AML ACT

What is the AML Act?

The AML Act means Act No. 253/2008 Coll., on Selected Measures against Legitimisation of Proceeds of Crime and Financing of Terrorism. The abbreviation AML stands for the commonly used international expression Anti-Money Laundering.
On 1 January 2021, the amendment of the Czech AML Act implementing the 5^th AML Directive, i.e. Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015, became effective.

Another important part of AML legislation is Czech National Bank Decree No. 67/2018 Coll., regulating, among other things, the procedures of customer due diligence to be carried out by obliged entities.

What does ‘money laundering’ mean?

The purpose of money laundering activities is to hide the illicit source of the money by making it appear to have been gained legally. 

An example: the owner of a car repair shop receives money for work done in cash without issuing any receipts. The money is subsequently deposited to this ‘businessman’s’ account in small cash amounts, mixing up with the legally obtained funds in the account. The money which was ‘laundered’ in this way can be used, for example, to buy a new car or a house.

Who does the AML Act apply to?

A selected circle of persons who may come into contact with money laundering in their business activities. The Act designates these persons as "obliged entities".  

Am I an obliged entity?

The typical obliged entities are banks and credit institutions, leasing companies or credit and loan providers. 

Obliged entities also include persons who buy or sell real estate properties as part of their business. If you buy a real estate property as an individual for private purposes or as an entrepreneur as a side activity only to support your business, the AML provisions do not apply to you. Therefore, obliged entities include, for example, real estate brokers or developers but not an entrepreneur who has bought real estate property in order to enlarge his/her business premises.  

Traders in used goods are also obliged entities. This includes not only pawn shops but also used car dealers who must conform to AML law with regard to both the purchase and the sale of used cars. When performing certain activities, attorneys-at-law, tax advisors and art traders are seen as obliged entities as well.   
In addition, obliged entities are also any persons or businesses conducting cash transactions worth EUR 10,000 or more. 

What are the most important obligations under the AML Act?

1. Identification and due diligence 
   The identification and due diligence of the customer are not aimed at revealing the specific illegal activities or the persons committing them, but should result in a statement whether the intended transaction could involve any money laundering aspects.
    

2. Creation of internal policy The internal policy is a company’s internal document laying down the principles, procedures and measures for preventing money laundering. 
    

3. Appointing a contact person for communication with the Financial Analytical Office (Finanční analytický úřad - FAÚ). Selected obliged entities must report the name of the contact person to the Financial Analytical Office. Failure to do so may result in a penalty of up to 1 million Czech crowns.

When is identification necessary?

Obliged entities must identify the customer if the transaction value exceeds EUR 1,000. The AML Act stipulates further cases where it is necessary to identify the customer.

How is identification conducted?

The basic principle is verifying the identity and the physical appearance of the relevant individual. This information is gained from a personal identity card or passport. The same holds true for customers who are companies. The obliged entity must not be satisfied simply with data gained from the companies register. It is mandatory to verify the identity and physical appearance of the person legally representing the customer. The same procedure applies when the customer (either an individual or a company) is represented based on a power of attorney. Both the customer as the principal and the representative must be identified, but only the representative’s physical appearance needs to be verified. 

When is customer due diligence necessary?

Customer due diligence must be conducted if the transaction value amounts to EUR 15,000 or more. Just as is the case with identification, the AML Act lays down more situations requiring a mandatory due diligence.

What does customer due diligence include?

Customer due diligence requires obtaining information about the particular transaction and the customer’s business as well as examining the sources of the assets which are the subject-matter of the transaction.   

In practice, the customer fills out an AML form prepared by the obliged entity giving information about their business, the source of income (for example that the customer acquired the property via a donation), and must present sufficient proof for their statements (e.g. a donation agreement, wage slips or a bank account statement). The obliged entity then assesses and evaluates these documents.

With regard to companies as customers, the obliged entity must also establish who the ultimate beneficial owner is by inspecting the Ultimate Beneficial Owner Register as well as the company’s shareholders from the excerpt from the Companies Register.  

What is an AML form?

In practice, customer identification and due diligence are often carried out by AML questionnaires or forms where the customer must complete the required information.

How long must the obtained information be kept for?

Obliged entities must retain the obtained information for a period of ten years.

How should you approach customers when conducting due diligence and identification?

We strongly recommend explaining the main reasons for the identification and due diligence to the customers so they do not misunderstand your request as mistrust or even bullying. It might help to point out that adhering to their obligations reduces the chances of their transaction being inspected more closely by the authorities. Meeting your obligations is in no way a substitute for the duties on the part of the investigative, prosecuting and adjudicating bodies.

Who is a politically exposed person?

Under the AML Act, obliged entities are also required to establish whether the customer is a politically exposed person during the identification and due diligence. These are persons holding an important public function or their relatives. Political exposure increases the risk factor of the transaction due to the possibility of such person being more prone to corruption.

The correct procedure when dealing with a suspicious transaction

If suspicion arises, the obliged entity must report the suspicious transaction to the Financial Analytical Office that will take the necessary steps. The Financial Analytical Office may impose substantial fines. Failure to carry out the identification and due diligence, for example, carries a fine of up to CZK 10 million, and up to CZK 30 million for repeated breaches, with financial institutions facing up to CZK 130 million. 

Why do you need to pay attention to AML obligations?

Failure to comply with the applicable AML obligations carries substantial fines. The Financial Analytical Office has recently fined a real estate agency CZK 150,000 for not having carried out identification and due diligence. You can read about that decision here. Another real estate agency is currently facing a penalty of CZK 750,000 for not complying with its obligations.  

If you wish to get more clarity about the AML legislation and know your particular obligations, please do not hesitate to contact us by email, or phone us directly. We will advise on whether you are subject to the AML provisions in your business or not. We will gladly help you to meet all relevant obligations and prepare the AML forms for the purposes of the identification and due diligence regarding your customers. If you interested, we would be very happy to organise specialist AML training for your team.