Czech Republic – Know Your Customer (KYC) Rules

 

 

The Czech Republic has a small, export-oriented economy. However, the country‘s central location in Europe and openness as a market economy leave it vulnerable to money laundering. Fraud and tax evasion are reportedly the primary sources of laundered assets in the country. Czech officials estimate that organized crime in the country generates approximately $40 billion annually. In 2011, officials seized illegal assets valued at approximately $110 million.

Domestic and foreign organized crime groups target Czech financial institutions for laundering activity, most commonly by means of financial transfers. Links between organized crime and money laundering are present mainly in the activities of foreign groups, in particular those from the former Soviet republics, the Balkans region, and Asia.

The Czech Republic is home to a significant black market for smuggled cigarettes and other tobacco products, as well as pirated products from Asia, including CDs, DVDs, and counterfeit designer goods. The Czech Customs Administration has found that Asian criminal groups use a portion of the illegal funds from contraband smuggling for the purchase of real properties, which they then use for business activities. There are 11 free trade zones operating in the Czech Republic, but Czech authorities do not consider them to be vulnerable to money laundering.

Banks, investment companies, real estate agencies, currency exchange offices, casinos, and other gaming establishments all have been used to launder criminal proceeds. There is weak anti-money laundering regulatory oversight of the gaming industry. A further concern is the widespread use of freely transferable bearer shares among Czech companies that obscures true ownership.

KNOW-YOUR-CUSTOMER (KYC) RULES:

 

Enhanced due diligence procedures for PEPs:

 

PEP is an abbreviation for Politically Exposed Person, a term that describes a person who has been entrusted with a prominent public function, or an individual who is closely related to such a person. The terms PEP, Politically Exposed Person and Senior Foreign Political Figure are often used interchangeably

    • Foreign PEP: YES
    • Domestic PEP: NO

Czech Republic – KYC covered entities

 

The following is a list of Know Your Customer entities covered by Czech Law:

    • Banks, currency exchanges, insurance companies, and postal license holders
    • Securities dealers and exchanges
    • Gaming enterprises
    • Attorneys, trusts and company service providers
    • Realtors, notaries, accountants, tax advisors, and auditors
    • pawnshops and dealers of secondhand goods, including vehicles and of precious metals and stones

Czech Republic – Suspicious Transaction Reporting (STR) Requirements:

 

Number of STRs received and time frame: 1,540 from January to September 2011

Number of CTRs received and time frame: Not applicable

The following is a list of STR covered entities covered by Czech Law:

    • Banks, currency exchanges, insurance companies, and postal license holders
    • Securities dealers and exchanges
    • Gaming enterprises
    • Attorneys, trusts and company service providers
    • Realtors, notaries, accountants, tax advisors, and auditors
    • pawnshops and dealers of secondhand goods, including vehicles and of precious metals and stones

MONEY LAUNDERING CRIMINAL PROSECUTIONS/CONVICTIONS:

 

Prosecutions: 34 from January to November 20111
Convictions: Not available

ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:

Two aspects of the Czech legal framework continue to constrain efforts to prosecute money laundering. First, prosecutors must prove – without a doubt – that the accused also committed a predicate offense resulting in the laundering of assets. Second, a court can only sentence somebody to prison for one crime, even if several crimes were committed. Convictions for predicate offenses generally result in prison sentences at least as long as those for money laundering, so prosecutors have little motivation to pursue money laundering convictions.

In 2011, despite an environment of fiscal austerity in which most Czech government ministries are facing budget cuts, the Financial Intelligence Unit (FIU) at the Ministry of Finance added ten new staff members. The Unit for Combating Corruption and Financial Crimes also added resources that will focus primarily on asset seizure.

The Czech Republic permits bearer shares, which are widely used by Czech companies. As a result, there is not reliable ownership transparency or adequate reliability of registered information. Although KYC rules require companies to provide financial institutions with evidence of the identities of beneficial owners holding more than a 25% stake in the company, the reliability of company-provided data has sometimes proved questionable. Law enforcement personnel acknowledge that bearer shares are obstacles in their financial investigations because they obscure true ownership. According to a January 2011 report by the Czech research agency Čekia, there are roughly 12,000 joint stock companies that issue bearer shares in paper form, accounting for over half of all joint stock companies in the Czech Republic.

The gambling industry in the Czech Republic is vulnerable to money laundering. The Czech gaming industry is represented by a powerful lobby that has succeeded in blocking most new regulation of the sector. Casinos file a relatively small number of STRs. Other gaming entities, including bars and restaurants with electronic games and slot machines, are not subject to the Anti-Money Laundering Act (AMLA) requirements. Without robust oversight and the applicability of the AMLA to all gaming establishments, the potential exists for money laundering to become more significant in the gaming sector.

The Government of the Czech Republic should ratify the UN Convention against Transnational Organized Crime and become a party to the UN Convention against Corruption.