Hungary

Last updated: 11/07/2008

CENTRAL AUTHORITY FOR REPORTING

Lawyers are required to fulfil their reporting obligation towards the person appointed for such tasks by the regional bar. It is the regional bar that passes the declaration through to the National Police Headquarters. The bar association is obliged to pass through all declarations without knowing the content of or selecting them.

ANTI-MONEY LAUNDERING REGULATOR(S)

The Parliament;
The Hungarian Bar Association, regarding individual practitioners and one person law firms approved by the Minister of Justice, based on Art. 38 of the Act CXXXVI of 2007 on the Prevention of Money Laundering and Terrorist Financing (“AMLA”);
Law firms with several members prepare the regulation for themselves, approved by the regional bar, based on Art. 38 of AMLA.

HAS THE THIRD EU MONEY LAUNDERING DIRECTIVE BEEN IMPLEMENTED? IF NOT, WHEN IS IT EXPECTED TO BE IMPLEMENTED?

The Third Directive was implemented in Hungary on 17 December 2007 by AMLA.

The AMLA has also transposed Directive 2006/70/EC regarding the definition of “politically exposed person,” the technical criteria for simplified customer due diligence procedures, for exemption on grounds of financial activity conducted on an occasional or very limited basis, and Regulation (EC) No 1781/2006 of the European Parliament and of the Council of 15 November 2006 regarding transfers of funds.

LIST THE LAWS REGARDING ANTI-MONEY LAUNDERING, INDICATING WHICH LAWS ARE APPLICABLE TO LAWYERS

Act CXXXVI of 2007 on the Prevention of Money Laundering and Terrorist Financing;
Act XI of 1998 on Lawyers.

ARE VISITING LAWYERS SUBJECT TO LOCAL LAWS REGARDING ANTI-MONEY LAUNDERING, AND, IF SO, TO WHAT EXTENT?

Lawyers registered by a bar association outside Europe (“visiting lawyers”) can only act as foreign legal advisors giving legal advice on their home country law, international law and connected practice. As these lawyers are not entitled to pursue the lawyers’ activities mentioned in the AMLA, they are not subject to the anti-money laundering regulations when pursuing the activities above.

It should be noted, however, that the same rules apply to lawyers registered by EU or EEA member state bar associations than to Hungarian lawyers.

LIST ANY MONEY LAUNDERING GUIDANCE FOR LAWYERS (FOR EXAMPLE, LAW SOCIETY OR BAR ASSOCIATION GUIDELINES) CURRENTLY IN PLACE

Regulation of the Hungarian Bar Association on the Prevention and Preclusion of Money Laundering for Lawyers and Law Firms (not public).

IS THE LAW SOCIETY/BAR ASSOCIATION INVOLVED IN SUPERVISING OR ENFORCING COMPLIANCE WITH ANTI-MONEY LAUNDERING REGULATIONS?

Yes, the bar association is active as supervisor of the content of certain insider regulations (see Box 2 above) and is otherwise entitled to supervise compliance with the regulations based on Art. 120 of the Act XI of 1998 on Lawyers. However, the bar association has no control over the eventual reports; they are passed through to the competent police authority without selection or knowledge of their content.

DESCRIBE CLIENT DUE DILIGENCE REQUIREMENTS, INCLUDING WHEN IT MUST BE UNDERTAKEN BY LAWYERS

The applicable provisions of the AMLA are the following:

Customer Due Diligence
Section 6

Service providers shall apply customer due diligence measures in the following cases:
1. When establishing a business relationship;
2. […] When carrying out occasional transactions amounting to three million six hundred thousand forints or more;
3. When there is any information, fact or circumstance giving rise to suspicion of money laundering or terrorist financing, where the due diligence measures referred to in Paragraphs a)-b) have not been carried out yet;
4. When there are doubts about the veracity or adequacy of previously obtained customer identification data.
The obligation of taking the due diligence measures specified in Paragraph b) of Subsection (1) shall also apply to any series of related transactions with a combined value of three million six hundred thousand forints or more. In this case, due diligence measures shall be carried out in connection with the transaction that brings the total value of the transactions to the threshold of three million six hundred thousand forints.

Customer Due Diligence Measures
Section 7

In connection with what is contained in Subsection (1) of Section 6, service providers shall apply due diligence measures for identifying the customer, the customer’s agent, proxy or other authorized representative and verifying their identity.
In the identification procedure, service providers are required to record the following particulars of customers:
1. In connection with natural persons:
  1. Surname and forename (birth name);
  2. Address;
  3. Nationality;
  4. Number and type of identification document;
  5. In respect of foreign nationals, the place of abode in Hungary;
2. In connection with legal persons and business associations lacking the legal status of a legal person:
  1. Full name and abbreviated name;
  2. Address of corporate headquarters and, for foreign-registered companies, the address of the Hungarian branch office;
  3. The registered number of legal persons listed in the companies register, or the number of the resolution adopted on the foundation (registration, admission into the register) of other legal persons, or their registration number.
In addition to what is contained in Subsection (2), in the identification procedure service providers may record the following particulars of customers where it is deemed necessary for the identification of the customer, the business relationship and the transaction order, in the cases specified according to the internal policies […] based on the nature of the business relationship or on the type and value of the transaction and on the customer’s circumstances, with a view to the prevention and combating of money laundering and terrorist financing:
1. in connection with natural persons:
  1. date and place of birth;
  2. mother’s name;
2. In connection with legal persons and business associations lacking the legal status of a legal person:
  1. The principal activity;
  2. Name and position of authorized representatives;
  3. Identification data of the agent for service of process.
For the purposes of identification and verification procedures, service providers must require the following documents to be presented:
1. In connection with natural persons:
  1. Personal identification document (official identity card) and official address card of Hungarian citizens;
  2. Passport or personal identity card for foreign nationals, if it embodies an authorization to reside in Hungary, or a document evidencing the right of residence or a valid residence permit;
  3. For natural persons below the age of 14, personal identity card and official address card, or passport and official address card;
2. For legal persons and business associations lacking the legal status of a legal person, in addition to the documents of the persons described in Paragraph a) who are authorized to act in its name and on its behalf, a document issued within thirty days to date, to verify:
  1. If a resident economic operator, that it has been registered by the court of registry, or that the application for registration has been submitted; if a private entrepreneur, that he has a private entrepreneur’s license, or that the private entrepreneur has submitted an application to the competent regional notary for a private entrepreneur’s license;
  2. For other resident legal persons whose existence is subject to registration by an authority or the court, the document of registration;
  3. For non-resident legal persons and business associations lacking the legal status of a legal person, the document proving that the person or body has been registered under the law of the country in which it is established;
3. The articles of incorporation (articles of association, charter document) of legal persons and business associations lacking the legal status of a legal person that have not yet been registered by the registrar of companies, court or appropriate authority.
In the application of Paragraph c) of Subsection (4), the legal person or business association lacking the legal status of a legal person shall produce documentary evidence of having been registered by the registrar of companies, court or appropriate authority, within thirty days after the fact, and the service provider must enter the registered number or registration number into its records.
For the purposes of identification and verification procedures, service providers must check the validity of the identification documents mentioned under Subsection (4).

Section 8

In connection with Subsection (1) of Section 6, the customer is required to provide a written statement to the service provider as to whether he is acting in his own name or in the name and on behalf of the beneficial owner.
If the customer’s above-specified written statement indicates that he is acting in the name and on behalf of the beneficial owner, it shall contain the particulars of the beneficial owner specified in Subparagraphs aa)-ac) of Paragraph a) of Subsection (2) of Section 7.
In addition to what is contained in Subsection (2), the service provider may request the customer to supply the particulars of the beneficial owner specified in Subparagraphs ad)-ae) of Paragraph a) of Subsection (2) and Paragraph a) of Subsection (3) of Section 7 where it is deemed necessary for the identification of the customer, the business relationship and the transaction order, in the cases specified according to the internal policies […] based on the nature of the business relationship or on the type and value of the transaction and on the customer’s circumstances, with a view to the prevention and combating of money laundering and terrorist financing.
Where there is any doubt concerning the identity of the beneficial owner, the service provider shall request the customer to reconfirm the identity of the beneficial owner by means of a written statement.
Where there is any doubt concerning the identity of the beneficial owner, the service provider must take measures to check the beneficial owner’s identification data in records and registers which are publicly available in accordance with legal regulations.

Section 9

In connection with Subsection (1) of Section 6, the service provider shall record the following information pertaining to the business relationship and the transaction order:
1. regarding business relationships, the type, the subject matter and the term of the contract;
2. regarding transaction orders, the subject matter and the value of the transaction.
In addition to what is contained in Subsection (1), the service provider may record the particulars of the transfer (place, time, mode) where it is deemed necessary for the identification of the customer, the business relationship and the transaction order, in the cases specified according to the internal policies […] based on the nature of the business relationship or on the type and value of the transaction and on the customer’s circumstances, with a view to the prevention and combating of money laundering and terrorist financing.

DOES YOUR COUNTRY FOLLOW A RISK-BASED APPROACH TO CLIENT DUE DILIGENCE BY LAWYERS?

Yes, some activities are subject to enhanced due diligence procedures and other cases for which simplified measure are adequate.

ARE THERE ENHANCED DUE DILIGENCE MEASURES FOR CERTAIN TYPES OF CLIENTS, FOR EXAMPLE, POLITICALLY EXPOSED PERSONS?

Yes, there are enhanced due diligence measures for those clients that are not present in person to be identified and verify their identity, and clients residing in another Member State or in a third country are required to declare if they are politically exposed persons in their home state. (Art. 15-16. of AMLA).

ARE THERE SIMPLIFIED DUE DILIGENCE MEASURES FOR CERTAIN TYPES OF CLIENTS, FOR EXAMPLE, LISTED COMPANIES?

Yes, simplified measures are applicable if the customer:

Is a service provider engaged in carrying out certain activities also within the scope of the AMLA in the territory of the European Union, or in a third country which imposes requirements equivalent to those laid down in this Act and supervised for compliance with those requirements;
Is a listed company whose securities are admitted to trading on a regulated market in one or more Member States, or a listed company from a third country that is subject to disclosure requirements consistent with Community legislation;
Is a supervisory body according to the AMLA;
Is otherwise a central government body or a regional authority;
Is a body of the European Community (the European Parliament, the Council, the Committee, the Court, the European Court of Auditors), the European Economic and Social Committee, the Committee of the Regions, the European Central Bank or the European Investment Bank.

(based on Art. 12 of AMLA)

ARE LAWYERS PERMITTED TO RELY ON THIRD PARTY DUE DILIGENCE? IF YES, PLEASE DESCRIBE.

Yes, if the third party provides auditing services, accountancy (bookkeeping) or tax consulting services, lawyers’ or notaries’ services

In the territory of Hungary;
In another Member State of the EU;
In a third country that is subject to certain conditions (mandatory professional registration, applying equivalent due diligence and registration requirements).

(based on Art. 18 (3) (4) of AMLA).

WHEN IS A LAWYER UNDER AN OBLIGATION TO REPORT SUSPICIOUS TRANSACTIONS?

Lawyers are obliged to report if they hold any money or valuables in custody or if they provide legal services in connection with the preparation and execution of the following transactions in accordance with the Act on Lawyers:

Buying or selling any participation (share) in a business association or other economic operator;
Buying or selling real estate properties;
Founding, operating or dissolving a business association or other economic operator.

(Art. 36 of AMLA).

DOES ATTORNEY/CLIENT PRIVILEGE AND/OR DUTIES OF CONFIDENTIALITY PROVIDE A DEFENCE OR PARTIAL/TOTAL EXCEPTION TO THE REQUIREMENT TO REPORT SUSPICIOUS TRANSACTIONS?

Yes, the following are exempted:

In the event of obtaining any information, or learning about any fact or circumstance suggesting money laundering or terrorist financing in connection with providing the defense in criminal proceedings or legal representation before a court - other than the court of registry - during any stage of such defense or representation or at any time thereafter;
In the event of obtaining any information, or learning about any fact or circumstance suggesting money laundering or terrorist financing in connection with the defense or legal representation referred to in Paragraph a) while providing legal advice relating to ascertaining the legal position for the client.

Otherwise there is a general principle that the lawyer is exempted from the professional secrecy requirement when the law requires him/her to report in a certain case.

DOES LOCAL LAW PROVIDE ANY CRIMINAL AND/OR CIVIL INDEMNITY TO A LAWYER WHO HAS REPORTED A SUSPICIOUS TRANSACTION?

The lawyer cannot be held liable for reporting if later it proves to be unfounded.

Otherwise it is a crime in general if anyone – including a lawyer - fails to fulfil its reporting obligation provided by law, and it is an aggravating circumstance if money laundering as a crime is committed by a lawyer, sanctioned by a sentence of imprisonment from 2 to 8 years.

ONCE A SUSPICIOUS TRANSACTION REPORT HAS BEEN FILED, IS A LAWYER ALLOWED TO PROCEED WITH THE LEGAL ADVICE/TRANSACTION, AND, IF SO, MUST CONSENT FROM AUTHORITIES BE OBTAINED FIRST?

As a general rule, it applies to all entities within the scope of AMLA that it is not allowed to proceed until the report is transmitted to the competent police authority by the person responsible for transmission by the regional bar.

IS THERE A TIPPING-OFF PROHIBITION? IF YES, PLEASE DESCRIBE.

Yes, tipping-off is prohibited; it is treated as a disciplinary offence.

DESCRIBE ANY RESTRICTIONS ON ACCEPTING A NEW CLIENT

If the client refuses or the lawyer is not able to fulfil the customer due diligence procedure, the lawyer is not allowed to establish or continue the business relationship.

ARE THERE ONGOING MONITORING REQUIREMENTS FOR EXISTING CLIENTS? IF YES, PLEASE DESCRIBE

A continuous monitoring of the business relationship is mandatory to ensure that the transactions being conducted are consistent with the information the service provider has on the customer in accordance with the relevant regulations. The lawyer shall ensure that documents, data or information held in connection with business relationships are up-to-date. The customer is required to notify the lawyer concerning any change in the data and information supplied for the purposes of due diligence measures or those concerning the beneficial owner within five working days of the day when such information is received, and the lawyer shall advise its clients about this obligation.

DESCRIBE ANY OTHER WAYS IN WHICH LAWYERS ARE AFFECTED BY ANTI-MONEY LAUNDERING LEGISLATION

The deposit account of the lawyer participating in a transaction as a depository may be attempted to be seized if there is a criminal proceeding against the ex-client in relation to the basic crime the money originated from.

HAVE LAWYERS IN YOUR JURISDICTION BEEN IMPLICATED IN MONEY LAUNDERING, INCLUDING ANY TYPE OF COMPLAINT, ARREST OR PROSECUTION?

Some reports were made by lawyers, but up to this date there have been no lawyers involved in money laundering that were sentenced by a final and non appealable decision of the court.

HAS THE FINANCIAL ACTION TASK FORCE (FATF) CONDUCTED A MUTUAL EVALUATION OF THIS COUNTRY, AND, IF SO, WHAT WERE THE FINDINGS CONCERNING LAWYERS’ COMPLIANCE WITH THE FATF 40+9 RECOMMENDATIONS?

No, there has been no such evaluation of FATF regarding Hungary.

Information provided by:

Borbala Szabo and Judit Budai
Szecskay Attorneys At Law
Budapest, Hungary