the budget deficit in check and lowering public debt by using sectoral taxes, while relying on state interventionist measures to lower utility prices and boost growth and employment.
Agriculture - products:
wheat, corn, sunflower seed, potatoes, sugar beets; pigs, cattle, poultry, dairy products
mining, metallurgy, construction materials, processed foods, textiles, chemicals (especially pharmaceuticals), motor vehicles
Exports - commodities:
machinery and equipment 53.5%, other manufactures 31.2%, food products 8.7%, raw materials 3.4%, fuels and electricity 3.9% (2012 est.)
Exports - partners:
Germany 28%, Romania 5.4%, Slovakia 5.1%, Austria 5%, Italy 4.8%, France 4.7%, UK 4%, Czech Republic 4% (2015)
Imports - commodities:
machinery and equipment 45.4%, other manufactures 34.3%, fuels and electricity 12.6%, food products 5.3%, raw materials 2.5% (2012)
Imports - partners:
Germany 25.8%, China 6.7%, Austria 6.6%, Poland 5.5%, Slovakia 5.3%, France 5%, Czech Republic 4.8%, Netherlands 4.6%, Italy 4.5% (2015)
Investment Climate - US State Department
Hungary has been a member of the European Union (EU) since 2004, and EU Member States are its most important trade and investment partners. Since 1989 Hungary has received approximately USD 98 billion in Foreign Direct Investment (FDI), mainly in the automotive, software development, and life sciences sectors. The Hungarian Investment Promotion Agency (HIPA) operating under the Ministry of Foreign Affairs and Trade (MFAT) has the primary government responsibility for attracting FDI to Hungary. The Government of Hungary (GOH) encourages investments in both export-oriented manufacturing and high-value-added sectors such as research and development and service centers. Hungary's high-quality infrastructure and central location are often cited as features that make it an attractive destination for investment. FDI has lagged in recent years despite these advantages, and obstacles to investment remain. Businesses cite the lack of stability in the tax and regulatory environment, including retroactive application of taxes, the lack of consultation with stakeholders before implementing major regulatory and tax changes, as well as both corruption and favoritism in public tenders and sectors with heavy GOH influence. Multinationals identify a short supply of qualified labor, specifically technicians and engineers, as the single largest obstacle to FDI in Hungary. According to OECD and EU studies, test results of Hungarian elementary and high school students have worsened in recent years, which might impact the quality of the labor force over the medium term.
Hungary had been a leading destination for FDI in Central and Eastern Europe, reaching a peak FDI inflow of USD 7.4 billion in 2005. Following the 2008 global financial crisis, the pace of FDI slowed and Hungary’s comparative advantage over regional competitors diminished. Over the past two years, however, FDI grew in Hungary, with inflows reaching USD 3.4 billion and USD 6.5 billion in 2013 and 2014, respectively. This marked increase was largely composed of profit reinvestment by existing investors, capital transit between company headquarters and their Hungarian affiliates, and recapitalization of banks that had sustained losses. Only a few new investors entered the market. Countries within the EU account for 77 percent of total FDI, while the United States is the largest non-European investor with two percent.
The economy has recovered since a 2012 recession. After GDP fell 1.7 percent in 2012, it grew 1.5 percent in 2013, 3.6 percent in 2014 and an estimated three percent in 2015. Analysts and international organizations warn, however, that this growth is largely attributable to inflows of EU development funding from the 2007-2013 cycle. In 2013, the GOH reduced its fiscal deficit below three percent of GDP, allowing Hungary to exit the EU’s Excessive Deficit Procedure (EDP), and also paid its debt to the IMF ahead of schedule. That same year, Hungary’s debt management agency returned to international markets, issuing foreign currency-denominated bonds for the first time in 21 months. Since 2013, the GOH has kept the fiscal deficit at about 2.5 percent of GDP.
Obstacles to investment include a persistent lack of transparency and predictability, reports of corruption, favoritism, and excessive red tape. Since 2012, Hungary has consistently dropped in Transparency International’s Corruption Perceptions Index, placing 22nd of 28 EU member states in 2015. Multinationals have complained that due to favoritism for Hungarian and government-linked firms, they are often not competitive in public tenders. After controversially awarding a USD 14 billion nuclear power plant expansion project to a Russian state-owned company without tender in 2014, the GOH classified nearly all the related contracts for a period of 30 years in 2015. The European Commission (EC) ruled in 2015 that a general classification of the project breaks EU laws and must be removed, although the parts of the contracts and documents including business or national security secrets can be classified. The GOH has also tried to make secret the contracts and finances of some state-owned companies, stating that release of proprietary business information would constitute a competitive disadvantage in the marketplace. The EU has complained that Hungary’s bankruptcy laws are too onerous and push recovery rates much lower than the OECD average. Additionally, some executives in Hungarian subsidiaries of U.S. multinationals have noted that the GOH’s strong anti-migrant rhetoric and actions have negatively affected board members’ views of Hungary, making it more difficult for the subsidiaries to obtain approval for new investments.
The GOH encourages investments in both manufacturing and high-value added sectors such as research and development centers, manufacturing facilities and service centers. The GOH also believes that considerable opportunities exist in biotechnology, information and communications technology, software development, the automotive and defense industries, and tourism. Considerable efforts have been made by the National Innovation Office (NIH) to promote the expansion of small and medium-sized enterprises and startups in information and communication technology.
Hungary showed signs of FDI growth in 2013 and 2014, with inflows of USD 4.62 billion and USD 4.01 billion respectively. These investments, however, were largely composed of reinvestment of profits by existing investors and recapitalization of banks which sustained losses – few new investors entered the market. Furthermore, 2013 FDI levels were still well below those in 2005, 2006 and 2008. Countries within the EU account for 72.2 percent of total FDI. The United States is the largest non-European investor with 4 percent of FDI (there are approximately 400 companies in Hungary of U.S. origin).
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