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Money laundering includes all activities which achieve to transform the origin of funds coming from criminal activity into a legalized form. Money laundering as a phenomenon became a global problem in the second half of the 20th century parallel to sudden increase of drug trafficking. In the past few decades money laundering and the chain of criminal activities as underlying offences got into the scope of the leading economic states. Those activities of money laundering maximally exploit the free movement of capital and financial services. In both the economy and political life there is a need for having laws and regulations against money laundering which rigorously regulate the different financial, bank supervisory activities. According to estimations in the nineties three hundred billion dollars were circulating annually across the world in order to be laundered. Nowadays this figure is well over thousand billion dollars.

The criminal offence of Money Laundering and Failure to Comply with the Reporting Obligation Related to Money Laundering are determined in Section 303 - 303/C. in the Hungarian Criminal Code as follows:

Money Laundering

Section 303.
(1) Any person who, in order to conceal the true origin of a thing obtained from criminal activities committed by others, that is punishable by imprisonment:
a) converts or transfers the thing in question, or uses in his business activities;
b) conceals or suppresses any right attached to the thing or any changes in this right, or conceals or suppresses the place where thing can be found;
c) performs any financial transaction or receives any financial service in connection with the thing
is guilty of felony punishable by imprisonment of up to five years.
(2) The punishment in accordance with Subsection (1) shall also be imposed upon any person who, in connection with a thing obtained from criminal activities, that is punishable by imprisonment, committed by others:
a) obtains the thing for himself or for a third person;
b) safeguards, handles, uses or consumes the thing, or obtains other financial assets by way of or in exchange of the thing, or by using the consideration received for the thing
if being aware of the true origin of the thing at the time of commission.
(3) The punishment in accordance with Subsection (1) shall also be imposed upon any person who, in order to conceal the true origin of a thing that was obtained from criminal activities that is punishable by imprisonment:
a) uses the thing in his business activities;
b) performs any financial transaction or receives any financial service in connection with the thing.
(4) The punishment shall be imprisonment between two to eight years if the money laundering specified under Subsections (1)-(3):
a) is committed in a pattern of business operation;
b) involves a substantial or greater amount of money;
c) is committed by an officer or employee of a financial institution, insurance company, investment firm, commodities broker, investment fund manager, venture capital fund manager, exchange market, clearing house, central depository, voluntary mutual insurance fund or a private pension fund, or an organization engaged in the operation of gambling activities;
d) is committed by a public official in an official capacity;
e) is committed by an attorney-at-law.
(5) Any person who collaborates in the commission of money laundering as specified under Subsections (1)-(4) is guilty of misdemeanor punishable by imprisonment of up to two years.
(6) The person who voluntarily reports to the authorities or initiates such a report shall not be liable for prosecution for money laundering as specified under Subsections (1)-(5), provided that the act has not yet been revealed, or it has been revealed only partially.
Section 303/A.
(1) Any person who, in connection with a thing obtained from criminal activities, that is punishable by imprisonment, committed by others:
a) uses the thing in his business activities;
b) performs any financial transaction or receives any financial service in connection with the thing,
and is negligently unaware of the true origin of the thing is guilty of misdemeanor punishable by imprisonment of up to two years, community service work, or a fine.
(2) The punishment shall be imprisonment for misdemeanor for up to three years if the act defined in Subsection (1):
a) involves a substantial or greater amount of money;
b) is committed by an officer or employee of a financial institution, insurance company, investment firm, commodities broker, investment fund manager, venture capital fund manager, exchange market, clearing house, central depository, voluntary mutual insurance fund or a private pension fund, or an organization engaged in the operation of gambling activities;
c) is committed by a public official in an official capacity.
(3) The person who voluntarily reports to the authorities or initiates such a report shall not be liable for prosecution for money laundering as specified under Subsections (1) and (2), provided that the act has not yet been revealed, or it has been revealed only partially.

Failure to Comply with the Reporting Obligation Related to Money Laundering

Section 303/B.
Any person who fails to comply with the reporting obligation prescribed by the Act on the Prevention and Combating of Money Laundering is guilty of misdemeanor punishable by imprisonment of up to two years.

Interpretative Provision

Section 303/C.
(1) In the application of Sections 303 and 303/A, the term 'thing' shall also cover instruments embodying rights to some financial means and dematerialized securities, that allows access to the value stored in such instrument in itself to the bearer, or to the holder of the securities account in respect of dematerialized securities.
(2) In the application of Sections 303 and 303/A, financial activities and financial services shall mean financial services and activities auxiliary to financial services, investment services and activities auxiliary to investment services, commodity exchange services, investment fund management services, venture capital management services, exchange services, clearing and settlement services or central depository services, insurance services, and the activities if voluntary mutual insurance funds and private pension funds.

FATF standards, EU legislation, AML/CFT Act

Since money laundering got more and more spreading with the formation of global economy, it became necessary to act uniformly on international level. In 1989 the Financial Action Task Force (FATF) was established which - as an informal international body - has the task to standardize the institutional regime of anti-money laundering (and later combating terrorist financing) through its non-compulsory recommendations.
The European Union is also active in the formation of institutional system against money laundering. On the basis of the FATF recommendations it has adopted its directives that have to be implemented by the EU member states. In Hungary the Parliament adopted the Act CXXXVI of 2007 on the Prevention and Combating of Money Laundering and Terrorist Financing (AML/CFT Act) that implements the Third EU AML/CFT Directive (Directive 2005/60/EC of the European Parliament and of the Council on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing) into the national legislation.

Reporting obligation

On basis of the AML/CFT Act the financial and non-financial service providers falling under the scope of the Act are obliged to report in the event of noticing any data, fact, circumstance indicating money laundering or terrorist financing. The report performed by the service provider has to contain the data recorded during customer due diligence procedure, further the description of data, fact, or circumstance indicating money laundering or terrorist financing. The service provider decides at its own discretion whether the suspicion according to AML/CFT Act exists or not. The AML/CFT Act does not determine what is to be considered suspicious based on the AML/CFT Act, the obligation of deciding upon the suspicion belongs to the responsibility of service provider. The HFIU records the suspicious transaction reports (STRs) in its IT system. Due to the confidential nature of the STRs and to the prohibition of disclosure, only the staff of HFIU (and the commander and deputy commander of Hungarian Customs and Finance Guard Central Criminal Investigations Bureau) have access to the STR database.

Analyzing STRs

Analyzing and evaluating the data of STRs are considered as the most important tasks of the HFIU. During the analysis the HFIU has to collect data on person or organization involved in the STR, filter the data having criminal relevance, detect the economic activity (or the absence of economic activity) behind the financial transaction presented in the STR.
The analysis begins with the antecedent search: collecting other related STRs from the STR database. After that the STR has to be checked through data comparison in databases which are directly available for the HFIU.
The HFIU may request further information from the service providers and other state authorities. The service providers and other state authorities are obliged to deliver information for HFIU. Providing information to the HFIU is not hindered by banking, other economic or tax secrecy rules.

Utilization of information

The HFIU is authorized to use the information obtained under AML/CFT Act for the purposes of prevention and combating money laundering and terrorist financing, and on the purposes of investigation of acts of terrorism, unauthorized financial activity, money laundering, failure to comply with reporting obligation related to money laundering, tax fraud, embezzlement, fraud, misappropriation of funds and it may forward it to an other investigating authority, the prosecutor, the national security service or to an authority that operates as a foreign financial intelligence unit.

Prohibition of Disclosure Section 27 of AML/CFT Act

According to AML/CFT Act the prohibition of disclosure covers the performance of reporting obligation, performance of supplying data upon the request of the HFIU, the suspension of transaction, the reporting person and the fact that a criminal procedure was started against the client. Subjects of the prohibition are the service provider (reporting entity) and the HFIU as well.

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