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”),
  • Prevention of Money Laundering and Terrorism Financing Act (Official Gazette of Montenegro, Nos. 33/2014, 44/2018, and 73/2019) (the “AML Act”); and 
  • Articles 28 and 29 of the Prevention of Money Laundering and Terrorism Financing Act (Official Gazette of Montenegro, Nos. 14/2007, 4/2008 and 14/2012). 

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 AML and CTF Act, the basic provisions of the 4th AML Directive were implemented. The legislation of Montenegro is to some extent in line with 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 Department for Prevention of Money Laundering and Terrorism Financing (the “Financial Intelligence Unit”) is the organisational unit in the Police Administration working on the prevention of money laundering and terrorism financing, receiving, collecting, keeping, analysing and disseminating data, information, documents and results of strategic and operational analysis on suspicious transactions to the competent state authorities and foreign financial intelligence units with the aim to prevent and detect money laundering and terrorism financing. The Financial Intelligence Unit can, among others, request information from reporting entities, order the temporary freezing of a transaction and monitor the client, etc. Additionally, suspicious transactions are reported to the Financial Intelligence Unit.

Other authorities authorised to monitor compliance with the key obligations under the AML Act in certain sectors include the Central Bank of Montenegro, the Insurance agency, the National Customs Agency, the Montenegrin post and the relevant inspectorate. 

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. 

Under the AML Act, a large number of entities have this duty. These include banks, financial institutions, payment services providers, insurance and reinsurance companies and intermediaries. In this regard, the entirety of the full scope of the obliged entities is covered in Montenegro. 

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 the AML Act of Montenegro follow the requirements of the 4th AML Directive.

The AML Act prescribes an obligation of the reporting entities to acquire information regarding the UBO’s of their customers. The AML Act also governs the establishment, content, bases of recording and manner of keeping the register of beneficial owners of legal entities and other entities registered in Montenegro. The AML Act provides for a general obligation on all entities to disclose their UBOs to the registry. 

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 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. Still, this method of onboarding of customers is still not widely used in practice, and so far only a handful of obliged entities have adopted full online onboarding of customers, while many more frequently use digital tools to make onboarding customers user friendly and save time.

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 reporting entities’ obligations under the AML Act follow the main principle of the AML Directive(s). 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. 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.

Yes, a National Risk Assessment for Money Laundering and Terrorist Financing (“NRA”) was adopted in Montenegro in 2015. This risk assessment contains an action plan for the fight against money laundering and financing of terrorism. 

According to unofficial publicly available information a revision of the NRA in being discussed.

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 only measures provided under the AML Act relate to KYC, and include a prohibition on providing financial services, funds and other financial assets and economic resources, if these cannot be carried out properly. 

Following any suspicious activity, the financial intelligence unit must be notified and will carry out an investigation or monitor the subject.

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.).

The Montenegrin Criminal Code recognises both money laundering and financing of terrorism as standalone criminal offences. Predicate crimes that are committed either in or outside Montenegro can support a money laundering charge brought in Montenegro. 

The penalties prescribed in the Criminal Code for Money laundering are:

  • imprisonment from six months up to 12 years depending on the sum of the laundered money and circumstances at hand as well as a fine; and
  • the funds which were laundered will be confiscated.

The penalties prescribed in the Criminal Code for Financing terrorism are:

  • imprisonment from one to ten years and the funds used to fund terrorism will be confiscated. 

Legal entities can in principle bear criminal liability under Serbian law. Namely, the Responsibility of Legal Entities Act states that if a legal entity has enriched itself through the proceeds of a crime committed by an employee or a director, the legal entity can be sanctioned with a fine. The fine cannot be less than twice the amount of the damages or more than one hundred times the amount of the damages; in monetary terms, at least EUR 1,000 and up to EUR 5,000,000, and depends on the length of the jail time prescribed.

The AML 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 take the form of fines and penalties which vary depending on the type of the infringement and range from EUR 2,000 to EUR 20,000, for legal entities and EUR 400 to EUR 2,000 for individuals.

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Tomáš Matĕjovský
Partner
Prague
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Lukas Valusek
Senior Associate
Prague
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Radivoje Petrikić
Partner
Vienna
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Milica Popović
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