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 No. 297/2008 Coll. on protection against the legalisation of proceeds from criminal activity and protection against the financing of terrorism, adopted on 2 July 2008, as amended (the “AML 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. 

The 4th AML Directive was implemented in full, the 5th AML Directive was partially implemented.

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 Financial Intelligence Unit (the “FIU”) of the National Criminal Agency is the main AML/CTF supervisory authority. The FIU has the authority to collect, store, investigate, analyse and disclose financial intelligence investigations carried out under the terms and procedures of the AML Act.

Another authority authorised to monitor compliance with the key obligations under the AML Act in certain sectors is the Slovak National Bank. 

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. 

In addition to the obliged entities (persons) under the 4th and 5th AML Directives, the Slovak AML Act also considers the trustees and providers of postal services as obliged persons. 

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

Subjects registered with the Slovak Commercial registry (subject to certain exceptions) are obliged to register their UBOs with the registry. Subjects commencing business in the public (state) sector are obliged to register their UBOs with the Registry of Public Sector Partners and disclose the UBOs.

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.  

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 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 Slovak UBO definition considers as the UBO any individual with an indirect shareholding interest (of at least 25%) of any kind, i.e. it is necessary to follow the shareholding structure up to the very last individual.

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 included in the AML Act dated 15 March 2018. The NRA provides a strategy and useful measures for monitoring and limiting the risks of money laundering and terrorist financing. 

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 measures include stopping suspicious financial operations and in cases with the suspicion of a crime commitment and freezing funds, other financial assets and economic resources. 

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 Slovak Criminal Code as standalone crimes. The penalties for money laundering and financing terrorism provided in the Slovak Criminal Code are imprisonment from two (or five in the case of financing terrorism) to 20 years, depending on the severity of the crime. 

Legal entities can be held liable for the both crimes. The available penalties include forfeiture of property and dissolution of the legal entity. 

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. Fines and penalties vary depending on the type of infringement, the type of infringer (an individual or entity, or the type of entity—banks, insurers, etc.), whether its initial, repeated or systematic, and can reach as high as EUR 1 million  (EUR 5 million in the case of financial institutions).

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

Picture of Tomas Matejovsky
Tomáš Matĕjovský
Partner
Prague
Lukas Valusek
Lukas Valusek
Senior Associate
Prague
Michal Hutan
Michal Huťan
Partner
Bratislava
Petra Corba Stark
Petra Čorba Stark
Partner
Bratislava