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AML Obligations
What AML/CFT processes must alternative investment funds follow?
What are the AML obligations of alternative investment funds?
As of 1 January 2021, alternative investment funds are considered obliged entities under the Czech AML Act, and therefore must comply with the following Anti-Money Laundering (AML) obligations:
- preparation of an internal AML policy system and submission to the Czech National Bank (CNB) within 60 days
- preparation of a risk assessment and submission to the Czech National Bank within 60 days
- client identification
- client due diligence
- appointment of a contact person and an authorized person, and notification of the contact person to the Financial Analytical Office (FAÚ)
- ongoing AML training
Recommended AML Implementation Steps:
- authorize a member of the statutory body to oversee AML responsibilities
- preparation of a system of internal politics
- conduct and document the risk assessment
- appoint a contact person and notify the FAÚ
- conduct initial AML training
- continuously fulfil other AML duties (e.g., client identification and verification)
Deadlines and Penalties for Non-Compliance
| AML obligation | Deadline | Potential penalty |
|---|---|---|
| authorize statutory body member | within 60 days | up to CZK 1,000,000 |
| prepare internal AML policies | within 60 days | up to CZK 1,000,000 |
| conduct risk assessment | within 60 days | up to CZK 1,000,000 |
| appoint and notify FAÚ of contact person | within 60 days | up to CZK 1,000,000 |
| conduct AML training of cooperating personnel | before job start (then annually) | up to CZK 5,000,000 |
AML Obligations in Detail
- undertake client identification according to a system of internal policies and risk assessment (this may be a natural or legal person or a nominee, etc.)
- carry out client screening according to the internal policy and risk assessment system (i.e. ascertaining the origin of the assets and the purpose of the transaction, the beneficial owner of the legal entity, etc.)
- verify that the client is not subject to international sanctions
- to determine whether the client is a PEP (politically exposed person) before the transaction is executed
- refuse to carry out a transaction in the cases provided for by law
- retain data to the extent and for the period required
- continuously assess whether the trade shows signs of suspicious trading
- in the event of a suspicious trade, take appropriate action and file an OPO (suspicious trade report), etc.
What to Watch Out For?
Act No.40/2009 Coll., the Criminal Code, as amended, knows not only the intentional crime of "laundering the proceeds of crime" but also its negligent form "laundering the proceeds of crime through negligence". In practice, this means that you can commit this offence without being aware of it (!).
Examples of Selected Sanctions for Non-Compliance with AML Obligations
- Failure to carry out client identification and due diligence, or to store data for 10 years – fine of up to CZK 10,000,000. In case of serious, repeated, or systematic breaches, a significant increase of the fine and/or a ban on activity may apply;
- Entering into a transaction or business relationship with a client who could not be identified – fine of up to CZK 10,000,000. In case of serious, repeated, or systematic breaches, a significant increase of the fine and/or a ban on activity may apply;
- Failure to notify the FAU (Financial Analytical Office) of the contact person in cases stipulated by law – fine of up to CZK 1,000,000 for failure to notify the contact person, failure to notify changes, or delayed notification;
- Failure to train employees – fine of up to CZK 5,000,000. In case of serious, repeated, or systematic breaches, a significant increase of the fine and/or a ban on activity may apply;
- Failure to report a suspicious transaction – fine of up to CZK 5,000,000. In case of serious, repeated, or systematic breaches, a significant increase of the fine and/or a ban on activity may apply;
- Failure to implement and apply preventive AML/CFT measures – fine of up to CZK 5,000,000;
- Failure to appoint a responsible person (one of the members of the statutory body in charge of AML/CFT activities) – fine of up to CZK 1,000,000. In case of serious, repeated, or systematic breaches, a significant increase of the fine and/or a ban on activity may apply;
- Failure to prepare written internal policies and risk assessment, or to submit them to the CNB (Czech National Bank) in stipulated cases – fine of up to CZK 1,000,000 for failure to prepare, notify changes, remedy deficiencies within the given period, or submit written information on how the deficiencies were addressed; for failure to prepare the risk assessment to the required scope or within the required timeframe, or to update it;
- Ignoring discrepancies in the register of beneficial owners – fine of up to CZK 100,000 for failing to notify the client about the discrepancy in the register. Fine of up to CZK 1,000,000 for failure to notify the court of unresolved discrepancies. Fine of up to CZK 200,000 for ignoring FAU's instruction not to notify the client, or up to CZK 1,000,000 if the failure prevented the securing of criminal proceeds or enabled terrorism financing;
- Failure to postpone execution of a client’s order – fine of up to CZK 1,000,000 for failure to postpone by 24 hours if there is a risk that execution of the order could frustrate or significantly hinder the securing of criminal proceeds or terrorist financing. Fine of up to CZK 10,000,000 for ignoring FAU’s order to extend the postponement or secure assets;
- Breach of confidentiality by the obliged person (or their employee) – fine of up to CZK 200,000 for breach of confidentiality regarding facts related to reporting and investigation of suspicious transactions and actions taken by the FAU, or up to CZK 1,000,000 if the breach prevented the securing of criminal proceeds or enabled terrorism financing.
Where to next?
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