Protection against money laundering

Since the 15^th of March 2018, the new amendment to Act No 297/2008 Coll. on protection against money laundering (hereinafter referred to as “Act“) extends the range of persons obliged to perform a customer due diligence as well as the range of businesses in which such due diligence must be performed, and a new obligation is imposed on all legal entities to register beneficial owners in the commercial register. In this newsflash we would like to guide you through the most important changes and inform you of the time you have to implement the necessary changes.

1 Identification of the Ultimate Beneficial Owners

The amendment to the Act obliges all legal entities to identify their ultimate beneficial owners and register them in the commercial register by 31^st December 2019. However, the amendment to the law comes into force on the 1^st of November 2018 and thus companies should have the information available as from that moment. Filing them at the Commercial Register is possible until end of 2019. The information on the Ultimate Beneficial Owners will not be publically available and will be available only in specific cases. The data on beneficial owners must be kept in written (or electronic form) by the legal entity for the period during which a natural person is in the position of a beneficial owner and for the period of 5 years of the date when such position terminates. Such registration does not relieve a public sector partner of their obligation to register their beneficial owners in the register of public sector partners as well. Failure to do this, may result in fines of up to 1.000.000 EUR as well. The Ultimate Beneficial Owner is a natural person who ultimately owns or controls a company, as well as the natural person on whose behalf a transaction or activity is being conducted by the company. Usually that means a person who controls at least 25% of the shares in a legal entity. The information that should be collected for the identification is the name and surname, date of birth, permanent residence, nationality and type and number of the personal ID. Currently companies who do business with the state, are required already to have a registration of such information at the ‘Register of Public Sector Partners’. This new obligation for all legal entities does not replace this special register.

2 Changes to the customer due diligence process

2.1 Entities obliged to perform a customer due diligence

The amendment to the Act defines the obliged entity, among others, as:

1. a person authorised to

intermediate a sale, rent, and a purchase of real estate,
perform activities of an organisational and economic advisor,
provide the services of public carriers and messengers and forwarding services,

regardless of whether such person actually performs the above listed activities;

2. every entrepreneur who carries out a cash transaction in the minimum amount of 10.000 EUR (before 14^th March 2018 such limit was 15.000 EUR) or a noncash transaction in the amount above 15.000 EUR. Such transactions include also a business carried out individually or several related businesses that are or might be interconnected.

The obliged entity with a special authorisation - see point 1 above, must always identify and verify the client’s identity when performing a business transaction amounting to the minimum sum of 1.000 EUR!!! The obliged entity carrying out the business within the limits specified in item 2 must also identify and verify the client’s identity and, moreover, identify and verify the identity of the beneficial owner. The obliged person has also other obligations; the failure to fulfil them may be subjected to a fine up to 1.000.000 EUR.

We therefore strongly recommend deleting the lines of business listed in point 1 above from the respective commercial register, unless you actually perform them.

2.2 Unusual business transactions

Also, the amendment to the Act supplemented the definition of an unusual business transaction with an operation at which:

a client refuses to identify themselves or provide their data
there is an assumption of being related to a client, or a matter, or a service subjected to an international sanction.

An unusual business transaction then triggers at least duty to identify and verify the client’s identity and, moreover, to identify and verify the identity of the beneficial owner.

2.3 Activities to perform

Activities performed within the due diligence were supplemented with an obligation to:

identify a beneficial owner and verify their identity,
verify whether a client or a beneficial owner is a politically exposed person or a sanctioned person and verify whether the client acts in their own name.

According to the new Act amendment, the due diligence must also be carried out by the obliged person

when performing a cash transaction in the minimum amount of EUR 10,000,
in the case of any doubts regarding the truthiness or completeness of the obtained data,
in the case of operating a gambling business with the transaction in the minimum amount of EUR 2,000.

The amendment to the Act supplements the list of cases when higher due diligence must be carried out. Higher due diligence must always be carried out in cases listed for the informative purposes in the Annex 2 to the Act, for example: in the case of a client who is a politically exposed person, a client based in a country designated by the European Commission as a high-risk country.

We will be happy to assist you in asserting whether you fall under the above mentioned changes and what corrective measures you can take to abide by the new law. Together with legal counsellors we can also support you in preparing the changes in the commercial register, mainly to erase licences that set you status of obliged entity.