Hungary performs particularly poorly regarding the registration of private equity fund owners, according to the organisation’s statement. Last year, data on private equity funds were removed from the beneficial ownership register that serves to identify the ultimate beneficiaries of companies and other organisations. This decision came after the identities of several private equity fund owners had been revealed. The information removed is still not available anywhere in a consolidated form, not even to authorities. In January 2024, the situation got even worse when public access to the entire ownership platform maintained by the National Tax and Customs Administration (NAV) was terminated.
Hungary’s anti-money laundering laws also do not address private equity funds, a gap TI Hungary highlighted to the European Commission’s Financial Stability, Financial Services, and Capital Markets Union Directorate-General (DG FISMA). DG FISMA’s position is that “Hungary is obliged to maintain accurate and complete beneficial ownership data for these organisations in the national beneficial ownership registry”. Therefore, the beneficial ownership register should include the relevant data for private equity funds as well. For this reason, in July 2024, the Commission launched infringement proceedings against Hungary.
The infringement procedure pertains to shortcomings regarding the transposition of the previous – but still effective – EU anti-money laundering directive into Hungarian law. The newly adopted EU regulation, which Hungary must incorporate by 2026, includes further requirements regarding the identification of owners.
The fact that the identities of private equity fund owners — much like offshore companies — are shrouded in secrecy raises money laundering risks. The European Commission specifically highlighted this risk in relation to Hungarian private equity funds in its Rule of Law Report published in July 2023. In the report, the Commission recommended improving the transparency of these funds, as they
play a role in concealing illicit gains derived from corruption.
Regulations also facilitate wealth concealment
TI Hungary’s study, titled “Secrecy with Side Effects: The Transparency of Private Equity Funds Operating in Hungary”, points out that capital investments from hidden sources can distort market competition, particularly when these funds are capitalised with public money. In recent years, state investment in privately owned equity funds has become a key tool for economic stimulus in Hungary. For instance, during the state’s Crisis and Tourism Capital Programs initiative launched in response to the COVID-19 pandemic, the Hungarian Development Bank invested 400 billion HUF of public funds through newly established private equity funds, 175 billion HUF of which now enriches the portfolio of fund managers linked to István Tiborcz, the son-in-law of Prime Minister Viktor Orbán.
At the same time, the transparency of state capital investments is severely limited, and several legal amendments have further facilitated the concealment of beneficiaries. Companies acquired by private equity funds also benefit from state support, either as recipients of subsidies or as winners of public procurement contracts. As a result, private equity funds have become not only a primary tool for wealth concealment but also for siphoning off public funds, with neither the operations of the funds nor state capital investments being transparent.
TI Hungary has made several recommendations to improve the transparency of private equity funds. To enhance public transparency, they suggest that the central bank should publish detailed, aggregated data on private equity funds. Additionally, they propose the full registration of actual owners in the tax authority’s database, in line with EU regulations, and call for regular checks and improvements in the quality, timeliness, and completeness of the relevant data.
They also recommend granting the press and civil society access to the information in the beneficial ownership register, in accordance with the recommendations of the European Court of Justice. Furthermore, the study offers multiple suggestions for improving the transparency of state capital investments. These include ensuring that the selection, activities, and performance of beneficiaries are verifiable, as public funds are not a private matter.
