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AML Act to Help Hone Your Detective Skills

AML Act to Help Hone Your Detective Skills

27.08.2012 16:12

The Czech AML Act, officially called the “act on selected measures against the legitimisation of the proceeds of crime and the financing of terrorism”, imposes very strict requirements on reporting entities. Such entities include providers of custodial services (including lawyers and notaries public), real estate agents, loan brokers and financial institutions, among others. The common denominator among the requirements is an obligation to avoid deals involving illegally obtained money and to maintain transactional records for any potential future investigations.

Failure to comply with the act can lead to a heavy fine. If, for example, a reporting entity fails to keep documents and data on its clients – such as copies of IDs and documents, originals of powers of attorney – for a post-transaction period of 10 years, it may be fined up to CZK 10 million. Moreover, if the laundered money cannot be retrieved because of such failure, the fine may reach the backbreaking sum of CZK 50 million.

What exactly does “suspicious” mean?

So far, so good. But in reality the act leaves much to be desired as it fails to give reporting entities a clear definition of a number of requirements, such as their duty to report any “suspicious transaction”. According to lawmakers, every transaction “concluded under circumstances that give rise to any suspicion of an attempt to legitimise the proceeds of crime” or “any other circumstance that could indicate such suspicion” will be regarded as suspicious. In terms of outlining the circumstances and facts in that respect, however, the act merely provides a few examples. Which means that entities will have to play detective to determine what other transactions could be considered suspicious.
The main problem, however, is that the last word on whether or not a transaction is suspicious lies with the authority in charge of interpreting the act, namely the Ministry of Finance (the Financial Analysis Division), pursuant to inspections and court proceedings should there be any disputes. While the reporting entity may believe in good faith that a certain transaction is not suspicious, the opposing party may believe just the opposite. Even something as innocent as the deposit of part of an escrow amount by a family member of a client may be construed as dubious behaviour.

Upon discovering a suspicious transaction, reporting entities are required to notify the Ministry of Finance (or any other authority appointed by law) without undue delay but at least within five days. If they fail to do so, they risk being fined up to CZK 5 million. The Financial Analysis Division, on the other hand, has very extensive powers. It is basically free to demand that the reported entity presents all documents proving that the individuals from which the escrow amount was accepted have been duly identified, the transactions checked and all suspicious transactions reported.

There does seem to be a way out for entities that truly wish to get a decent night’s sleep. Why not start reporting all transactions as suspicious? The real question then is what the response would be from the Ministry and, if they were to find out, from the clients themselves. In any case, I believe that the specifics in the act should have been better defined. Those who are required to follow it would then have a much better idea of how to proceed.

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