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”),

Federal Law No. 115-FZ “On Combating Money Laundering and the Financing of Terrorism” dated 7 August 2001 (the AML Law) and ancillary normative acts.

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. 

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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 Federal Financial Monitoring Service (the FFMS) is the main AML/CTF supervisory authority that conducts financial intelligence investigations, collects data, and monitors transactions of controlled entities in accordance with the AML Law.

Other authorities monitor compliance with the AML Law as part of their competences, including the Central Bank of Russia (the CBR), the Federal Tax Service, the Federal Bailiff Service, and the Federal Customs Service.

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 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 Reporting Entities are obliged to identify their clients and obtain information regarding their UBOs, as well as collect and maintain such information.

They must provide a regulating authority (at its request) with any information regarding their clients’ transactions and their UBOs, however there is no central register for such disclosure.

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.  

The AML Law provides for “simplified” identification of the client, which can be done, by sending the documents required for the client’s identification at the onboarding stage online.

Simplified identification can be undertaken by using the client’s account with the Unified System of the Identification and Authentication (maintained by Russian state authorities) or by using electronic signatures (as provided in more detail in the AML Law), without the need for the client’s physical attendance on the premises of the Reporting Entities .

However, the use of simplified identification is limited by the amount of the transaction, e.g. it can be used only for the provision of consumer loans up to RUB 15,000 (approx. EUR 200) and is available only for certain kinds of financial services, although the list of such services is regularly extended. In addition, simplified identification cannot be relied on if a transaction has the characteristics of a suspicious transaction.

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.

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.

In addition to the requirements set out in the AML Law, the Regulated Entities must develop and implement their own internal risk assessment programs, based on the FFMS Recommendations for Development of Criteria for Identification and Determination of Unusual Transactions adopted on 8 May 2009 (as amended). In addition, several CBR regulations establish requirements for internal control and client identification procedures for credit institutions.

In August 2011, the FFMS issued a regulation establishing a list of transactions that are considered to represent significant risks of money laundering. There are 27 types of activities on the list, including transactions made in cash, international economic activities, gambling, tourist activity, certain real estate transactions, etc.

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 main CTF measures that can be implemented under the AML Law include the mandatory control of certain transactions, freezing funds and other assets, and suspending or refusing to perform suspicious operations.

The Reporting Entities are obliged to inform the FFMS of any operation which is subject to compulsory control. In addition, they can suspend an operation and should inform the FFMS if they have information indicating that any of the parties to the contemplated operation may be participating in terrorist activities, or if it is explicitly or implicitly controlled by such a person or organisation.

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 Russian Criminal Code provides for criminal liability for breaches of the legislation on anti-money laundering, including penalties and imprisonment for a Reporting Entity’s management.

The CBR may also take preventative and enforcement measures against a Regulated Entity involved in transactions which are contrary to the AML Law. These measures include: 

  • informing the Regulated Entity of the CBR’s concern regarding its activities; 
  • suggesting that the Regulated Entity provides the CBR with a programme for improvement; and
  • establishing additional monitoring measures over the Regulated Entity.

CBR enforcement measures may also include the imposition of a penalty and the withdrawal of the relevant licence from a Regulated Entity.

Picture of Tomas Matejovsky
Tomáš Matĕjovský
Partner
Prague
Lukas Valusek
Lukas Valusek
Senior Associate
Prague
Zubarev Leonid
Leonid Zubarev
Senior Partner
Moscow
Baranov Konstantin
Konstantin Baranov
Partner
Moscow
Darya Lukoyanova