The fight against money laundering in Hungary
| Published date | 01 April 2005 |
| Date | 01 April 2005 |
| DOI | https://doi.org/10.1108/13685200510621118 |
| Pages | 186-192 |
| Author | Mihaly Tóth,István Lászlo Gál |
| Subject Matter | Accounting & finance |
Journal of Money Laundering Control Ð Vol. 8 No. 2
The Fight against Money Laundering in Hungary
Miha
Âly To
Âth and Istva
ÂnLa
Âszlo
ÂGa
Âl
INTRODUCTION
The current situation in Hungary makes this question
particularly relevant. It was in 1994, exactly ten years
ago, that Hungary was the ®rst of the former Warsaw
Pact countries of Eastern and Central Europe to accept
regulations establishing a legal background in the ®ght
against money laundering, and to classify money
laundering as a crime in its own right.
After a reasonably long `practice-free era', cases of
money laundering involving millions of euros are
now commonplace,
1
justifying a closer look at the
steps that have been taken since 1994 and also at the
current situation.
In this paper the history and procedural system of
anti-money laundering regulation in Hungary will
be discussed, and several contemporary problems
examined.
THE HISTORY OF REGULATION
It is wrong to presume that the reason there was no
money laundering in Hungary in the 1970s and
1980s was because either there was no organised
crime or that there was no extra pro®t. It was because
the undeveloped banking system and the inconvert-
ibility of the forint did not make it possible.
2
A few years later, however, everything had chan-
ged beyond recognition. In the second half of the
1980s living standards continued to fall, while in¯ation
increased. It became clear that something had to be
done to the economy as the country teetered on the
brink of political change. The summer of 1989 saw
the careful reforms and the compromise politics of
`model switching' washed away by the swelling tide
of pressure for regime change. The development of
the market economy began in 1990 in the wake of
the political and economic regime change.This cre-
ated the opportunity for previously acquired wealth
to be spent. The banking system was not yet able to
alleviate the capital gap, while in the underworld
loan-sharking ¯ourished, as of course did debt collect-
ing. The sustained drop in the standard of living and
the increase in tensions related to widening salary
gaps
3
fanned the ¯ames of criminal activity, while sub-
sistence crime also began to spread. Well-organised
and exceptionally skilled criminals began to establish
criminal organisations in the country, already having
enough cash at their disposal to make this possible.
The disarray endemic in the police force also contrib-
uted to the spread of the underworld. `The state
administration grew hesitant in the wake of the
change of political regime, especially with regard
to the organs of criminal prosecution.'
4
Many well-
quali®ed police ocers left the force as a result of
restructuring.
In practice, the ®rst democratically elected govern-
ment had no eective tools for building a market
economy. From 1992, the central role of monetary
policy was the attempt to boost the economy, which
actually meant procrastination about keeping interest
rates down and the devaluation of the forint. As a
result of this irresponsible policy the real value of the
forint rose substantially until 1994, while the balance
of current payments de®cit exceeded 9 per cent of
GDP and net foreign debt rose above $18bn. The
uncertainty sparked an out¯ow of capital, at which
point the imperative to put the situation to rights
could not be put o any longer. The result was the
sliding devaluation of the forint introduced in 1995,
which eventually led to the lifting of foreign exchange
restrictions in 2001.
The regime change went hand-in-hand with econ-
omic and social transformation, as well as the pri-
vatisation of state-owned property, both of which
necessarily involved certain ®nancial crimes. The sig-
ni®cant rise in the crime rate and the signi®cant rise in
the average amount of damages for each crime Ð
even taking in¯ation into account Ð continues to
produce the kind of wealth that can be the basis for
money laundering. Furthermore, on 1st January,
1987 a two-tiered banking system replaced the
single-tiered one, and in the next few years an overly
loose interpretation of banking secrecy provided
ideal conditions for money launderers. By contrast,
it was years before regulations against money
laundering and penal defence were established.
In Article 86 of the Association Treaty of 1994
between the European Community and Hungary, a
commitment was made to do everything in Hungary's
power to prevent money laundering and to introduce
relevant legislation acceptable to the Community and
Page 186
Journalof Money Laundering Control
Vol.8, No. 2, 2004, pp. 186± 192
#HenryStewart Publications
ISSN1368-5201
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