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”),
  • Act LIII of 2017 on the Prevention and Combatting of Money Laundering and Terrorist Financing (the “AML Act”).
  • Act LII of 2017 on the Implementation of Restrictive Measures imposed by the EU and the United Nations Security Council relating to liquid assets and other financial interests (the “Restrictive Measures Act”).
  • Decree No. 21/2017 (VIII. 3.) of the Minister of the National Economy on the Mandatory Content of the Internal Policy to be Adopted under Act LIII of 2017 on the Prevention and Combatting of Money Laundering and Terrorist Financing and Act LII of 2017 on the Implementation of Restrictive Measures imposed by the EU and the United Nations Security Council relating to liquid assets and other financial interests.

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, the basic provisions of the 4th AML Directive were implemented with the adoption of the AML Act. Additional amendments to the AML Act were adopted in December 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. 

The central authority in charge of receiving, analysing, disseminating suspicious transactions/activity reports is the Hungarian Financial Intelligence Unit, which is part of the organisation of the Central Management of the National Tax and Customs Administration (Nemzeti Adó- és Vámhivatal, the “NAV”). The NAV performs its tasks in cooperation with other investigating authorities, the Prosecutor General’s Office and the National Courts Office. 

Other authorities authorised to supervise the performance of the obligations under the AML Act and the Restrictive Measures Act are: 

  • the National Bank of Hungary acting within its function as the supervisory authority of the financial intermediary system (credit institutions, financial services institutions, institutions for occupational retirement provision, voluntary mutual insurance funds, operators accepting and delivering international postal money orders);
  • the gaming supervisory authority regarding operators of casinos, card rooms, gambling services, online casino games;
  • the Chamber of Hungarian Auditors regarding the providers of auditing services;
  • in the case of lawyers and legal counsels registered in the bar association, the bar association in which the lawyer/legal counsel in question is registered (regional bar association); 
  • in the case of notary publics, the association in which the notary public in question is registered (regional association of notaries);
  • the authority for trade and commerce regarding the traders in precious metals or articles made of precious metals; traders in goods involving a cash payment of or exceeding HUF 3m; service providers trading or acting as intermediaries in the trade of cultural goods (works of art/antiques); 
  • the office provided for in the Act on Fiduciaries and on the Regulations Governing Their Activities regarding fiduciary managers;
  • the NAV regarding providers of real estate agency or brokering and any related services; bookkeepers, tax experts, tax advisers, providers engaged in exchange services between virtual currencies and legal tenders, custodian wallet providers and providers of corporate headquarters services. 

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. 

The reporting entities are service providers pursuing several kinds of activities regulated by the AML Act as explained above in point 3. 

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 Hungary follow the requirements of the 4th and 5th AML Directives.

To facilitate the CDD obligations of the reporting entities, the AML Act provides for a general obligation on all entities, starting from 1 December 2020, to disclose their UBOs to the ‘Central register of beneficial ownership information’ pursuant to the 5th Directive. 

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, such as the financial services, real estate brokerage, law firms, etc. allows for the digital onboarding of customers, provided that the requirements for customer identification and customer verification under the AML 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 AML Act follow the 4th and 5th AML Directives. These include customer due diligence (identification and verification of the customer, the UBO and the person acting for and on behalf of the customer); the collection and storage of information and documents; continuously monitoring the business relationship; risk assessment and risk categorisation; operation of a screening system; the disclosure (reporting) of information on suspicious transactions/customers; decision on suspending transactions related to suspicious events; operation of an unanimous whistleblowing system and the provision of training for employees. There are no obligations that go beyond those required under the AML Directives.

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.

The Hungarian National Risk Assessment was adopted in 2015 and updated in 2018. The main identified risks are: 

  • organised crime;
  • offshore companies;
  • cash transfer services;
  • lack of a central register of bank accounts;
  • shell companies. 

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 Restrictive Measures Act provides for the freezing of funds and other financial assets, and a prohibition on providing financial services. To fully implement the EU legal actions and United Nations Security Council resolutions imposing restrictive measures relating to liquid assets and other financial interests, the service provider must compare the personal data of the total clientele that it has on record with the data of the persons that appear in EU legal actions and relevant United Nations SC resolutions. If the result of screening establishes that a persons is subject to a restrictive measure relating to liquid assets or other financial interests, or his/her data coincides with the data of an entity or person on the consolidated list of effective restrictive measures imposed on the European Union or on the United Nations, the service provider must report this to the NAV.

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 Hungarian Criminal Code as standalone crimes. The penalties for money laundering and financing terrorism provided in the Hungarian Criminal Code are imprisonment up to ten years, depending on the severity of the crime. Under the Hungarian Criminal Code any person who fails to comply with the reporting obligation prescribed by law concerning the prevention and combating of money laundering and terrorist financing is punishable by imprisonment up to two years.

If a legal entity has enriched itself through the proceeds of a crime committed by an employee or a director, it can be sanctioned with dissolution, restriction of activity or a minimum fine of HUF 500,000 (EUR 1,428) and a maximum of three times the value of the advantage obtained or to be achieved by the crime. 

The AML Act provides a range of measures and sanctions applied by the supervisory authorities for non-compliance or inadequate compliance with obligations set out in the AML Act. Fines and penalties vary depending on the type of the infringement, the type of the infringer (an individual or an entity), the feature of the infringement (whether it is initial, repeated or systematic) and can reach as high as HUF 2 billion (EUR 5,714,285), or up to 10% of the annual income according to the consolidated accounts. In the case of senior executives of service providers, a fine up to HUF 500,000,000 (EUR 1,428,000) (in the case of employees up to HUF 20,000,000 (EUR 57,142)) can be imposed, and additionally further measures can likewise be applied to the legal entity service provider if the director/employee of the service provider has committed the infringement for the benefit of the service provider. 

Prosecutions, convictions and administrative sanctions have been applied in recent years.

Picture of Tomas Matejovsky
Tomáš Matĕjovský
Partner
Prague
Lukas Valusek
Lukas Valusek
Senior Associate
Prague
Dóra Petrányi
Partner
Budapest
Erika Papp
Managing Partner
Budapest