Intent Declared Summary
In its 2007 mutual evaluation of the Czech Republic, the Committee of Experts on the Evaluation of Anti-Money Laundering Measures (MONEYVAL) notes that the country has made moderate progress since the last evaluation. The 2007 evaluation found that the Czech Republic was fully or largely compliant with 23 of the Financial Action Task Force's (FATF) 40 recommendations (R) and 9 special recommendations (SR). The country was not however, fully or largely compliant with all the core recommendations as stipulated by the FATF. The country was deemed only partially compliant with R 1, R 5 and SR II. In 2009, MONEYVAL released a first written progress report based on the findings and recommendations put forward by the 2007 evaluation. According to the progress report, the Czech Republic has passed Act No. 253 of 2008, a new Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) act which implements European Union Directives 2005/60/EC and 2006/70/EC, as well as some FATF requirements. The progress report acknowledges that the new act, along with other measures have addressed several existing shortcomings in the AML/CFT framework. However, the report did not assign updated compliance levels based on these new developments. The FATF, in its 2008-2009 Annual Report, names the Czech Republic as one of the jurisdictions that have endorsed the FATF's 40+9 recommendations.
General Overview
The Committee of Experts on the Evaluation of Anti-Money Laundering Measures (MONEYVAL), in December 2007, released its Third Round Detailed Assessment Report on the Czech Republic's Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) framework against the Financial Action Task Force’s (FATF) 40 recommendations (R) and 9 special recommendations (SR). The assessment was based on the findings of a MONEYVAL team that visited the country in April 2005. As cited by the evaluation, there has been overall “moderate progress since MONEYVAL’s second evaluation round” (p. 6).
In 2009, MONEYVAL released a first written progress report based on the findings and recommendations put forward by the 2007 evaluation. The report highlights the Czech Republic’s progress and improvements with the FATF's recommendations that were assigned a partially compliant rating or less by the 2007 MONEYVAL evaluation. A particularly notable update includes the passing of Act No. 253 of 2008, a new AML/CFT act which implements European Union (EU) Directives 2005/60/EC and 2006/70/EC, as well as some FATF requirements. The year 2008 also saw an amendment to the Czech Criminal Code, which expanded on the definition of money laundering. While the 2009 MONEYVAL progress report details efforts made to implement the recommendations put forward by the 2007 evaluation, it does not provide updated compliance levels based on these new developments. Therefore there is not yet any publically available information on the effectiveness of the enhanced provisions contained in the new AML/CFT act.
According to a 2009 U.S. Department of State (DoS) report on the Czech Republic’s AML/CFT regime, the country is “one of the most stable and prosperous of the post-Communist states of Central and Eastern Europe” (p. 195). Despite this, the report highlights that the Czech Republic remains vulnerable to money laundering due to its geographic location and status as a relatively young market-based economy. Both the 2009 DoS report and the 2007 MONEYVAL evaluation highlight the Czech economy’s heavy reliance on cash-based transactions, which increases the country’s susceptibility to money laundering activity.
The Czech Republic's Financial Intelligence Unit (FIU), the Financial Analytical Unit (FAU), established in 1996, is a part of the Ministry of Finance (MoF) and has been a member of the Egmont group since 1997. According to the 2007 MONEYVAL evaluation, the FAU is entrusted with the overall responsibility of ensuring that all obliged entities comply with the provisions of the AML/CFT act. The FAU is also in charge of reviewing cash transaction reports (CTRs) and suspicious transaction reports (STRs), but does not possess the mandate to initiate or conduct criminal investigations. In 2006, the Czech National Bank (CNB) took over the responsibilities of the Czech Securities Commission, the Ministry of Finance’s Office for Supervision of Insurance and Supplementary Pension Insurance, and the Office for Supervision of Credit Unions, all of which now cease to exist. As stated in the 2009 DoS report, performing investigations are the responsibility of the Czech National Police Unit for Combating Corruption and Financial Crimes (UOKFK) or other Czech National Police bodies.
Per the 2009 U.S. DoS report, the Czech Republic has signed and ratified the 1988 United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (Vienna Convention), and the UN International Convention for the Suppression of the Financing of Terrorism. It has signed, but not yet ratified, the 2000 UN Convention against Transnational Organized Crime (Palermo Convention) and the UN Convention against Corruption. The Czech Republic is also a party to the World Customs Organization's Convention on Mutual Administrative Assistance for the Prevention, Investigation and Repression of Customs Offenses as well as the 1990 Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime (Strasbourg Convention).
The 2009 U.S. DoS report provides statistics on law enforcement efforts and STRs in the area of AML/CFT in the Czech Republic. According to this report, there were 3,404 STRs transmitted in 2005 and 3,480 in 2006, followed by a significant drop in 2007 to 2,048. Of these, 208 STRs were forwarded by the FAU to the Finance Police in 2005, 137 in 2006 and 102 in 2007. In the first five months of 2008, 1,722 STRs were submitted to the FAU, 67 of which were forwarded to the police. The FAU also received 130 international assistance requests from foreign counterparts in 2005, and sent 69 requests abroad. The requests hovered around the same range in the following years with 128 requests and 77 submissions in 2006, and 133 requests and 66 submissions in 2007. The Finance Police's Department of Criminal Proceeds and Money Laundering seized cash and assets worth a total of $257,444 in the first ten months of 2008.
The Principles
NC1. Legal Systems and Related Institutional Measures
The 2007 MONEYVAL evaluation assessed the Czech Republic to be partially compliant with both R 1 relating to the criminalization of money laundering, and R 2 on the mental element and corporate liability. With regard to R 1, the evaluation identifies a need for the criminalization mechanism to be brought further in line with international requirements by expanding the scope of the money laundering offence. As highlighted by the 2009 MONEYVAL progress report, this was addressed by the passing of Law No. 253 of 2008, which amended Section 252a of the Criminal Code, on July 1, 2008. The 2009 MONEYVAL progress report, however, does not reassign a compliance level for the Czech Republic on R 1. The 2007 MONEYVAL report attributed its rating of R 2 to the insufficient level of punishment observed for money laundering offences. According to the 2009 MONEYVAL progress report, the amendments brought forward by Law No. 122 of 2008 have increased the level of certain punishments, in line with the fundamentals of this recommendation. Furthermore, the 2009 progress report also acknowledges the draft of the new Criminal Code which is expected to come into effect on January 1, 2010. The draft is said to “simplify the definition of money laundering and decrease evidence requirements” (p. 7).
The Czech Republic, per the 2007 MONEYVAL evaluation, was found to be partially compliant with SR II regarding the criminalization of terrorist financing. The evaluation cited the lack of explicit coverage and specific provisions regarding the terrorist financing offense as the reasons for the assigned rating. The 2009 MONEYVAL progress report states that the new AML/CFT act contains a definition of terrorist financing which includes “gathering or providing financial or other assets with the knowledge that such assets will, in full or in part, used to commit a crime of terror” (p. 16). The 2009 MONEYVAL progress report, however, does not reassign a compliance level for the Czech Republic on SR II.
Regarding R 3 on confiscation and provisional measures, the 2007 MONEYVAL evaluation assessed the Czech Republic to be partially compliant. The evaluation attributed this rating to the lack of a clear and consistent framework for seizure and confiscation, pertaining in particular, to temporary and final measures. According to the 2009 MONEYVAL report, the amendments put forward by Act No. 253 of 2008 to the Criminal Code, which came in effect on July 1, 2006 have closed certain gaps pertaining to confiscations.
The 2007 MONEYVAL evaluation also assigned a partially compliant rating to SR III on the freezing and confiscation of terrorist assets. Many of the major weaknesses related to this special recommendation stemmed from the shortcomings in the Czech Republic’s general framework for dealing with terrorist financing as well as seizures and confiscations. The evaluation also observed that the Czech Republic was found to largely rely upon EU regulation, and highlighted the need for stronger domestic regulation in this respect in order for full compliance to be achieved.
As noted by the 2007 MONEYVAL evaluation, the Czech Republic was rated as largely compliant with R 26 relating to the FIU, R 30 relating to its resources, training, and integrity; and compliant with R 32 regarding the maintenance of statistics. The FAU was found to have “overall supervisory competence to ensure the implementation of the AML Act by all obliged entities” (p. 4). However, it was also noted that the AML act at the time did not specifically mention the FAU, referring instead to the Ministry of Finance, under which the FAU was established. It was pointed out in the evaluation that explicit mention of the FAU in the Act would help more clearly articulate the autonomy and independence of the FAU. Despite the progressive improvement of the efficiency and effectiveness of the FAU over the years, the capacity and expertise of existing staff members remain an issue. Statistics were available; however, there was room for improvement in terms of the quality and consistency of the figures.
The 2007 MONEYVAL evaluation assessed the Czech Republic to be fully compliant with R 27 on law enforcement authorities and R 28 on the powers of these authorities. However, the powers of the law enforcement authorities remain affected by the shortcomings related to terrorist financing highlighted under SR III. Pertaining to SR IX on cross-border declaration and disclosure, the MONEYVAL evaluation found the Czech Republic to be largely compliant. The assessment highlighted the need for Customs authorities to be “made more aware of the AML/CFT issues as they rely a lot on the police as regards information in this field” (p. 5).
NC2. Preventive Measures - Financial Institutions
According to the 2007 MONEYVAL assessment, the Czech Republic was found to be partially compliant with R 5 relating to customer due diligence (CDD) and non-compliant with R 6 relating to politically exposed persons (PEPs). The assessment highlighted the fact that the AML act at the time, did not include full CDD requirements As provided by the FATF. However, per the 2009 MONEYVAL progress report, the new AML/CFT act made changes to the country's CDD regime. For example, the new act articulates that “the obliged entity, should it be a party to a transaction exceeding EUR 1,000 shall always identify the customer prior to the transaction, unless stipulated otherwise by this Act” (p. 9). The report, however, does not reassign a compliance level for the Czech Republic on R 5. The new AML/CFT act also adds to the Criminal Code, definitions of PEPs based on the Third EU Directive and their corresponding enhanced CDD measures.
The 2007 MONEYVAL evaluation found the Czech Republic to be largely compliant with R 7 relating to correspondent banking, and partially compliant with R 8 relating to new technologies and non-face-to-face business. According to the evaluation, the Czech Republic was found to not have “specific regulations requiring obliged entities to have policies and procedures in place to address any specific risks associated with non-face-to-face business relationships or transactions” (p. 153). It was also found that the scope of implementation related to R 7 and R 8 predominantly covered only banks and needed to be expanded to other entities in order to achieve full compliance. The 2009 MONEYVAL report notes however, that Act No. 253 of 2008 outlines additional provisions related to the identification process in non-face-to-face business relationships.
At the time of MONEYVAL’s on-site visit, it was suggested by the AML act that reliance on third parties to perform the CDD process was not permitted. Therefore R 9 relating to third parties and introducers was not applicable in the context of the Czech Republic. The 2007 MONEYVAL evaluation also found the extent of financial institution (FI) secrecy in the Czech Republic to be largely compliant with R 4. However, there were several inconsistencies on paper, between the AML Act and sector-specific regulations. The Czech Republic was also found to be largely compliant with both R 10 on record-keeping and SR VII on wire transfer rules. The evaluation recommends, with regard to R 10, that all records be made electronic in order to ensure timely retrieval. It was also recommended that Czech regulations should explicitly cover account files and business correspondences, as well as other pieces of information which might be relevant to a transaction. The MONEYVAL team, at the time of their on-site visit, was informed that full compliance of SR VII would be reached following the adoption of relevant “EU-Regulation on information on the payer accompanying transfer of funds and as a consequence of being a Member State of the EU” (p. 162).
Pertaining to R 11 on the monitoring of unusual transactions and R 21 on special attention to higher risk countries, the 2007 MONEYVAL evaluation assessed the Czech Republic to be partially compliant. The framework surrounding R 11 was found to be too limited as it only seemed to cover the banking sector and needed to be expanded to all other obliged entities. While the basic requirements surrounding R 21 seem to be in place, the assessment finds the present measures to have little impact in practice and that the implementation of R 21 should be re-examined. As articulated by the 2009 progress report, certain provisions in the new AML/CFT act address the shortcomings highlighted by the 2007 assessment.
The 2007 MONEYVAL evaluation assigned a largely compliant rating to both R 13 on suspicious transaction reports (STRs), SR IV on STR reporting for terrorist financing, and R 14 on protection and no-tipping off policies. Relating to R 13 and SR IV, the evaluation recommends outlining explicit requirements for reporting a suspicious transaction as well as extending the scope of STR reporting requirements to “those who finance terrorism.” The evaluation also observes that “the protection against the consequences of reporting to the FAU does not extend explicitly to the disclosure of information (although it covers the suspension of transactions), beyond the obliged entity, to its management and staff” (p. 6). The Czech Republic, on the other hand, was found to be fully compliant with R 19 on other forms of reporting, but non-compliant with R 25 on guidelines and feedback. It was found that due to strict confidentiality requirements, the FAU did not provide feedback. However, according to the 2009 MONEYVAL follow-up report, the FAU seems to have since intensified their cooperation with other regulatory bodies in strengthening guidelines and feedback mechanisms.
Regarding R 15 on internal controls, compliance and audit, the 2007 MONEYVAL evaluation found the Czech Republic to be partially compliant. The evaluation highlights several shortcomings in the AML Act in place at the time of the evaluation. These included the lack of appropriate compliance management, audit requirements and attention to CFT specific measures. According to the 2009 MONEYVAL evaluation, the new AML/CFT act addresses a number of these issues. However, there still has yet to be an assessment on the effectiveness of the implementation of these provisions. The Czech Republic was also found to be non-compliant with R 22 on foreign branches and subsidiaries. At the time of the evaluation, there were no requirements in the AML act adequately subjecting foreign branches and subsidiaries of Czech financial institutions (FIs) to AML/CFT requirements. It was noted in the 2009 MONEYVAL report however, that the new AML/CFT act contains a provision requiring FI branches and subsidiaries not located within the EU or European Economic Area to “apply the practice of customer due diligence and data retention in the scope that is at the least required by the laws of the European Communities” (p. 31).
According to the 2007 MONEYVAL assessment, the Czech Republic is largely compliant with regard to R 18 on shell banks. It was recommended that in order for the Czech Republic to become fully compliant with this recommendation, further steps needed to be taken to ensure that requirements are extended to apply to beyond the banking sector. The assessment assigned the Czech Republic’s adherence to R 17 on sanctions and R 23 on regulation, supervision and monitoring, a partially compliant rating. Pertaining to R 17 on sanctions, the evaluation noted that there were only administrative sanctions available to penalize non-compliance with the AML act, and that no criminal sanctions were available. Sanctions were also found to only be directly imposable on business entities and not managers or employees within these entities. The 2009 progress report however, does indicate that several measures have been taken in order to address these shortcomings.
Regarding regulation, supervision and monitoring, the 2007 MONEYVAL assessment highlighted the need for supervision to focus more on the implementation of AML measures in practice. The 2007 MONEYVAL assessment found the Czech Republic to be compliant with R 29 on supervisors, and largely compliant with R 30 on resources, integrity and training. In 2006, the CNB took over the responsibilities of the Czech Securities Commission, the Ministry of Finance’s Office for Supervision of Insurance and Supplementary Pension Insurance, and the Office for Supervision of Credit Unions, all of which now cease to exist. The 2007 MONEVVAL assessment stated that a “unified decree for all financial subjects supervised by the CNB [was at the time] in progress” and that a “majority of recommendations [was expected to] be fulfilled in this integrating process” (p. 175). The shortcomings related to R 30 are predominantly associated with the lack of staffing capacity and expertise. With regard to SR VI on money/value transfer (MVT) services, a partially compliant rating was assigned. The report highlights the need for the supervision of MVT services, whether provided by the Czech Post or licensed agents, to be more adequately addressed. The evaluation also recommends for the issue of possible informal remittance channels to be more closely scrutinized. The 2009 MONEYVAL progress report mentions several legislative measures which have been taken with regard to the operations of MVTs. It also states that “no concrete cases” (p. 49) of informal remittance activities have been observed.
NC3. Preventive Measures - Designated non-Financial Business and Professions
Pertaining to Designated non-Financial Businesses and Professions (DNFBPs), the 2007 MONEYVAL evaluation found the Czech Republic to be non-compliant with R 12 on CDD and record keeping, and partially compliant with R 16 on STRs. The evaluation mentioned that for DNFBPs, there existed a “problem of insufficient guidance and awareness-raising initiatives to their attention on AML/CFT issues” (p. 7). It also recommended that the Czech Republic needed to ensure the application of R 5 to R 11 and R 17 in respect of DNFBPs. The weaknesses of CDD measures and STRs pertaining to FIs, highlighted in Principle 2, also apply to DNFBPs. The 2009 MONEYVAL progress report however, states that the new AML/CFT act imposes requirements under R 5 to R 11 and R 17 on “obliged entities,” the definition of which includes DNFBPs. With regard to R 16, the progress report also highlights several measures that have been taken to increase awareness and guidance available for DNFBPs and their supervisors.
The 2007 MONEYVAL evaluation rated the Czech Republic as non-compliant with both R 24 on DNFBP regulation, supervision and monitoring and R 25 on DNFBP guidelines and feedback. It was highlighted in the evaluation that the there were no increased efforts from the authorities in addressing certain sectors of DNFBP activity which might be particularly exposed to money laundering. The weaknesses of the implementation of R 25 to FIs highlighted in Principle 2, pertains to DNFBPs as well. In addition, it was observed that there was a particular lack of guidance for DNFBPs, and that it would be necessary to “strengthen the regulatory framework and supervision over DNFBPs exposed to risks of being used for money laundering or terrorist financing purposes” (p. 200).
On R 20 relating to other DNFBPs and secure transaction techniques, the 2007 MONEYVAL evaluation found the Czech Republic to be largely compliant. It was however recommended that due the Czech Republic’s current high reliance on cash, more secure means for transactions continue being developed.
NC4. Legal Person and Arrangements & Non-Profit Organizations
The 2007 MONEYVAL evaluation rated the Czech Republic to be non-compliant with R 33. It was pointed out in the evaluation that at the time of the assessors’ on-site visit, there was no system in place for the registration of a legal person that would “ensure a sufficient level of reliability of the information registered and of transparency of beneficial ownership of legal persons” (p. 206). However, as pointed out in the 2007 evaluation itself, due to several legislative amendments passed subsequent to the on-site visit, “the situation has changed dramatically” (p. 240). The 2009 MONEYVAL progress report reaffirms this by stating that significant changes have been brought on by the said amendments, which were to the Commercial Code and the Code of Civil Procedure. The report, however, does not reassign a compliance level for the Czech Republic for R 33.
R 34 relating to legal arrangements was deemed not applicable in the context of the Czech Republic, while a partially compliant rating was assigned to SR VIII on non-profit organizations. The report points out that despite a developed legal framework at the most sensitive levels, there did not seem to be sufficient information on possible misuse of non profit organizations (NPOs) for money laundering and terrorist financing. However, according to the 2009 MONEYVAL progress report, analyses on the possible misuses of NPOs have been carried since the 2007 evaluation.
NC5. National and International Co-operation
According to the 2007 MONEYVAL evaluation, the Czech Republic was found to be partially compliant with R 31 on national co-operation, as well as R 35 and SR I on UN Conventions and Instruments. The evaluation stated that while a level of cooperation undoubtedly exists in the country, there is no real coordinated framework within which all regulatory bodies can operate in a concerted fashion. On this note, the 2009 MONEYVAL progress report highlights that the FAU has since established an informal working group called the “Clearing House” comprising of representatives from the relevant organizations. The group was established primarily as a platform for information exchange and to streamline AML/CFT activities nationally. With regard to UN Conventions and Instruments, the 2007 MONEYVAL evaluation reported that the Czech Republic has signed, but not yet ratified the Palermo Convention and the UN Convention for the Suppression of Financing of Terrorism. They have however, signed and ratified both the Vienna Convention and the Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime. Despite the Vienna Convention having come into force in 1991, some insufficiencies in its implementation remain. The Czech Republic also does not maintain formal statistics on listed persons or entities detected in the country. However, some efforts have been made in this respect and need to be amplified. The 2009 MONEYVAL progress report does note however, that the UN Convention for the Suppression of Financing of Terrorism has been ratified and came into force in 2006.
The Czech Republic was deemed by the 2007 MONEYVAL evaluation, as largely compliant with R 36 on mutual legal assistance (MLA), R 38 on MLA on confiscation and freezing and SR V on international cooperation. The evaluation however did highlight that despite the Czech Republic being largely in line with R 36 and R 38, the weaknesses in the Czech legal framework surrounding seizures and confiscations could serve as a hindrance to its effectiveness. R 32 on statistics was found to be largely compliant as there is sufficient availability of statistics, which however, could be more detailed. The 2007 MONEYVAL evaluation also found the Czech AML/CFT framework to be compliant with R 37 on dual criminality and largely compliant with R 39 on extradition. The evaluation does, despite this, express concerns over the inadequate staffing of the Ministry of Justice and the Prosecutors Office. Regarding R 40 on other forms of cooperation, the Czech Republic was deemed largely compliant.
