Hungary: The Stability Savings Account: A Boon For Money Launderers?

Last Updated: 25 September 2013
Article by Bela Deri

Hungary has largely caught up with most of its fellow EU member states in terms of anti-money laundering legislation. The last country report of the Committee of Experts on the Evaluation of Anti-money Laundering Measures and the Financing of Terrorism (Moneyval), prepared in 2010, listed a number of items to be corrected in Hungarian law regarding the criminalisation of self-laundering, which was not a crime in Hungary at the time. The newly amended and restated Criminal Code 2012 rectified this deficiency and the modified Anti-money Laundering Act 2013 seems to comply with both the other requests of Moneyval and the recommendations of the 2008 Warsaw Convention of the Council of Europe and the Financial Action Task Force on Money Laundering (of which Hungary is not yet a member).

Recent tax-driven legislation has contributed to the clean-up. Cash circulation has become more costly than ever, with cash withdrawals now incurring a tax of 0.006% (€6 for every €1,000). However, this would seem sensible only in the absence of another recent piece of legislation which calls into question the government's commitment to fighting money laundering.

Act 115/2013 (effective from June 28 2013) introduced a special type of bank account in Hungary – the stability savings account (SSA). Unlike other deposit/savings accounts, this account does not accumulate interest; the act prohibits banks from paying interest to the account holder. According to officials, the SSA represents a kind of tax amnesty. However, on closer inspection, the SSA has potential downsides that make it a step backwards in terms of anti-money laundering enforcement.

Any individual, regardless of citizenship, can open an SSA; companies are prohibited from doing so. Only Hungarian forints and financial instruments denominated in forints (eg, securities issued by EU member governments in forints – in effect, the Hungarian government only) can be held in this account.

In order to open an SSA, the individual must enter into a written account agreement and deposit at least Ft5 million (about €16,000) in cash into the account. No upper monetary limit is set for the account; however, money may be deposited (or securities transferred) into the account only once. A person may open multiple SSAs without limitation.

Once the money is deposited into the account, the account is locked for five years, after which the deposited amount will be treated as the individual's taxed income. The Tax Office receives no information from the bank on the account holder's identity.

However, money may be withdrawn from the account before the five-year term ends. In such case, the account holder will be liable to a kind of withholding tax that is a special-rate personal income tax (separate from the individual's other income) equivalent to the tax rate on interest (16%). The applicable tax base is calculated as follows:

  • If a withdrawal occurs within the first three years of the five-year term, the tax base will be double the deposited amount.
  • If the withdrawal occurs in the fourth year of the five-year term, the tax base will be the deposited amount.
  • If the withdrawal occurs in the fifth year of the five-year term, the tax base will be half of the deposited amount.

For such early withdrawals, the bank deducts the tax from the acccount and submits it to the Tax Office without revealing the account holder's identity.

The amount deposited into the account is treated by the law as income from Hungary deposited by a person domiciled in Hungary (regardless of the reality and/or the actual citizenship of the depositor).

The balance of the SSA does not become part of the estate of a deceased account holder. However, the named beneficiary (or, if no beneficiary is named, the heirs) can simply take the place of the deceased and continue with the account.

Questions have arisen as to who would want to open an SSA and the advantages of maintaining such an account; the act does not explicitly answer these questions. Moreover, it does not stipulate that after five years, the deposited amount will be treated as the account holder's taxed income. Anonymity is guaranteed by the Tax Office, but under anti-money laundering rules, questions can – and probably should – be asked of the individual, unless the implementation decree (to be issued by the competent minister of economy) eliminates this provision. A ministerial decree could derogate from the Anti-money Laundering Act, since the act that introduced the SSA authorises the minister to derogate from existing reporting regulations set out in the Banking Act. Otherwise, if banks can keep quiet in this way, illegal funds can be legalised.

Officials have characterised this special account as a tax amnesty vehicle. However, it can be argued that the account holder benefits more from the anonymity of the account than from any tax exemption or reduced tax. Since the tax exemption (from the tax on interest) after five years is balanced out by the absence of interest on the account, no obvious tax advantage exists.

The SSA operates almost as a bearer account in which the deposited money is legalised. Banks will issue a specific certificate on withdrawal – the content of which is still unclear – although such a document must have a decisive effect on any relevant tax investigations. The final picture will be revealed only when the implementation decree is published. However, this special account can already serve as a means of legitimising funds from crimes committed in or outside Hungary, and the government seems, even if unwillingly, to be lending a helping hand in this regard.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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