CMS Expert Guide to AML and CTF law and regulation in CEE

Overview of relevant laws and regulations

  • Act No. 253/2008 Coll., on certain measures against money laundering and financing of terrorism (the “AML Act”);
  • Decree No. 281/2008 Coll., on certain requirements for the system of internal policies, procedures and control measures against money laundering and terrorist financing (the “AML Decree”);
  • Act No. 40/2009 Coll., Criminal Code;
  • Act No. 69/2006 Coll., on carrying out of international sanctions (the “International Sanctions Act”),

The Act on the Prevention of Money Laundering and Financing of Terrorism (Official Gazette No. 108/2017, 39/2019; the “Act”).

2. Are the 4th AML Directive and the 5th AML implemented in your jurisdiction?

Yes, the 4th AML Directive was implemented into Czech law via Act No. 368/2016 Coll. which amends (i) the AML Act; (ii) the International Sanctions Act; (iii) Act No. 304/2013 Coll., on public registers of legal entities and individual persons; and other acts. 

The 5th AML Directive is currently being implemented into two separate acts: (i) an amendment act which will amend the AML Act and Act No. 186/2016 Coll., on hazardous games; and (ii) a new act on the Ultimate Beneficial Owner Registry. 

Yes, with the adoption of the Act the provisions of the 4th AML Directive implemented into Croatian legislation. Additional amendments to the Act were adopted in April 2019, implementing the provisions of the 5th AML Directive.

3. Which is the AML/CTF supervisory authority in your jurisdiction?

The Financial Analytics Office is the main AML/CTF supervisory authority. Other authorities authorised to monitor compliance with the key obligations under the AML Act in certain sectors include the Czech National Bank, the Ministry of Finance, and the Czech Inspection Authority. 

There are several supervisory authorities, including the Croatian National Bank, the Financial Inspectorate, the Croatian Financial Services Supervision Agency, the Tax Administration.

The Anti-Money Laundering Office (the “Office”) is responsible for collecting, analysing and disseminating AML/CTF data and coordinates and cooperates with the supervisory and other competent authorities in in the AML/CTF matters, such as the State Attorney’s Office, the Ministry of the Interior—the General Police Directorate, the Security-Intelligence Agency, the Ministry of Foreign Affairs and European Integration, the Ministry of Justice and other state bodies.

4. Who are the obliged/reporting entities in your jurisdiction? Are there any local derogations from the scope of the obliged entities as provided for in the 4th and 5th AML Directives? 

There are almost 40 categories of reporting entities under the AML Act, including banks, financial institutions, operator of hazardous games, persons active in the real estate industry and intermediaries in the field, notaries, attorneys etc. In the Czech Republic, the scope of reporting entities under the AML Directives is extended also to include persons authorised to conduct business at cultural sites or with items of cultural value, persons authorised to conduct business with used goods or intermediaries in the field, national administrators of registries of permits and persons providing services connected with virtual currencies. 

There are more than 30 categories of reporting entities under the Act, including banks, financial institutions, payment services providers, gaming companies, investment companies, insurance companies and insurance intermediaries, lawyers, and public notaries. 

The reporting entities generally follow the scope of the of the 4th and 5th AML Directives.  

The KYC requirements in the Czech Republic follow the requirements of the 4th and 5th AML Directives and include the following minimum information:

  • Individual persons: name, surname, birth certificate number, date of birth (if birth certificate number is not provided), place of birth, permanent or other residence, citizenship and if the person is the entrepreneur, also company name, place of business and the identification number;
  • Legal entities: company name, registered seat, identification number, identification data on persons who are members of the company’s statutory bodies which enable their identification;
  • Trust funds and other institutions without a legal personality: title, identification data of the administrator or of a person in a similar position. 

To facilitate the obligations of the reporting entities, the AML Act provides a general obligation on commercial companies, trust funds, associations, public legal entities, foundations, and institutes to disclose their UBOs to the court which keeps the relevant register, e.g. commercial companies will register at the court maintaining the commercial register. Please note that the UBO registry is not publicly accessible.

The KYC requirements in Croatia follow the requirements of the 4th and 5th AML Directives.  

Entities incorporated in Croatia, including branch offices of foreign companies, and trusts  (including foreign legal arrangements similar to trusts, which are under the obligation to obtain a Croatian ID-No/ OIB) are in certain cases obliged to register data about their UBOs in the Register of Beneficial Owners, which is maintained by the Croatian Financial Agency (“FINA”). There are certain exceptions, such as state-owned companies.

6. Is there any legislation in your country allowing for online/digital onboarding of customers? What are the restrictions, if any?

Yes, the legislation in various sectors, such as the banking sector, allows for the digital onboarding of customers, provided that the requirements for customer identification and customer verification under the AML Act are observed.  

Yes, the legislation in various sectors allows for the digital onboarding of customers, provided that the requirements for customer identification and customer verification under the Act are observed.  

7. What are the other main obligations of the reporting entities? Do the obligations of some of them go beyond those required by the 4th and 5th AML Directives in terms of internal safeguards, KYC duties, reporting obligations, etc.?

The main obligations of the reporting entities under the AML Act follow the 4th and 5th AML Directives. These include customer due diligence (CDD), the collection of information and documents and their storage, an assessment of the risk of money laundering and terrorist financing, and the disclosure of information on suspicious operations, transactions and customers. The Czech AML Act further specifies requirements for a system of internal principles, risk assessment, staff training and information obligation.

The main obligations of reporting entities under the Act reflect the requirement of the 4th and 5th AML Directives. These measures include a risk assessment of money laundering and terrorist financing, establishing policies and internal controls, client due diligence (CDD), the collection of information and documents and their storage, appointment of an authorized person for the implementation of measures, regular training and education of employees and the disclosure of information on suspicious operations, transactions, and clients. 

8. Is a National Risk Assessment adopted in your jurisdiction? If yes, what are the main identified risks?

Yes, the first round of the National Risk Assessment for Money Laundering and Terrorist Financing (the “NRA”) was finalised and approved on 9 January 2017 by the Government of the Czech Republic (the idea is to repeat the NRA regularly). 

The NRA report provides an assessment of the role of each public authority entrusted with the task of enforcing the AML and individual controlling mechanisms.

The NRA report provides a strategy and useful measures for monitoring and limiting the risks of money laundering and terrorist financing regarding the following bodies:

  • financial institutions;
  • mobile payment services providers;
  • insurers;
  • legal and advisory services;
  • service providers for companies and trust funds.

The main identified risks include: 

  • tax-related crimes followed by money laundering;
  • corruption followed by money laundering;
  • interference with public procurement followed by money laundering;
  • public aid crimes followed by money laundering;
  • terrorist financing; and
  • drug-related crimes followed by money laundering.

Yes, a National Risk Assessment for Money Laundering and Terrorist Financing (the “NRA”) was adopted in December 2016. The main identified risks of money laundering and terrorist financing concern the following sectors: 

  • banking;
  • financial markets;
  • other financial institutions, e.g. payment service providers, leasing companies, factoring companies;
  • gaming;
  • insurance.

9. What are the main CTF measures in your country?

The AML Act prescribes a number of key obligations that must be respected to the maximum extent by all reporting persons and all individuals and legal entities: 

  • client identification and control obligation;
  • information obligation;
  • reporting obligation;
  • obligation to postpone client’s instruction;
  • preventive measures obligation;
  • obligations related to transfers of funds;
  • reporting obligation regarding cross-border transfers;

Measures adopted in response to a breach of these obligations will depend on the nature of the breach, e.g. an assessment of whether the nature of the breach amounts to civil or criminal liability.

The Act provides an obligation to report any suspicion of financing of terrorism to the Office. Furthermore, other measure regarding AML requirements also apply to the CTF. Pursuant to the criminal legislation, there is a possibility to seize funds, other financial assets and economic resources, and to prohibit the provision of services. 

10. What are the criminal and/or regulatory and/or other risks for corporate bodies/directors/employees under your national law if failing to comply with AML/CTF legislation? Is there regular enforcement of the AML/CTF legislation in your country?

Money laundering and terrorist financing are criminalised under the Czech Criminal Code as standalone crimes. The legalisation of the proceeds of crime is subject to imprisonment up to ten years. Terrorist financing is subject to imprisonment up to 15 years. Further sanctions, such as forfeiture of property etc., can be imposed.

Czech law recognises corporate criminal liability, therefore companies may also be criminally liable for money laundering and terrorist financing. There is a wide range of sanctions which can be imposed on legal entities, e.g. dissolution of the company, forfeiture of property, monetary penalty, and publishing the judgment. 

The AML Act provides a range of sanctions for non-compliance with the key obligations and sets out individual fines and penalties depending on the type of infringement, the type of infringer (an individual or entity or type of entity, banks, insurers, etc.).

Money laundering and terrorist financing are criminalised under the Croatian Criminal Code as standalone crimes. The prescribed sanctions range from six months to eight years for money laundering and from one year to ten years’ imprisonment for terrorist financing. 

Legal entities can bear criminal liability under Croatian law. A monetary fine is the most common sanction and for the offences in question (money laundering and terrorist financing) it might be up to HRK 10 to 12 million (EUR 1.3 to 1.6 million).

The Act provides a range of sanctions for non-compliance with the key requirements, such as customer checks, record-keeping, and suspicious transaction reporting. The sanctions vary depending on the type of infringement, the type of infringer (e.g. banks, payment service providers), and can reach as high as HRK 38 million (EUR 5.2 million), or up to 10% of the annual turnover, including gross income, according to the consolidated accounts of the parent undertaking for the previous year. The sanctions are also prescribed for management board members and other responsible persons within legal entities. Additionally, it may be noted that ultimate beneficial owner(s) may also be sanctioned in certain cases. 

The number of prosecutions, convictions and administrative sanctions has increased in recent years.  

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Tomáš Matĕjovský
Partner
Prague
Lukas Valusek
Lukas Valusek
Senior Associate
Prague
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Marija Zrno Prošić
Partner
Zagreb
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Jelena Nushol Fijačko
Partner
Zagreb