AML/CFT obligations: details, control, fines

28.11.2022

Organizations whose work is related to their client’s financial assets are obliged to protect the financial system from money laundering at the local and global levels. These obligations exist under Act No. 253/2008 Coll., on Certain Measures against the Legalization of the Proceeds of Crime and the Financing of Terrorism (also known as the “Anti-Money Laundering Act” or the “AML/CFT Act”). This law details the obligations of companies under AML/CFT (Anti-Money Laundering/Terrorist Financing).

The information in this article applies only to the activities of companies registered and operating in the Czech Republic. At the same time, 90% of the information applies to other EU jurisdictions.

What is meant by AML/CFT obligations?

Obligations to combat money laundering and terrorist financing are imposed on certain companies and are regulated by the following legislative acts:

  • Act No. 253/2008 Coll., on Certain Measures against the Legalization of the Proceeds from Crime and the Financing of Terrorism;
  • Act No. 69/2006 Coll., on the Implementation of International Sanctions;
  • by-laws and other normative acts (Decree of the Czech National Bank (ČNB) No. 67/2018 Coll., ČNB Communication of 26 May 2009, Government Decree No. 210 of 28 May 2008, and others).

For companies subject to the Anti-Money Laundering Act, compliance with these obligations must be complete and comprehensive and must be applied to every transaction.

The primary AML/CFT obligations include the following:

  • Appointment of contact and authorized persons. The term of fulfillment of obligations is up to 60 days; a fine for non-fulfillment or improper fulfillment can go up to 1,000,000 CZK;
  • Development and implementation of an internal policy and risk assessment system. The term of fulfillment of obligations is up to 60 days; a fine for non-fulfillment or improper fulfillment can go up to 1,000,000 CZK;
  • Identification and control of clients, as well as persons who can act on behalf of clients, verification of clients on sanctions lists;
  • Customer activities monitoring;
  • Preservation of data on the measures taken to reduce the risks of money laundering and terrorist financing;
  • Notification of suspicious transactions to the authorities;
  • Regular staff training on the rules of compliance with AML/CFT obligations. Such training should be conducted before the employee’s appointment to the relevant post and at least once a year. In case of non-fulfillment of obligations, a fine of up to 5 000 000 CZK will be imposed on the company.

List of entities subject to AML/CFT obligations

According to Article 2 of the AML/CFT Act, so-called obliged persons are natural and legal persons whose activities are related to:
AML/CFT obligations: details, control, fines

  • real estate transactions;
  • currency exchange;
  • accounting services and tax consulting;
  • insurance;
  • lending;
  • payment services;
  • gambling;
  • second-hand goods trading;
  • management of clients’ assets;
  • registration of legal entities for sales;
  • virtual assets.

If you are not sure whether you are an obliged person under the provisions of the AML/CFT Act, you can contact COREDO’s lawyers and check.

Monitoring compliance with AML/CFT obligations

Financial Analytical Office (FAÚ) and, in some cases, the Czech National Bank (ČNB) or the Czech Trade Inspection (ČOI) monitor proper compliance with all AML/CFT obligations. If the company fails to fulfill its obligations on time (for example, the contact person was not appointed on time), or when one of the company’s clients becomes involved in an investigation on suspicion of money laundering, the risk of being inspected by regulatory authorities increases.

If it turns out that the client was engaged in money laundering through a specific company, taking advantage of the fact that some AML/CFT obligations were not properly fulfilled, the business faces serious problems. It is important to remember that ActNo. 40/2009 Coll., the amended Penal Code, takes into account not only the intentional crime of laundering crime proceeds but also contains an article on “laundering crime proceeds by negligence”.

That means an offense can be committed without malicious intent, even out of ignorance.

Examples of sanctions for non-compliance with AML/CFT obligations

  • If the company has not taken the necessary measures to identify and control the client, it faces a fine of up to 10,000,000 CZK. A similar penalty is provided for the failure to keep the data on the measures taken for 10 years.
  • If the company concludes a deal with a client who has not been identified, it faces a fine of up to 10,000,000 CZK.
  • If the company fails to train employees on the rules of compliance with AML/CFT obligations on time, then it faces a fine of up to 5,000,000 CZK.
  • If a company identifies a suspicious customer (business) and does not report it to the supervisory authorities, it faces a fine of up to CZK 5,000,000.
  • If the company fails to develop an internal policy and risk assessment system in time and to submit these documents to the FAÚ or ČNB, a fine of up to CZK 1,000,000 can be imposed in such a case.

More severe sanctions are applied in case of repeated violations – from a significant increase in the fine to a ban on conducting activities.

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