## _cr0446 ## Source details **Canonical URL:** [_cr0446](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr0446.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr0446.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr0446.pdf.json) --- ### Introduction and methodology - Report prepared by a team of International Monetary Fund and World Bank staff and an independent AML expert. - Independent AML expert: Mr. Boudewijn Verhelst (Deputy Director of the Belgium FIU, CTIF-CFI). - Portions attributable to the Independent AML Expert are shown in italicized text in the source. - Assessment based on information available at time assessment was completed on June 6, 2003. - Field work dates: May 26 to June 6, 2003. ### Main findings — overview - The Czech authorities made impressive progress in recent years in bringing the AML regime into compliance with European and international standards. - AML provisions date to Act No. 61 of February 15, 1996 (AML Act); amendments and new initiatives have brought compliance with most FATF legal requirements, but CFT legislation is not yet aligned with FATF CFT standard. - Main institutions responsible: Financial Analytical Unit (FAU), police, Office of the Public Prosecutor; financial regulators include Czech National Bank (CNB), Ministry of Finance, Czech Securities Commission (CSC). - High level of compliance with the FATF 40 Recommendations for AML; shortcomings mainly in combating financing of terrorism and in insurance-sector supervision. - High level of compliance has not translated into law enforcement results. ### A. Criminal justice measures and international cooperation — key findings - Money laundering offence: - Legal provisions largely consistent with FATF standard but scope appears narrower than Vienna, Strasbourg and Palermo conventions. - Section 252a of the Criminal Code requires proof of intent “with the aim to pretend that such asset or financial benefits have been obtained in compliance with law”, creating a higher burden of proof than international conventions. - Financing of terrorism: - No specific and explicit offence criminalizing financing of terrorism. - Palermo Convention and UN International Convention for the Suppression of the Financing of Terrorism: signed but not ratified/fully implemented. - Confiscation, freezing and seizure: - Measures exist when linked to terrorist-related offences but no mandatory and systematic confiscation/forfeiture of the object of the offence (laundered money or property); Section 55 provides optional forfeiture (“the court may impose forfeiture of a thing”). - Authorities not yet able to freeze without delay funds or property in accordance with UNSCRs and FATF Special Recommendation III. - Customs declaration threshold: cross-border movement of cash and bearer instruments over CZK 350,000 subject to mandatory declaration; non-declared money over that threshold can be seized; customs cannot seize funds under that threshold even if suspicion exists. - FAU and international cooperation: - FAU created in 1996; meets Egmont Group FIU definition; member since 1997. - FAU actively participates in awareness-raising and training but has not issued guidelines to assist financial institutions to identify patterns of suspicious transactions. - FAU should be able to cooperate with foreign counterparts even in absence of treaty; a draft amendment to the AML Act, if enacted, would allow this. - Law enforcement response: - FAU is mature and experienced; law enforcement response to FAU disclosures has been ineffective. - Total absence of law enforcement results in terms of specific ML prosecutions, convictions and asset recovery. - Main causes identified: “a rather persistently overcautious judicial approach” and “a certain hesitance to test the solidity of the AML system before the courts.” - Institutional developments: - Creation of specialized police Unit for Combating Corruption and Financial Crime (UCCFC) and an interdepartmental “Clearing House”. - Need for specialized training, particularly for judiciary. - Penalties: - Penalties for ML do not seem sufficiently proportionate and dissuasive; recommended to be brought up to international standards. ### A. Criminal justice measures — recommended actions - Align criminal definition of money laundering with Vienna, Strasbourg and Palermo Conventions; enlarge scope of section 252a to cover “acquisition, possession, use or disposition of assets with the knowledge that such assets originate from a criminal activity”. - Promptly criminalize financing of terrorism through legislative amendment consistent with the UN International Convention for the Suppression of the Financing of Terrorism. - Add mandatory provisions for systematic confiscation/forfeiture of the object of the offence (laundered money or property); consider making Section 55 forfeiture mandatory. - Amend legislation to allow unconditional freezing of funds and property in accordance with UNSCRs and FATF Special Recommendation III. - Improve collection and publication of specified and itemized statistics on ML and FT seizure and confiscation. - Ratify and fully implement the Palermo Convention and the UN International Convention for the Suppression of the Financing of Terrorism. - Enact draft amendment to the AML Act to allow FAU reciprocal cooperation with foreign counterparts in absence of a treaty. - Strengthen law enforcement response to FAU disclosures; increase specialized training, especially for the judiciary; develop case law to test adequacy of the ML offence and evidentiary requirements. - Increase deterrent effect of penalties for ML to meet international standards. ### B. Preventive measures for financial institutions — key findings - Supervisory responsibilities: - FAU designated to audit compliance; since 2000 CNB, CSC and CUSA also have audit functions for banks, securities and credit unions respectively. - FAU inspects banks, securities companies and credit unions on an ad hoc basis but leaves majority of supervision to CNB, CSC and CUSA. - FAU has high number of entities under supervision and lacks adequate staffing resources for supervisory duties. - CNB, CSC and insurance oversight: - CNB increased AML targeted on-site inspections; issued CNB provision on internal management and control systems for banks (Provision No.1/September 2003). - CSC incorporated AML within inspections since 2002. - AML/CFT regulation and supervision in insurance sector insufficient; Office of the State Supervision in Insurance and Pension Funds has not focused inspections on AML/CFT. - Customer identification, record keeping and originator information: - AML Act provides customer identification and record keeping requirements, but current law does not address renewal of identification when doubts arise or identification of beneficial owners of legal entities. - Confidentiality rules for lawyers/notaries impede proper identification when they act on behalf of clients. - Existing legislation does not require financial institutions to include accurate and meaningful originator information on funds transfers and related messages; FATF Interpretative Note to SR VII requires completion by end 2004. - Enhanced due diligence and reporting: - Banks required under CNB provision to pay attention to high risk customers and persons in jurisdictions without adequate systems; other financial institutions not uniformly required. - Reporting system comprehensive for ML but no similar statutory requirement for reporting suspicions of terrorist financing (amendments pending). - All financial institutions have internal procedures and appointed contact persons, but FAU and supervisors have not issued practical guidance on detecting patterns of suspicious activity. - Planned reforms: - New CNB regulation on internal management and control systems and draft amendment to AML Act expected to come into force January 2004 (per authorities) to improve customer identification, record keeping and reporting of suspicions of terrorist financing. ### B. Preventive measures — recommended actions - Increase FAU staffing and resources, especially for supervisory functions; expand audit staff (FAU audit and legal department currently four staff; two dedicated to on-site inspections). - Task the insurance supervisor with AML/CFT supervision; build Office’s AML/CFT expertise and grant wider remedial powers. - Allow FAU to supply information on financial institutions’ reporting behavior to relevant supervisors (as in draft amendment to AML Act). - Amend law to require renewal of customer identification when doubts arise and to require identification of beneficial owners of legal entities; remove confidentiality impediments for lawyers/notaries acting on behalf of clients. - Require financial institutions to include accurate and meaningful originator information on funds transfers and related messages in line with FATF Interpretative Note to SR VII by end 2004. - Extend requirements to pay special attention to high risk customers and persons in jurisdictions without adequate systems to all financial institutions (not just banks). - Require special attention to all complex, unusual large transactions and unusual patterns of transactions that have no apparent or visible economic or lawful purpose; require written findings and retention for authorities. - Introduce a reporting requirement for suspicions of terrorist financing (amendments pending). - FAU, cooperating with supervisors, should issue practical guidance and guidelines to financial institutions to assist in detecting patterns of suspicious financial activity. - Bring planned legislative amendments (including CNB regulation and draft AML Act amendment) into force as expected. ### FAU, STR system and statistics — key findings and figures - FAU established 1996; part of Ministry of Finance; meets Egmont Group definition; member since 1997. - FAU responsibilities: receive, analyze, disseminate STRs; supervise and enforce compliance with AML Act for many non-bank entities. - FAU staffing and structure: - Current staff: 28 divided into four departments (collecting/processing; analytical; audit and legal; international cooperation). - Supervisory Legal and Supervisory Department: four staff; two dedicated to on-site inspections. - STRs received (FAU-provided statistics): - 2000: 1917 - 2001: 1750 - 2002: 1264 - 2003 (by 30 April): 614 - Cases forwarded to police (by 31 May): - 2000: 104 - 2001: 101 - 2002: 115 - 2003: 34 - Operational observations: - FAU mature and experienced; provides informal guidance to reporting entities; able to access financial, administrative and law enforcement information. - Some cases take long to process; FAU reliance on updated tax information may delay analysis. - Law enforcement and judiciary have not fully used FAU work product; no ML prosecutions initiated as a result of STR system to date. - FAU international cooperation: - FAU concluded MOUs with 14 foreign FIUs; sent 493 requests for information to FIUs of 42 countries since 1998; received requests on 188 occasions from 40 countries. - Formal cooperation currently restricted to jurisdictions party to bilateral treaties or the Strasbourg Convention; draft amendment would allow cooperation where counterpart meets Egmont standards. ### FAU and STR system — recommended actions - FAU should issue guidelines to help financial institutions implement AML/CFT requirements and detect/report suspicious patterns of transactions. - FAU should assess management of STRs and examine ways to speed up analysis whenever not dependent on outside factors. - Improve statistical self-evaluation: keep detailed statistics including probable predicate criminality, money laundering stage, nature of transactions, and geographical spread of cases. - Extend FAU supervisory staff to perform effective and comprehensive audits; produce an annual report on FAU activity and findings. - Lift formal treaty/Strasbourg Convention adherence condition for FIU cooperation; permit cooperation whenever counterpart meets Egmont Group standards (draft amendment would allow this). ### Law enforcement and prosecution — findings and recommended actions - Findings: - Investigative techniques (interception, surveillance, controlled delivery, undercover agents) legally available but underused in ML cases. - UCCFC established with a Department of Proceeds and Money Laundering; division into sections for ML and detection/seizure of proceeds. - “Clearing House” established to coordinate tracing/recovery of criminal assets. - Tracing assets to a specific predicate offence, especially when committed abroad, is a main challenge. - No ML prosecutions, convictions or confiscations to date; deficient judicial follow-up and high mens rea requirement identified as obstacles. - Recommended actions: - Strengthen specialization and ensure UCCFC and prosecution produce court-tested results. - Support and operationalize the “Clearing House” with active inter-agency input and international best practices. - Joint review of typologies and trends by FIU, police and prosecution; include typologies in annual reports. - Conduct thorough audit to identify causes of deficiencies in prosecutions and asset recovery; focus on judicial follow-up, judiciary awareness/training, mens rea standard, and proving predicate offences. - Consider treating ML as an autonomous offence to ease evidentiary burdens. ### Sanctions and penalties — findings and recommendations - Current sanctions for ML (section 252a): - Up to two years in jail or a pecuniary punishment (general). - One to five years in jail if committed as member of an organized group or if offender acquired considerable profit. - Two to eight years in jail or forfeiture of property for narcotics-related or particularly grave offences, large-scale profit or abuse of position. - Definitions of profit thresholds (section 89): - “considerable profit means profit in the amount of at least CZK 500,000” - “large-scale profit means profit in the amount of at least CZK 5 million” - Administrative/supervisory fines: - Fine for violation of sanctioning legislation: up to CZK 5 million for physical person or legal entity; up to CZK 30 million if State’s particularly important foreign-policy or security interests jeopardized. - Sanctions under AML Act: fine not exceeding CZK 2 million; repeated violation during 12 successive months: fine maximum CZK 10 million; possible repeal of business or self-employment license. - CNB remedial measures and fine of up to CZK 50 million on banks; power to revoke licenses under section 34 Act on Banks. - Recommendation: - Review adequacy of sanctioning to bring them into compliance with European Union Council Decision of June, 2001 which established a four-year minimum for money laundering offences; proceed with Penal Code revision to increase sanctions for most serious conduct. ### International cooperation — findings and recommended actions - Mutual legal assistance and extradition: - Wide range of international cooperation available; Czech Republic ratified Vienna Convention; Palermo Convention and UN FT Convention signed but not ratified. - Bilateral mutual legal assistance/extradition treaties concluded with 49 countries; police cooperation agreements with 24 countries; further agreements under preparation. - Extradition: generally not of Czech nationals to foreign countries; possibility to take over prosecution for Czech nationals suspected abroad. - Operational observations: - Cooperative attitude and practice beyond reproach; implementation of foreign confiscation orders not considered problematic. - Absence of autonomous FT offence may hinder FT extradition; timely introduction of FT offence recommended. - Recommendations: - Ratify and implement Palermo and UN FT Convention rapidly. - Introduce FT offence promptly to clarify extradition and mutual assistance for FT cases. - Improve ML and FT mutual legal assistance statistics. ### Key financial sector structure figures (as described) - Banking and payment services: - “26 banks and 9 branches of foreign banks” - “224 bureaux de change licensed by CNB for selling of foreign currency” - “35 money transmission service providers” - Insurance and pensions: - “39 insurance companies engaged in either life or non-life insurance business” - “13 active pension funds” - Other financial institutions: - “47 credit unions” - Securities sector: “approximately 81 securities dealers (with around 1620 licensed individual brokers) and 57 investment companies” ### FATF compliance ratings — selected items and implications - High-level summary of compliance status from assessment: - Fully complies: FATF Recommendations 1, 3, 5, 15, 16, 17, 18, 19, 20, 26, 29, 33, 34, 37, 38, 40 and SR V. - Largely complies: FATF Recommendations 4, 7, 10, 11, 12, 14, 21, 32. - Materially non‑compliant: Recommendation 28 and SRs I, II, III, IV. - SR VI: Not applicable (no informal remittance activities identified). - SR VII: Not rated (originator information measures pending). - Main areas needing remedial action: criminalization of FT, mandatory confiscation/forfeiture, originator information for wire transfers, guidance to financial institutions, insurance-sector supervision, FAU supervisory staffing, and judicial follow-up to achieve prosecutions/asset recovery. ### Consolidated recommended action plan — select priority items - Immediate legislative actions: - Enlarge scope of section 252a of the Criminal Code to align with Vienna, Strasbourg and Palermo conventions and to cover “acquisition, possession, use or disposition of assets with the knowledge that such assets originate from a criminal activity”. - Promptly criminalize financing of terrorism consistent with the UN FT Convention and ratify and implement that Convention. - Amend legislation to allow unconditional freezing of funds and property in accordance with UNSCRs and FATF SR III. - Introduce criminal liability for legal persons in the Criminal Code (target to occur before January 2005 per mission recommendation). - Revise penal sanctions to meet international standards, including consideration of the EU Council Decision four-year minimum. - Supervisory, institutional and operational measures: - Increase FAU staffing and supervisory resources; FAU to produce annual reports and more detailed STR statistics. - Allow FAU to share reporting behavior information with other supervisors (draft amendment to AML Act). - Task the Office of the State Supervision in Insurance and Pension Funds with AML/CFT supervision and build its capacity. - CNB and other supervisors to provide practical guidance and typologies; issue formal guidelines to financial institutions for detecting suspicious patterns. - Require financial institutions to collect/renew identification when doubts arise and to identify beneficial owners of legal persons; ensure lawyers/notaries cannot invoke confidentiality to impede KYC. - Require inclusion of accurate and meaningful originator information on funds transfers by end 2004. - Require reporting of suspicions of terrorist financing. - Law enforcement and judicial effectiveness: - Strengthen prosecutorial and judicial training and awareness; develop case law and jurisprudence to test ML offence and evidentiary requirements. - Conduct audit to determine causes of zero ML prosecutions/asset recoveries and implement remedies (judicial follow-up, mens rea issues, proving predicate offences). - Make more effective use of FAU cases; support “Clearing House” operationally; deploy special investigative techniques where appropriate. *Report based on the assessment completed June 6, 2003; source document: _cr0446 — Detailed Assessment Report on Anti-Money Laundering and Combating the Financing of Terrorism — Czech Republic, December 2003.* ### 1. Recommended Action Plan to Improve Compliance ### 1. Recommended Action Plan to Improve Compliance ### Introduction and Methodology - The Report on the Observance of Standards and Codes for the FATF 40 Recommendations for Anti-Money Laundering and 8 Special Recommendations on Combating the Financing of Terrorism was prepared by a team composed of staff of the International Monetary Fund and the World Bank, and an independent expert. - The independent AML expert was Mr. Boudewijn Verhelst (Deputy Director of the Belgium FIU, Cellule de Traitement des Informations Financières—Cel voor Financiële Informatieverwerking, CTIF-CFI). - Portions of the assessment attributable to the Independent AML Expert (IAE) are shown in italicized text in the source. - The assessment is based on information available at the time the assessment was completed on June 6, 2003. ### Main Findings — overview - The Czech authorities have made impressive progress in recent years in bringing the AML regime into compliance with European and international standards. - AML provisions in the Czech Republic date to the enactment of Act No. 61 of February 15, 1996 on Selected Measures against Legitimization of Proceeds from Criminal Activities (AML Act). - New legislative initiatives have brought the Czech Republic into compliance with most legal requirements of the FATF AML standard; CFT legislation, however, is not yet in line with the FATF CFT standard. - Main institutions responsible: Financial Analytical Unit (FAU), the police, the Office of the Public Prosecutor; financial regulators include the Czech National Bank (CNB), the Ministry of Finance, and the Czech Securities Commission (CSC). ### A. Criminal Justice Measures and International Cooperation — findings and recommended actions - Findings: - Legal provisions for criminalization of money laundering are in place and largely consistent with the FATF standard, but the scope of the money laundering offence appears narrower than in: - UN Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances 1988 (Vienna Convention); - Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime 1990 (Strasbourg Convention); - UN Convention against Transnational Organized Crime 2000 (Palermo Convention). - There is no specific and explicit offence criminalizing the financing of terrorism. - Measures to confiscate proceeds of crime or property used to finance terrorism exist when linked to terrorist-related offences, but there is no provision for mandatory and systematic confiscation/forfeiture of the object of the offence (the laundered money or property). - Lack of specified and itemized statistics on ML and FT related to seizure and confiscation. - The Czech Republic has signed and ratified the Vienna Convention; the Palermo Convention and the UN International Convention for the Suppression of the Financing of Terrorism have been signed but ratification and full implementation are incomplete. - The Czech Republic provides a wide range of international cooperation and mutual legal assistance; assistance is available on the basis of numerous existing multilateral and/or bilateral treaties or conventions. - The FAU should be able to cooperate with foreign counterparts on a reciprocal basis even in the absence of a treaty or convention; a draft amendment to the AML Act, if enacted, would allow this. - Supervisors and the FAU have distributed UN and EU terrorist lists to Czech financial institutions, but authorities are not yet fully able to freeze without delay funds or property in accordance with UNSCRs and FATF Special Recommendation III. - The authorities are preparing legislative amendments expected to be brought into force in 2004, including: (i) criminalizing the financing of terrorism; (ii) authorizing criminal liability for legal persons; and (iii) enacting other CFT-related provisions. - The FAU, created in 1996, meets the Egmont Group FIU definition, has been a member since 1997, and actively participates in awareness-raising and training, but has not yet issued guidelines to assist financial institutions to identify patterns of suspicious transactions. - Reporting system performance: FAU is mature and experienced, adequately fulfilling its selective and supportive function, but law enforcement response to FAU disclosures has been ineffective. - The FAU should manage available resources more effectively and speed up the analytical process when not dependent on outside factors; self-evaluation would benefit from more detailed statistics on performance and characteristics of all components of the AML effort. - Law enforcement and prosecution authorities can use a wide range of investigative techniques and can compel production of bank account and financial transaction records; tracing assets to a specific predicate offence (especially when committed in a foreign country) is a main challenge. - Customs monitors cross-border movement of cash and bearer instruments over CZK 350,000 subject to mandatory declaration, but cannot seize funds under that threshold even if circumstances raise suspicion of illegal proceeds. - There is a total absence of law enforcement results in terms of specific ML prosecutions, convictions and asset recovery. - Specialized responses have been initiated: creation of a specialized police unit for money laundering and establishment of an interdepartmental task force (“Clearing House”), but there remains a need for specialized training, particularly for the judiciary. - Penalties for ML do not seem to be sufficiently proportionate and dissuasive and should be brought up to international standards. - CFT prosecution and mutual legal assistance remain jeopardized by the absence of a formal and comprehensive legal basis; otherwise international cooperation is solid. - Recommended actions: - Align the criminal definition of money laundering with definitions contained in the Vienna, Strasbourg, and Palermo Conventions. - Promptly criminalize the financing of terrorism through legislative amendment. - Add mandatory provisions for systematic confiscation/forfeiture of the object of the offence (laundered money or property). - Improve collection and publication of specified and itemized statistics on ML and FT seizure and confiscation. - Ratify and fully implement the Palermo Convention and the UN International Convention for the Suppression of the Financing of Terrorism. - Enact the draft amendment to the AML Act to allow FAU reciprocal cooperation with foreign counterparts in absence of a treaty. - Amend legislation to allow unconditional freezing of funds and property in accordance with UNSCRs and FATF Special Recommendation III. - FAU should issue guidelines to assist financial institutions in identifying patterns of suspicious transactions. - Strengthen law enforcement response to FAU disclosures; increase specialized training, especially for the judiciary; develop case law and jurisprudence to test adequacy of the money laundering offence and evidentiary requirements. - Increase deterrent effect of penalties for ML to meet international standards. ### B. Preventive Measures for Financial Institutions — findings and recommended actions - Findings: - The FAU is designated as the main authority responsible for auditing compliance of financial institutions with the AML Act. - Since 2000, CNB, CSC and CUSA also have a function under the AML Act to audit compliance for banks, investment companies, investment funds, pension funds, securities traders, and credit unions, respectively. - The FAU inspects banks, securities companies and credit unions on an ad hoc basis but leaves majority of supervision to CNB, CSC and CUSA. - CNB has increased AML targeted on-site inspections and issued a CNB provision on internal management and control systems for banks in the area of money laundering prevention. - CSC has incorporated AML within on-site and off-site inspections of securities dealers since 2002. - The FAU has a high number of entities under its supervision and lacks adequate staffing resources to perform duties satisfactorily; FAU could benefit from increased resources, especially for supervisory function. - AML/CFT regulation and supervision in the insurance sector is insufficient; the Office of the State Supervision in Insurance and Pension Funds has not focused inspections on AML/CFT due to lack of legal obligation. - The mission welcomes efforts to task the insurance supervisor with AML/CFT supervision and urges prioritization and capacity-building. - Financial supervisors have adequate powers to check integrity of management and major shareholders and can prohibit criminals from taking control of financial institutions. - FAU, CNB and CSC have sufficient enforcement powers; insurance supervisor should be granted wider powers for remedial actions. - The Ministry of Finance/FAU, the CSC and the CNB entered into an agreement on cooperation in February 2003. - Financial supervisors have no restrictions in providing the FAU with information on supervised entities, but except for the CNB, the FAU cannot convey information on reporting institutions to financial supervisors; supervisors need this information for AML/CFT supervision. - The draft amendment to the AML Act, if passed, would allow the FAU to supply information on financial institutions’ reporting behavior to relevant supervisors. - AML Act provides sufficient requirements for customer identification and record keeping. - Current law does not address renewal of customer identification information when doubts arise during a business relationship or identification of beneficial owners of legal entities; confidentiality rules when lawyers/notaries act on behalf of clients impede proper identification. - Existing legislation does not require financial institutions to include accurate and meaningful originator information on funds transfers and related messages; FATF Interpretative Note to Special Recommendation VII requires completion by end 2004. - Banks are required under new CNB provision to pay attention to high risk customers and persons and legal entities in jurisdictions without adequate systems; other financial institutions are not so required. - Reporting system is comprehensive and largely meets international standards for suspicious transaction reporting of money laundering, but there is not a similar requirement for reporting suspicions of terrorist financing (amendments pending). - All financial institutions have drafted and submitted internal procedures and control measures and appointed a contact person as required by the AML Act, but FAU and supervisors have not issued practical guidance on detecting patterns of suspicious activity. - Authorities plan a new CNB regulation on internal management and control systems of banks and draft legislation to amend the AML Act expected to come into force in January 2004. - Recommended actions: - Increase FAU staffing and resources, especially for supervisory functions. - Task the insurance supervisor with AML/CFT supervision and build the Office’s AML/CFT knowledge and expertise; grant insurance supervisor wider powers for remedial actions. - Allow the FAU to supply information on financial institutions’ reporting behavior to relevant supervisors (as in the draft amendment to the AML Act). - Amend law to require renewal of customer identification information when doubts arise and to require identification of beneficial owners of legal entities; remove confidentiality impediments when lawyers or notaries act on behalf of clients. - Require financial institutions to include accurate and meaningful originator information on funds transfers and related messages in line with FATF Interpretative Note to Special Recommendation VII by end 2004. - Extend requirements to pay special attention to high risk customers, persons and legal entities in jurisdictions without adequate systems to all financial institutions (not just banks). - Require financial institutions to pay special attention to all complex, unusual large transactions and unusual patterns of transactions that have no apparent or visible economic or lawful purpose. - Introduce a reporting requirement for suspicions of terrorist financing (amendments pending). - FAU, in cooperation with supervisors, should provide practical guidance and guidelines to financial institutions to assist in detecting patterns of suspicious financial activity and to raise awareness of ML and FT. - Bring planned legislative amendments (including CNB regulation and draft AML Act amendment) into force as expected to improve customer identification, record keeping and reporting of suspicions of terrorist financing. *Report based on the assessment completed June 6, 2003; source document: _cr0446 - 1. Recommended Action Plan to Improve Compliance* ### 25. The assessment shows the Czech Republic’s high level of compliance with the FATF ### _cr0446 - 25. The assessment shows the Czech Republic’s high level of compliance with the FATF ### Assessment summary and context - The assessment finds a high level of compliance with the FATF 40 Recommendations for AML; shortcomings mainly identified in combating the financing of terrorism and supervision of AML/CFT compliance in the insurance sector. - Amendments are underway that, if enacted, would bring the Czech Republic into even closer compliance with the FATF 40+8 Recommendations. - The high level of compliance has not yet translated into law enforcement results. - Field work for the assessment took place May 26 to June 6, 2003. - The assessment was a joint IMF/World Bank team with an Independent AML/CFT Expert (IAE). - Key legislation and regulatory instruments noted: - Act No. 61 of February 15, 1996 (AML Act) - Amendments to the AML Act in 2000 - Code of Criminal Procedures of 2001 regarding investigative techniques - Criminal Code No.134/2002 regarding the criminalization of money laundering - Decree of the Czech Securities Commission of October 24, 2002 - Decree of the Czech National Bank No.166/2002 regarding licensing - CNB Provision No.1/September 2003 on internal management and control systems - Draft legislative reforms under preparation include: - Amendment to the AML Act to incorporate the second European Union Directive on Money Laundering and the reporting of financing of terrorism transactions. - Draft revision of the Czech Criminal Procedure and Criminal Code to introduce criminal liability of legal persons, the criminal offence of terrorism financing, and enhancement of penalties for money laundering in certain circumstances. ### Major findings on legal and institutional framework - Progress since 1996 includes introducing the offence of self-laundering, adopting the concept of suspicious transactions, requiring financial institutions to appoint AML compliance officers, and enhancing customer identification and record keeping requirements. - Main institutions responsible for AML/CFT: - Financial Analytical Unit (FAU) - Police - Office of the Public Prosecutors - Czech National Bank (CNB) - Ministry of Finance - Czech Securities Commission (CSC) - Identified legal issues: - The scope of the money laundering offence (section 252a of the Criminal Code) appears narrower than the concept established by the Vienna, Strasbourg and Palermo conventions; recommendation to align the criminal definition with those conventions. - No provision establishes mandatory and systematic confiscation or forfeiture of laundered property; recommendation to give mandatory nature to forfeiture/confiscation regime. ### Table 1 — Recommended Action Plan to Improve Compliance with the FATF Recommendations (summarized) - Scope of the criminal offence of money laundering (FATF 4-6) - Enlarge the scope of section 252a of the Criminal Code to bring it into line with the concept established by the Vienna, Strasbourg and Palermo conventions and to cover “acquisition, possession, use or disposition of assets with the knowledge that such assets originate from a criminal activity”. - Provisional measures and confiscation (FATF 7) - Consider giving a mandatory nature to the forfeiture/confiscation regime (Section 55 of the Criminal Code). - Customer identification and record-keeping rules (FATF 10-13) - Pass the draft amendment to the AML Act to introduce requirements for updating identification information when doubts appear during a business relationship, and for identification of the beneficial owner when the customer is a legal person. - Ensure that lawyers and notaries cannot invoke confidentiality in relation to financial institutions when acting on behalf of a client. - Increased diligence of financial institutions (FATF 14-19) - Introduce requirements in the AML Act regarding ongoing monitoring of accounts and transactions. - Measures to cope with countries with insufficient AML measures (FATF 20-21) - Enact the draft amendment to require financial institutions to pay special attention to business relations and transactions with persons in jurisdictions that do not have adequate systems to prevent and deter ML or FT. - Implementation & role of regulatory and other administrative authorities (FATF 26-29) - Establish the Office of the State Supervision in Insurance and Pension Funds as the overall AML/CFT supervisor for the insurance sector. - Ensure no legal impediments for cooperating by the FAU with other relevant supervisors. - Issue guidelines to help financial institutions implement AML/CFT requirements and detect and report suspicious patterns of transactions. - Administrative Cooperation – Exchange of information relating to suspicious transactions (FATF 32) - Enact the draft amendment to the AML Act to allow the FIU to cooperate with its foreign counterparts even in the absence of a treaty or convention. ### Table 1 — 8 Special recommendations on terrorist financing (summarized) - I. Ratification and implementation of UN Instruments - Ratify and implement fully the UN International Convention for the Suppression of the Financing of Terrorism. - II. Criminalizing the financing of terrorism and associated money laundering - Introduce a criminal offence of financing of terrorism consistent with the UN International Convention for the Suppression of the Financing of Terrorism. - III. Freezing and confiscating terrorist assets - Amend legislation to unconditionally allow for freezing of funds and property in accordance with the UNSCR. - IV. Reporting suspicious transactions related to terrorism - Introduce a duty to report financial transactions suspected of being related to the financing of terrorism. - VII. Wire transfers - Take measures to require financial institutions to include accurate and meaningful originator information on funds transfers and related messages. ### Table 2 — Other Recommended Actions (summarized) - Funding and staffing of supervisors/regulators - The FAU would benefit from additional staffing, in particular for its supervisory function, given the large number of entities under its supervision. - For AML/CFT supervision by the insurance supervisor, more resources and training for inspectors are necessary to strengthen investigative capabilities and enhance skills and expertise in money laundering and financing of terrorism inspections. - Law enforcement results - Make more effective use of the cases and information supplied by the FAU. - Create case law and jurisprudence to test the adequacy of the money laundering offence and clarify courts’ positions regarding evidentiary requirements. - Sanctions - The penalty for ML should be made consistent with at least the applicable standards established by the European Union Council Decision of June 2001, which established a four-year minimum for money laundering offences. ### Background on criminality and threats - Criminal activity generating major illegal proceeds: economic crime (e.g., fraud and asset stripping) linked to privatization, tax offences, organized crime involving drug trafficking and counterfeiting of goods with regional and Asia links. - Terrorist-related activity and terrorist financing: the Czech Republic is not yet considered a prime target, but authorities are aware of potential threats and ready to act. *Detailed Assessment Report on Anti-Money Laundering and Combating the Financing of Terrorism — Czech Republic, December 2003* ### 13. Furthermore, a major reason for concern is the total absence of any law enforcement ### _cr0446 - 13. Furthermore, a major reason for concern is the total absence of any law enforcement ### Law enforcement results and root causes - Major concern: "the total absence of any law enforcement results in terms of specific ML prosecutions, convictions and confiscations." - Deficiency not attributed to lack of legal or material resources, but to: - "a rather persistently overcautious judicial approach" - "a certain hesitance to test the solidity of the AML system before the courts." - Analysis of Effectiveness: law enforcement results are poor despite a broadly comprehensive legal framework; problem identified as cultural/mental rather than purely legal or resource-based. ### Legal reforms under consideration - Criminal liability of legal persons: - "The Czech Republic is currently seeking to amend its Criminal Code to allow for the imposition of criminal liability on legal persons." - "The Ministry of Justice is reviewing draft language that will be submitted to the Council of Ministers" in the context of Criminal Code re-codification. - Mission recommendation: rapid adoption; stated target: reform should take place "before the currently planned schedule (i.e. January 2005)." - Alignment of ML offence with international conventions: - Mission recommends that "the criminal definition of money laundering be aligned with the aforementioned conventions, as already contained in section 1 of the AML Act." - Identified inconsistency: section 252a requires proof of intent "with the aim to pretend that such asset or financial benefits have been obtained in compliance with law", which sets a higher burden than conventions and excludes "acquisition, possession, use of assets with the knowledge that such assets originate from a criminal activity." ### International conventions, FT criminalization, and UNSCR compliance - Status of conventions: - Signed and ratified: "Vienna Convention." - Signed (not ratified/implemented): "the Palermo Convention and the UN International Convention for the Suppression of the Financing of Terrorism." - Mission recommendation: "their rapid ratification and implementation." - Financing of terrorism (FT): - Current legal gap: "The Czech Republic has no specific and explicit offence criminalizing the financing of terrorism." - Present practice: possible to prosecute FT through existing offences (participation/complicity/aiding and abetting), but coverage not guaranteed for all cases as defined by the UN Convention. - Mission recommendations: - "Introduce promptly a specific criminalization of the financing of terrorism, as prescribed by the UN International Convention for the Suppression of the Financing of Terrorism." - "Expeditiously amend their legislation to allow for unconditional freezing of funds and property in accordance with the UNSCRs." - Operational note: UN and EU lists of terrorist individuals/organizations have been distributed to financial institutions, but "financial institutions are not yet able to freeze funds or property of terrorists and of those who finance terrorism and terrorist organizations in accordance with the relevant UN Security Council Resolutions (UNSCRs)." ### Financial sector structure (as described) - Banking and payment services: - "26 banks and 9 branches of foreign banks" - "224 bureaux de change licensed by CNB for selling of foreign currency" - "35 money transmission service providers" - Insurance and pensions: - "39 insurance companies engaged in either life or non-life insurance business" - "13 active pension funds" - Other financial institutions: - "47 credit unions" - Securities sector: "approximately 81 securities dealers (with around 1620 licensed individual brokers) and 57 investment companies" - AML compliance officers: - "As required by the AML Act, all financial institutions have appointed a contact person who is in charge of coordination and information exchange with the FAU and the compliance with the reporting duty." - In most financial institutions "this compliance officer can decide if a transaction will be filed with the FAU." ### Financial Analytical Unit (FAU) and supervisory roles - FAU establishment and responsibilities: - "The FAU was established in 1996 as part of the Ministry of Finance." - Responsibilities include receiving, analyzing, and disseminating suspicious transaction reports; "supervision and enforcement of compliance by financial institutions with AML/CFT requirements"; auditing compliance by financial institutions with the AML Act. - Other supervisory bodies with AML functions: - Since 2000, the CNB, the CSC and the CUSA "also have a function under the AML Act to audit compliance for banks, investment companies, investment funds, pension funds, securities traders, and credit unions, respectively." - The Office of the State Supervision in Insurance and Pension Funds ("the Office") has not been given a compliance-auditing function under the AML Act. - FAU is sole supervisor for AML issues for: "gambling houses, casinos, betting shops, auction halls, real estate agencies, entities offering financial leasing or other types of financing, foreign exchange bureaus, facilitators of cash or wire money transfers, insurance companies, insurance and re-insurance agents." - Inter-agency cooperation: - "The Ministry of Finance/FAU, the CSC and the CNB entered into an agreement on cooperation in February 2003." ### Supervisory improvements and CNB guidance - CNB activity: - Increase in targeted on-site inspections by the CNB "since end 2002"; mission encourages continuation. - CNB issued "a provision on internal management and control system of banks in the area of money laundering prevention" effective October 1, 2003, containing requirements for customer acceptance/know-your-customer, reporting suspicious transactions, training programs, and internal management/control systems. - CNB view: banks responsible for establishing internal procedures; caution against overly prescriptive guidance due to heterogeneity of banking sector. - Mission view: CNB should consider elaborating the new provision by "giving additional guidance to banks on how to implement the legal framework" to ensure effective implementation and a level playing field. - CSC and securities supervision: - "The CSC has incorporated AML within their on-site and off-site inspections of securities dealers since 2002." - CSC adopted "a risk-based supervisory approach" since 1998; mission recommends further enhancement of AML/CFT supervision in 2003 and 2004. - Insurance supervision: - "AML/CFT regulation and supervision have not yet been given a high priority." - The Office "has not issued any guidelines or regulations to complement the AML/CFT provisions" and "has not focused its inspections on AML issues because it does not have any legal obligation to do so." - Mission note: Office will be tasked with supervising/enforcing AML/CFT compliance once amendment to the AML Act is adopted; requires substantial investment in expertise. - Mission recommendation: ensure FAU can exchange information on financial institutions’ reporting duty with other relevant supervisors; increase efforts to implement AML/CFT regime in insurance sector. - Credit unions: - Sector described as "comprised of a limited number of small credit unions." - CUSA role to date: inspect whether credit unions "have sent internal AML procedures to the FAU" and complied with customer identification and record keeping; has not checked whether suspicious transaction reports are filed or their quality. - Mission recommendation: "the CUSA include AML issues in the scope of its controls." ### Offence definitions, territoriality, and sanctions - Territoriality and extraterritorial jurisdiction: - Section 17 Criminal Code: crime considered committed in the Czech Republic if offender acted there even if consequences occurred abroad. - Section 18 Criminal Code: crime judged under Czech law if committed abroad by a Czech citizen or a stateless person resident in the Czech Republic. - Certain serious crimes punishable even if committed by foreign nationals abroad; other extraterritorial jurisdiction depends on conditions such as apprehension in the Czech Republic and non-transfer to foreign state. - A crime is punishable under Czech law if stipulated by an international treaty binding on the Czech Republic. - Intentional element: - ML offence applies where offender acted intentionally; if by negligence, section 252 applies. - "The intentional element may be inferred from objective factual circumstances of ML crime." - Sanctions for money laundering (section 252a): - "up to two years in jail or a pecuniary punishment" (general) - "one to five years in jail if the offender concerned committed the crime as a member of an organized group or if he/she has acquired considerable profit through the crime" - "two to eight years in jail or forfeiture of property if the offender committed the crime in relation to things proceeding from trade in narcotic and psychotropic substances or from another - particularly grave - criminal act, if the offender has acquired large-scale profit through the crime or if he/she has abused his/her position or function when committing such a criminal act." - Definitions of profit thresholds (section 89): - "considerable profit means profit in the amount of at least CZK 500,000" - "large-scale profit means profit in the amount of at least CZK 5 million" - Administrative and supervisory sanctions: - Fine for violation of sanctioning legislation: "up to CZK 5 million" for physical person or legal entity; up to "CZK 30 million" if state's particularly important foreign-policy or security interests jeopardized. - Sanctions under AML Act: "a fine not exceeding CZK 2 million" and for repeated violation during "12 successive months" "a fine imposed of maximum CZK 10 million"; possible repeal of business or self-employment license. - CNB powers: under section 26a Act on Banks, remedial measures and "a fine of up to CZK 50 million" on banks and branches of foreign banks; under section 34 Act on Banks, power to "revoke the licenses" of banks/branches for violation of AML Act and sanctioning legislation. - Planned penal revision: - "In the context of the revision of the Penal Code, the sanctions for money laundering could be revised." - Current draft revision "provides for increasing the sanctions for most serious forms of conduct." - Mission recommendation: "go forward with this revision, in order to increase the overall effectiveness and deterrence effect of the Czech AML/CFT regime." ### Recommendations (extracted) - Rapidly adopt and implement Palermo Convention and UN International Convention for the Suppression of the Financing of Terrorism. - Introduce promptly a specific criminalization of the financing of terrorism as prescribed by the UN Convention. - Amend legislation to allow for unconditional freezing of funds and property in accordance with UNSCRs. - Align the criminal definition of money laundering (section 252a) with the Vienna, Strasbourg and Palermo conventions and with section 1 of the AML Act. - Rapidly adopt criminal liability for legal persons (aimed to occur "before ... January 2005"). - CNB: continue AML/CFT targeted inspections and consider elaborating provisions with additional guidance to banks on implementation. - Other supervisors (CSC, Office, CUSA): undertake proactive and in-depth on-site and off-site inspections; Office to build AML/CFT expertise; CUSA to include AML issues in scope of controls. - Increase supervision of financial institutions—especially in the insurance sector—to strengthen implementation of preventive measures and increase effectiveness of suspicious transaction reporting system. - Proceed with Penal Code revision to increase sanctions for most serious forms of ML conduct. *Italic: IMF staff report content as provided in the source PDF.* ### 1. The authorities should enlarge the scope of section 252a of the Criminal Code, in order to bring it into ### _cr0446 - 1. The authorities should enlarge the scope of section 252a of the Criminal Code, in order to bring it into ### Legal framework and recommended criminal law amendments - Recommendation to enlarge the scope of section 252a of the Criminal Code to align with the concept of money laundering established by the Vienna, Strasbourg and Palermo conventions and to cover “acquisition, possession, use or disposition of assets with the knowledge that such assets originate from a criminal activity”. - Recommendation to amend the requirement to prove “the aim to pretend that such asset or financial benefits have been obtained in compliance with law”, which currently places a higher burden of proof on the prosecution than required by the Vienna, Strasbourg and Palermo conventions. - Recommendation to introduce in legislation a criminal offence of the financing of terrorism, consistent with the definition given by the UN International Convention for the Suppression of the Financing of Terrorism, to ensure the law covers all cases related to the financing of terrorism as defined in that UN Convention. - Recommendation to amend the Criminal Code to introduce the criminal liability of legal persons in Czech law as rapidly as possible. - Recommendation that the authorities ratify and implement fully the UN International Convention for the Suppression of the Financing of Terrorism. - Observation: penalties adjustments for ML to the average international standard and creating a formal legal basis for CFT would enhance law enforcement; current legal means and resources “seem already adequate enough to ensure some positive results,” although legislative reinforcement of the ML offence and confiscation provisions would benefit AML/CFT efforts. - Emphasis: the priority is to translate legislative frameworks into practice by bringing cases to court and establishing case law to guide law enforcement and legislators. - All legal remedies recommended by previous MONEYVAL evaluations should be adopted. ### Implications for FATF compliance (Recommendations 1, 4, 5, SR I, SR II) - The Czech Republic fully complies with FATF Recommendation 1 and 5. - Shortcomings in the definition of money laundering in the Criminal Code hamper full compliance with FATF Recommendation 4. - In the absence of ratification of the UN International Convention for the Suppression of the Financing of Terrorism, the Czech Republic cannot comply with FATF SR I at this time. - Due to the lack of a specific and explicit provision criminalizing the financing of terrorism in the Criminal Code, the Czech Republic is not formally in compliance with FATF SR II, despite present ability to use other offences (participation and complicity) to punish financing of terrorism. ### Confiscation, attachment, seizure and forfeiture (criteria 7-16) - Temporary measures and attachment: - Several criminal laws provide for seizure of property or its part, including attachment of financial resources in accounts and safeguarding listed securities (section 79a, section 79b, section 79c of the Criminal Procedure Code). - Attachment of a bank account is regulated by section 79a: decided by the chairing judge, in pre-trial proceedings by the state prosecutor or by the police body (with consent of the state prosecutor). In exceptional “danger in delay” cases attachment may be applied without consent, but subsequent consent is required within 48 hours or the attachment loses effect. - Section 79b allows attachment with savings and credit cooperatives and blocking of private pension scheme funds; section 79c allows attachment of booked securities by the Securities Centre or CNB; police may decide attachment in exceptional cases subject to 48-hour state prosecutor decision. - Confiscation/deprivation: - Confiscation is the definite deprival of property after termination of criminal proceedings pursuant to a court’s final decision. - Instruments include: - confiscation of all property pursuant to section 51 of the Criminal Code (imposed only in a limited number of cases — if an offender is sentenced to an exceptional sentence or to an unconditional prison term for a serious deliberate offence through which he/she has acquired or tried to acquire financial benefit), - pecuniary punishment pursuant to section 53 of the Criminal Code ranging from CZK 2,000 to CZK 5 million (or an alternative prison sentence of up to 2 years), - punishment of the confiscation of property pursuant to section 55 of the Criminal Code. - Mission finding: no provision identified establishing mandatory and systematic confiscation/forfeiture of the object of the crime/offence (corpus delicti) for money laundering — current Section 55, as translated, provides only optional forfeiture (“the court may impose forfeiture of a thing”). - Concern: optional nature may allow the object of the crime/offence to remain unconfiscated; Section 55 does not appear to cover circumstances where laundered asset does not belong to the perpetrator (e.g., use of “couriers”). - Law does not provide for forfeiture/confiscation of the equivalent value where proceeds have disappeared; in practice monetary punishment is often imposed. Authorities indicated a draft amendment to authorize confiscation of equivalent value was being prepared and expected to be adopted in early 2004 (draft only available in Czech and not reviewed by the mission). - Legal persons: - Criminal law does not provide for criminal liability of legal persons; not possible to impose seizure/forfeiture/confiscation of a legal entity’s property in criminal proceedings. - Civil forfeiture: - Confiscation is limited to criminal proceedings only; civil confiscation was abolished in 1990 (very limited scope may be used in administrative proceedings concerning an administrative offence). - Power to identify and trace property: - Police of the Czech Republic, especially the Unit for Combating Corruption and Financial Crime (UCCFC) of the Criminal Police and Investigation Service, are responsible for searching for, safeguarding and confiscating proceeds. - Rights of bona fide third parties: - Protected under civil law; competent authority seizes property irrespective of third-party rights and property rights adjudicated according to civil law; third parties seeking exclusion referred to civil proceedings. - Authority to void contracts: - Courts are sole independent bodies to decide contract validity on basis of a proposal by a legitimate party; possibility to sue for non-validity in private-law hearings. ### Identification and freezing of terrorist-related funds and sanctioning legislation - Existing sanctioning legislation: Act No. 48/2000 Coll., Act No. 98/2000 Coll., Government Decree No. 327/2001 Coll., and No. 164/2000 Coll. - Sanctioning legislation covers measures based on UN Security Council Resolutions and EU common positions across trade, transportation, technical infrastructure, scientific/cultural/sport contacts. - Administrative fines: - Up to CZK 5 million may be imposed on a physical person or a legal entity for violation of sanctioning duties; - Up to CZK 30 million may be imposed if the State’s particularly important foreign-policy or security interests have been jeopardized. - Mission finding: authorities are not yet able to freeze without delay funds or property of terrorists and those who finance terrorism in accordance with UNSCRs. - Apparent legal limitation: sanctioning legislation provides only for freezing of funds/property of foreign States and/or representatives of foreign States, potentially excluding natural persons and organizations not related to a State. - Contradictory interpretations: some interlocutors state financial institutions are obliged to freeze funds of anybody on UN Security Council lists. - Recommendation: amend legislation expeditiously to allow unconditional freezing, without delay, of terrorist-related funds or other assets/property in accordance with the UNSCRs and FATF Special Recommendation III; secure legal basis would also address financial institutions’ liability risks for erroneous freezing. - Current operational practice: - Supervisors and the FAU have distributed UN and EU lists to financial institutions, encouraged reporting of related transactions to the FAU. - Upon receipt, the FAU can suspend execution of the transaction for 24 to 72 hours. - Reporting of terrorist-related suspicious transactions has produced limited results: only two cases provided information deemed sufficiently relevant to forward to law enforcement. - Statistics: - Available statistics do not specifically register seizures and confiscations related to ML and FT. - Figures on administrative freezing orders from the FAU exist but were not submitted. - No freezing of terrorist-related assets has occurred to date in the Czech Republic; therefore no statistics on such freezing are available. ### Training, effectiveness, and operational recommendations - Training: - Training facilities available for police and judiciary covering seizure and confiscation (Secondary Police School, Academy of Justice, seminars via international projects such as PHARE). - Analysis of Effectiveness: - Lack of specified and itemized statistics is a serious deficiency; precise registration per specific criminality is necessary for external evaluation and internal performance review. - Training opportunities appear sufficiently available but have not yet translated into improved outcomes. - Confiscation regime being conviction-based suffers from same legal challenges as ML prosecutions. - Deficient law enforcement and judicial follow-up on ML reports indicate need for reinforced training and awareness raising, particularly for prosecutors and judges. - Recommendations and Comments (explicit list): 1. Consider making the forfeiture/confiscation regime (Section 55 of the Criminal Code) mandatory. 2. Amend legislation to allow unconditional freezing, without delay, of funds or other assets/property in accordance with UNSCRs and FATF Special Recommendation III. 3. Precisely register comprehensive statistics per specific criminality for external evaluation and internal review; with UCCFC specialization in detection and seizure, remedy the lack of relevant statistics. 4. FAU should keep reliable statistics including automatic freezing of terrorism assets by banks and disclosures to the central authority resulting from relevant UN resolutions and EU regulations, and arrange necessary measures to ensure compliance. 5. Organize focused training and awareness raising programs with attention to practices in other countries where ML-related seizure and confiscation is successful. ### Implications for FATF compliance (Recommendations 7, 38, SR III) - The Czech Republic fully complies with FATF Recommendation 38. - Absence of a mandatory and systematic confiscation/forfeiture provision for laundered property leads to a largely compliant rating with FATF Recommendation 7. - Current sanctioning legislation does not appear in compliance with FATF SR III. ### The Financial Analytical Unit (FAU) and reporting (criteria 17-24) - FAU status and mandate: - Financial Analytical Unit (FAU) created in 1996 as the FIU; part of the Ministry of Finance; meets the Egmont Group’s FIU definition; member of Egmont Group since 1997. - Main tasks: receive, analyze and disseminate reports on suspicious transactions from financial institutions. - Reporting obligations: - Section 4 of Act No. 61. Coll. of 15 February 1996 (the AML Act) requires financial institutions uncovering a suspicious transaction to submit a suspicious transaction report (STR) to the FAU including all relevant identification data. - Reporting procedure prescribed by the AML Act and implementing Regulations no. 183 of 1996 and 223 of 2000. - Internal procedures and guidelines: - Financial institutions must create internal procedures for detection and reporting of suspicious transactions, including detailed lists of suspicious features by institution type; these procedures must be approved by the FAU (section 9 of the AML Act). - FAU does not issue guidelines for identification of complex and unusual transactions or patterns; general AML guidelines are issued by professional associations (e.g., CBA for banks). - Mission recommends authorities consider issuing guidelines to assist financial institutions in implementing AML/CFT requirements and detecting/reporting suspicious transactions. - FAU access and additional powers: - Section 8 of the AML Act obliges financial institutions to submit, upon FAU request and within periods set by the FAU: information on transactions affected by identification requirement investigated by FAU; documentation pertaining to such transactions or provide access during investigation or audit; information on persons involved in such transactions. - FAU may access financial, administrative and law enforcement information; may request tax-related information from tax authority where necessary (section 8). - AML Act stipulates Police of the Czech Republic, intelligence services and other governmental bodies shall provide the FAU with necessary data unless prohibited by a special Act (section 10). _Italic: Source — text extracted from the content unit provided._ ### Section 12 of the AML Act provides for sanctions on persons who violate or fail to comply with the ### Section 12 of the AML Act provides for sanctions on persons who violate or fail to comply with the ### Sanctions under Section 12 - Persons who violate or fail to comply with the requirements set forth by this Act shall be subject to a fine decided by the FAU or another supervisory body specified in this Act (the Czech National Bank, the Securities Commission and the Credit Union Supervisory Authority). - Long-term or repeated violations of the provisions of the AML Act or imposed by a decision issued on its basis constitutes a reason for repealing a business or self-employment license. - This also covers failure to comply with the reporting obligation. ### Dissemination to domestic authorities - If the FAU uncovers facts leading it to believe that a criminal offence was committed, it shall file a complaint pursuant to the Code of Criminal Procedure and, at the same time, shall provide to the law enforcement body any data and supporting evidence it has at its disposal relevant to the complaint (section 10(2) of the AML Act). ### Cooperation with foreign FIUs and safeguards on privacy and data protection - The FAU is authorized to co-operate with its foreign counterparts to share intelligence information and data necessary to reach the objectives determined by the AML Act within the scope determined by an international treaty (section 10(5) of the AML Act). - As a member of the Egmont Group, the FAU should be able to cooperate and exchange information with the other Egmont FIUs. - The FAU has concluded Memoranda of Understanding (MOUs) with 14 foreign FIUs specifying modalities for exchange of information. - The FAU shall maintain secrecy about measures taken under the AML Act and information obtained in the course of its implementation. - The FAU is technically separated from other divisions of the Ministry of Finance and subject to organizational, personnel and other measures necessary to guarantee confidentiality of the information and data obtained in the course of implementation of its duties (section 7(2) of the AML act). ### Statistics and implementation - FAU and police statistics related to STRs and follow-up were submitted and give a useful, if general, overview. - FAU-provided statistics on STR system performance and reporting to police: - STRs received - 2000: 1917 - 2001: 1750 - 2002: 1264 - 2003 (by 30 April): 614 - Cases forwarded to police (by 31 May) - 2000: 104 - 2001: 101 - 2002: 115 - 2003: 34 - Assessment of resourcing: - FAU seems reasonably resourced to perform its analytical task given the number of disclosures. - Number of staff allocated for the supervisory function is insufficient to expect acceptable results. - FAU status ensures adequate operational independence and confidentiality is appropriately guaranteed. - There is no legal obligation to produce annual reports. ### Analysis of Effectiveness (FAU) - FAU has reached maturity and acquired experience in processing financial intelligence to support law enforcement. - FAU provides support to reporting entities via informal guidance through close contacts. - FAU has satisfactory legal resources to collect additional information for appropriate analysis. - Cross-border cooperation: Czech FIU gives broad assistance but cooperative possibilities are formally restricted to jurisdictions party to bilateral treaties or to the Strasbourg Convention. - Operational challenges: - Need to make more effective use of available resources to achieve more productive and expeditious results. - Some cases take a long time to process and reach final decision. - FAU’s reliance upon updated tax information may cause unnecessary delays. - Law enforcement and judiciary have not made full use of FAU work product: no money laundering prosecutions have been initiated as yet as a result of the reporting system, discouraging reporting entities and the FAU. ### Recommendations and Comments (FAU and reporting system) 1. The authorities should issue guidelines to help financial institutions in implementing the AML/CFT requirements and in detecting and report suspicious patterns of transactions. 2. The FAU should assess its management of the STRs and examine ways to speed up the analytical process whenever it is not dependent from outside factors beyond its control. 3. The self-evaluation of the reporting system would benefit from more detailed statistics to give better insight on performance and characteristics of all components of the anti-money laundering effort. Authorities intend to improve their statistical approach. Additional suggested figures to keep: - probable predicate criminality - the money laundering stage of the transactions - the nature of the transactions - the geographical spread of the cases 4. The supervisory function of the FAU calls for an extension of its staff to be really effective and comprehensive. - It is most advisable for the FAU to produce an annual report on its activity and findings, even if not required by law. 5. International cooperation at FIU level: - The formal treaty or Strasbourg Convention adherence condition should be lifted. - Cooperation should be permitted whenever the counterpart meets the Egmont Group standards. - A draft amendment to the AML Act, if passed, would allow cooperation where the counterpart meets Egmont standards. ### Implications for compliance with FATF Recommendations 14, 28, 32 - The Czech Republic is largely compliant with FATF Recommendation 32: lifting of the formal treaty or Strasbourg Convention adherence condition would lead to full compliance. - Lack of a specific requirement to detect and analyze unusual large transactions (separate from the suspicious transaction reporting requirement) leads to a failure to comply with FATF Recommendation 14. - In the absence of guidelines to help financial institutions implement AML/CFT requirements and to detect and report suspicious patterns of transactions, the Czech Republic fails to comply with FATF Recommendation 28. - The mission recommends that the Czech authorities consider issuance of such guidelines. ### Law enforcement and prosecution authorities, powers and duties - Investigative techniques: - The Criminal Procedure Code regulates detention (interception) and opening of mail, its exchange and surveillance, bugging and recording of telecommunications. - Intelligence means and devices (searching and tracking-down) may be employed in proceedings on deliberate offences, including sham transfer of a thing, surveillance of persons and things, and deployment of police agents. - Czech police law regulates authorization to use auxiliary searching and tracking-down means (cover documents, undercover means, security technology, special funds, use of police informers). - Compulsion of production of bank account and financial transaction records: - Section 8(2) Criminal Procedure Code enables the state prosecutor (and in proceedings before court, the chairing judge) to require bank information subject to banking secrecy (see also section 38(3)(b) of the Act on Banks, section 80(2) of the Securities Act). - Similar provisions apply for obtaining information from the securities register and tax proceedings. - Attachment of a bank account is regulated by section 79a, section 79b and section 79c of the Criminal Procedure Code. - Police may request vitally needed background materials and information from state authorities, communal authorities, physical persons and legal entities; requested subjects are obliged to comply. - Release from confidentiality obligations is governed by special legislation. - FAU powers regarding transaction suspension and deadlines (AML Act, section 6): - Financial institutions are allowed to comply with a client’s order concerning a suspicious transaction within 24 hours of receipt of notification from the Ministry (of Finance) at the earliest, if instant compliance could obstruct or substantially impede seizing proceeds. - The Ministry of Finance may extend the deadline up to 72 hours to facilitate investigation and submission of a report on the commission of a crime. - If the FAU submits a report on the commission of a crime within a statutory period, the financial institution shall suspend the relevant transaction; competent authorities then have three days to decide pursuant to sections 79a or 79b of the Criminal Procedure Code, section 347 and ff., or section 47 and ff. - If no report is filed, the financial institution shall comply with the client’s order. - These proceedings are carried out by the financial institution pursuant to the AML Act, without an order of a judge or another state authority. ### Law enforcement implementation and analysis of effectiveness - Institutional developments: - Creation of the Unit for Combating Corruption and Financial Crime of the Criminal Police and Investigation Service (UCCFC), comprising a Department of Proceeds and Money Laundering. - Division of this department into a section dealing specifically with money laundering and another in charge of detection and seizure of criminal proceeds. - UCCFC handles all cases reported by the FAU and is the privileged police interlocutor for the FAU. - Establishment of the “Clearing House”, an interdepartmental task force comprising the FAU, law enforcement bodies, and other government and supervisory bodies to coordinate tracing and recovery of criminal assets and examine remedial measures. - Operational observations: - Relatively low number of continued investigations initiated by FAU reports; many reported cases are indicative of fiscal offences rather than money laundering. - Special investigative techniques are available by law but have not been used in money laundering cases to date. - Tracing assets to a specific predicate offence, especially when committed in a foreign country, is identified as a main challenge. - Demand exists for experts on international banking operations to assist the UCCFC. - Customs monitor cross-border movement of cash and bearer instruments over CZK 350,000 subject to mandatory declaration; non-declared money over that threshold can be seized. - Customs cannot seize funds under the established threshold even if circumstances raise suspicion. - Customs’ investigative powers in suspected money laundering cases are limited; they coordinate with police and report information to the FAU. - Public prosecutors’ specialist approach to organized crime and economic/financial criminality has not yet led to marked increase in money laundering prosecutions and convictions. - Effectiveness analysis: - Creation of UCCFC and prosecutorial specialization are positive but overall results are disappointing: no ML prosecutions have been initiated as yet. - Financing of terrorism not established as an autonomous offence may hinder effective prosecution. - Special investigative techniques are up to standard, but unused in ML investigations to date. - “Clearing House” should streamline coordination and maximize use of the AML system if fully supported. - Resources for police and prosecution and the statistics provided appear adequate, but statistics show no prosecutions, convictions, or confiscations in ML and FT to date. - Need for specialized training, particularly for the judiciary. - Legal challenges to prosecutions: - Old legal provisions and recentness of Section 252a of the Criminal Code mean provisions may not yet be tested in courts. - Particularly high “mens rea” requirement poses problems for securing convictions. - No prosecutions for negligent money laundering (which requires minimal criminal intent) have occurred. - Proof of predicate offence is a significant challenge, especially when committed abroad. - Suggested strategic shift: - Consider treating money laundering as an autonomous offence rather than relying on classical approach of starting with predicate offence and tracing proceeds. ### Recommendations and Comments (Law enforcement and prosecution) 1. Creation and specialization of the UCCFC is commendable; specialization within police and prosecution should lead to better understanding but must produce court-tested results. Introduction of FT as an autonomous offence will address legal deficiency for FT. 2. “Clearing House” should receive full support and active input; authorities should learn from best practices and international training initiatives (EU PHARE, UNGPML, Egmont Group). 3. Review of typologies and trends should be a joint activity of FIU, police and prosecution and be addressed via the “Clearing House”; typologies and trends should be part of annual reports. 4. A thorough audit of the system is required to identify precise causes for deficiency in prosecutions and asset recovery; focus should be on judicial follow-up, raising awareness and expertise of the judiciary, and addressing the “mens rea” standard and challenges proving predicate offences. *IMF assessment excerpt* ### 5. In order to ensure that sanctions are proportionate and dissuasive, it is also recommended that the ### 5. In order to ensure that sanctions are proportionate and dissuasive, it is also recommended that the ### Adequacy of Sanctioning - Recommendation: review adequacy of sanctioning to bring them into compliance with the applicable standards established by the European Union Council Decision of June, 2001 which established a four-year minimum for money laundering offences. - Implication: The Czech Republic fully complies with FATF Recommendation 37. ### V—International Cooperation (compliance with criteria 34-42) - Mutual legal assistance in AML/CFT - The Czech Republic can provide a very wide range of international and mutual legal assistance, as provided by section 384 of the Criminal Code. - Answers to rogatory letters and legal assistance are performed on a non-contractual basis (reciprocity) or on the basis of international treaties. - Dual criminality is the precondition for mutual legal assistance. - Authorities follow national procedural rules when providing mutual legal assistance; on specific request, foreign procedural rules may be followed if not contradictory to Czech public order. - The Czech Republic ratified the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and takes part in its monitoring process. - The Czech Republic joined EU unilateral measures/positions in AML/CFT matters including Common Position on combating terrorism No.2001/930/CFSP and Common Position No.2001/931/CFSP and participates in COTER meetings. - Party to: - European Convention on Mutual Legal Assistance in Criminal Matters (Strasbourg, 20.4.1959). - Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime (Strasbourg, 8.11.1990). - Bilateral cooperation: concluded bilateral treaties on mutual legal assistance or extradition with 49 countries. - Police cooperation agreements: Ministry of Interior concluded agreements with 24 countries; preparations for new agreements with 11 other countries; newly concluded/prepared agreements expressly address cooperation in the fight against terrorism financing. - Information exchange via multilateral/bilateral treaties and police cooperation agreements; exchanges through Interpol and Europol (since autumn 2002, Czech Republic represented in Europol by its own liaison officer). - Cooperative investigations - Cooperation among investigators from different countries is mainly established through the Ministry of Justice pursuant to existing mutual legal assistance agreements. - No specific obstacle for Czech participation in cooperative investigations. - Criminal Procedure Code (CPC) and Act on Police contain explicit provisions regarding: - international cooperation in controlled delivery operations (section 87b(4) of the CPC); - use of undercover agents (section 158e(8) of the CPC); - sections 48b and 48c referenced for international cooperation provisions. - Extradition - Extradition can be performed on the basis of international treaties or, when no treaty applies, on the basis of Czech legislation (Criminal Procedure Code, Second Section, Chapter 25 (section 379 and ff.)), subject to conditions described in section 21 of the Criminal Code. - Conditions include: the act is qualified as criminal in both countries, punishment can still be imposed, and a citizen of the Czech Republic is not involved. - The Czech Republic does not extradite its nationals for criminal prosecution to foreign countries for any kind of criminal offence. - The Czech Republic can bring criminal prosecution for offences committed by its own citizens regardless of where committed. - An amendment to the Constitution and associated amendment to the Criminal Code are being discussed/prepared to allow extradition of a Czech citizen in cases stipulated by law or by declared international treaty. - Under Czech law, a criminal act committed abroad by an alien or a person without nationality who has no permanent residence in the Czech Republic can be punished in the Czech Republic if it is also a criminal act where committed. - A Prosecuting Attorney is legally obliged to prosecute all criminal acts that come to his/her knowledge unless stipulated otherwise by law or declared international treaty. ### Implementation of Mutual Legal Assistance - Statistics and reporting - Other than figures submitted by the FAU showing intense and active FIU-level exchange, no specific statistics on mutual legal assistance were submitted. - Authorities state no ML and FT-related mutual legal assistance statistics are being kept. - Operational observations - No serious problems reported concerning provision of mutual legal assistance. - Czech Republic complies with the Strasbourg Convention and shows a cooperative attitude. - Dual criminality is a prerequisite; differing standards in requesting jurisdiction are not prohibitive if facts are offences in the Czech Republic. - Implementation of foreign confiscation orders, including common law “in rem” procedures, was not considered a problem. - Execution of foreign rogatory commissions reported to be done in a timely way. - No statistics on international law enforcement exchange were submitted to the assessors, and no mention was made of any asset sharing arrangements. - Czech Republic fully committed to fight against terrorism; extradition is the rule with exclusion of own nationals; possibility exists to take over foreign prosecution if a Czech national is suspect. - Absence of an autonomous offence of FT might be seen as a potential obstacle; expected to be remedied in the near future. - Allocated resources seem adequate; no special difficulties reported. ### Analysis of Effectiveness - Cooperative attitude and practice of Czech authorities are beyond reproach. - Apart from absence of specific ML and FT statistics and pending introduction of an autonomous FT offence, international standards are fully met. - Allocated resources appear adequate; no special difficulties reported. ### Recommendations and Comments (International Cooperation) - Timely introduction of the FT offence is of utmost importance to create a clear and unequivocal situation in relation to FT extradition. - Attention should be given to the statistical aspect (i.e., keeping ML and FT mutual legal assistance statistics). ### Implications for compliance with FATF Recommendations - The Czech Republic fully complies with FATF Recommendations 3, 33, 34, 37, 38, 40 and SR V. - The Czech Republic largely complies with FATF Recommendation 32. - The UN International Convention for the Suppression of the Financing of Terrorism still needs to be ratified to fully comply with FATF SR I. ### B. Assessing Preventive Measures for Financial Institutions — I—General Framework (compliance with criteria 43 and 44) - Institutional responsibilities - The Financial Analytical Unit (FAU) audits compliance of financial institutions with the AML Act and checks whether financial institutions engage in legitimization of proceeds from criminal activities. - Since 2000 AML compliance audits also performed by: - a) Czech National Bank (CNB), in relation to banks; - b) Czech Securities Commission (CSC), in relation to investment companies and investment funds, pension funds, securities traders, entities managing the securities market, the Securities Center, and other legal persons certified to keep parts of the Securities Center database and perform its activities; - c) Credit Unions Supervisory Authority (CUSA, part of the Ministry of Finance), in relation to credit unions. - FAU inspects banks, securities companies and credit unions on an ad hoc basis but largely leaves AML/CFT supervision to CNB, CSC and CUSA. - FAU is sole supervisor for AML issues for: gambling houses, casinos, betting shops, auction halls, real estate agencies, entities offering financial leasing or other financing, foreign exchange bureaus, facilitators of cash or wire money transfers, insurance companies, insurance and re-insurance agents. - Insurance sector supervision gap - Absence, as of today, of a specific supervisory authority responsible and resourced for checking compliance of insurance companies and agents with AML requirements is an important weakness. - Recommendation: Office of the State Supervision in Insurance and Pension Funds should be given authority to undertake such supervision, issue regulations detailing AML/CFT regime for the sector, and perform effective on-site and off-site controls. - Mission notes plans included in draft amendment to the AML Act expected to come into effect in 2004. - Secrecy and information sharing - Section 4(6) AML Act: complying with reporting suspicious transactions does not violate statutory confidentiality from other acts. - Section 7 AML Act: reporting entities and the FAU have obligation to maintain secrecy, but secrecy does not apply to: - law enforcement body when investigating crime involving legitimization of proceeds or related reporting requirement non-compliance; - court in civil proceedings involving a transaction or claim under AML Act; - persons performing bank supervision; - authority empowered to decide on termination of business/self-employment license when FAU submitted proposal; - person who may claim damages under AML Act if information provided as subsequent notification decisive for assertion of claim; - a foreign body when exchanging information necessary to reach AML Act objectives, unless prohibited by special legal instrument. - Supervisory laws (specific sections cited for Act on Banks no. 21/1992, Act on Securities no. 591/1992, Act on the Securities Commission no. 15/1998, Act on Investment Companies and Investment Funds no. 248/1992, Act on Insurance no. 363/1999) stipulate no breach of confidentiality for supervisors when disclosing information for AML duties; supervisors can give information to the FAU. - FAU is not bound by secrecy towards the CNB (section 7(4)(c) AML Act) but can provide information to the CNB only for bank supervision purposes. - The Ministry of Finance FAU, the CSC and the CNB entered into an agreement on cooperation in February 2003 for coordinating inspections and interpreting the AML Act. ### Analysis of Effectiveness (General Framework) - Supervisors have no restrictions in providing the FAU or law enforcement agencies with information on entities under their supervision. - Supervisors other than the CNB (i.e., CSC and CUSA) cannot receive specific information on reporting entities from the FAU, though they need such information (e.g., statistics on quality and quantity of STRs) to perform supervisory tasks under section 8(3) of the AML Act. - CNB activity - CNB increased AML/CFT targeted on-site inspections since end 2002. - Performed AML inspections in 7 of the 8 largest banks and 1 inspection including AML topics for a medium-sized bank. - CSC activity - CSC incorporated AML within on-site and off-site inspections since 2002. - In 2002 CSC conducted 35 on-site inspections. - In 2003 up to time of mission, CSC conducted 15 on-site inspections of securities dealers. - Insurance sector supervision not yet implemented; Office of the State Supervision in Insurance and Pension Funds has no AML responsibilities and has not conducted AML inspections. - CUSA limited role - CUSA has not given high priority to AML issues. - Inspections limited to verifying submission of internal AML procedures to the FAU and compliance with identification and record keeping requirements. - CUSA has not determined whether suspicious transaction reports are filed with the FAU or the quality of those reports. - FAU audit capacity - Audit and legal department of the FAU comprises four staff members, two dedicated to on-site inspections. - On-site inspections by FAU: 1999: 11; 2000: 14; 2001: 5; 2002: 6. - Given the high number of entities FAU must supervise, number of on-site inspections is very low and should be increased. - Mission advises increasing FAU’s audit staff since current staffing (two inspectors) cannot achieve adequate coverage. ### Recommendations and Comments (Financial Institutions) 1. Ensure no legal impediments to cooperation by allowing the FAU to provide information on financial institutions’ compliance with the reporting duty to other relevant supervisors. The financial supervisors need this information for auditing compliance and to guide and educate financial institutions. The draft amendment to the AML Act, if passed, would remedy this situation. 2. Priority should be given to plans to establish the Office of the State Supervision in Insurance and Pension Funds as the overall AML/CFT supervisor for the insurance sector. *Source: _cr0446 - 5. In order to ensure that sanctions are proportionate and dissuasive, it is also recommended that the* ### 3. Especially since the Czech Republic is currently working on an amendment to the AML Act by which ### _cr0446 - 3. Especially since the Czech Republic is currently working on an amendment to the AML Act by which ### Cooperation and FATF Recommendation 2 - The Office of the State Supervision in Insurance and Pension Funds will be tasked with supervising and enforcing AML/CFT requirements for institutions under its supervision under the planned amendment to the AML Act. - Recommendation: strengthen cooperation between the Ministry of Finance/FAU, the CSC and the CNB (based on the existing agreement), and include other supervisors that will be tasked with AML/CFT supervision; provide legal basis if necessary. - Implication: Because the AML Act stipulates that reporting suspicious transactions does not violate statutory confidentiality in other acts, and financial supervisors have no impediments to sharing information for AML purposes, the Czech Republic is fully compliant with FATF Recommendation 2. ### II — Customer identification (criteria 45-48; sector-specific criteria) Description — financial institutions in general - Identification obligation arises upon performing a transaction over CZK 500,000 (section 2(1) AML Act). - If exact total transaction value is unknown, identification obligation arises when it is evident that the threshold will be attained. - For installments, the decisive amount is the total of installments to be paid in twelve successive months (section 2(1) AML Act). - Financial institutions always must identify parties to: - a) Suspicious transaction; - b) Opening of a current or a deposit account, depositing to a passbook, purchasing a deposit certificate, or negotiating other savings instruments; - c) Entering agreement to open a safety box or to store valuables in the bank's safety box; - d) Transactions subject to identification when client is represented by a proxy holding power of attorney (section 2(3) AML Act). - If a financial institution has a substantiated suspicion that a party acts on behalf of a third person or conceals acting on behalf of a third person, it must use available information or take all possible measures to disclose the third person's identity (section 2(5) AML Act). “Substantiated suspicion” is explained as “reasonable doubt”; authorities should ensure it is not stronger than doubt. - No legal requirement yet to renew identification when doubts appear during the business relationship; draft amendment to the AML Act would remedy this. - Amendment to the Civil Code effective January 1, 2001: passbooks, deposit certificates and other forms of deposit must be in the depositor’s name (sections 782, 786(2) and 787(3) of the Civil Code). - Anonymous passbooks were cancelled by the Act on Banks on December 31, 2002; right of depositors to repayment of balances on cancelled deposits forfeits on lapse of ten years from 31 December 2002 (section III of Act No. 126/2002 Coll., amending the Act on Banks). - Since amendment of the Act on Banks took effect on May 1, 2002, handling funds on such passbooks entails identifying the client — Czech Republic can establish an audit trail for passbooks. - Numbered accounts are not used in practice. - Identification of persons: - Czech citizens: name, surname, birth identification number or date of birth, place of permanent residence. - Non-Czechs: travel document information — name, surname, date of birth, number and expiry date of travel document, issuing country, gender, and other identification data listed. - Natural persons in business: additional verification of business name and business identification number. - Legal persons: identify commercial name, domicile, business identification number, and natural person acting on its behalf for a given transaction (section 1(3) AML Act). - Registry of Czech companies held by Ministry of Justice — accessible through the internet and used to verify domestic legal entities; time lapse exists for registration of changes. - Foreign legal entities identified by notarized deed of incorporation. - No legal obligation yet to identify beneficial owners; draft amendment to the AML Act contains this obligation and is welcomed by the mission. - Confidentiality limits KYC: - Attorneys-at-law, lawyers and notaries obliged to maintain secrecy under section 21 of the Attorneys Act and section 56 of the Notaries Act; only clients can exempt them. - This prevents effective KYC by banks (e.g., determination of beneficial owners) when lawyers or notaries open accounts for clients. - Authorities should ensure lawyers and notaries are not prohibited from providing information to financial institutions when acting on behalf of a client. - Originator information on fund transfers: - Czech legislation does not explicitly require keeping originator information through the payment chain. - Domestic fund transfers: account number always transferred and originator name usually included. - Cross-border transfers by SWIFT: transaction information contains account number and name of both originator and beneficiary. - When a fund transfer lacks complete originator information, financial institutions contact the ordering financial institution to obtain the information. Banking sector — sector specifics - Act on Banks (sections 41c(3) and (4)) requires banks to ensure identification of depositors when maintaining accounts or accepting deposits in any form. - Banks must obtain proof of client identity for each transaction exceeding CZK 100,000 and when renting safe deposit boxes (section 37(1) Act on Banks). - Foreign exchange agencies licensed by the CNB must identify customers for cash transactions exceeding CZK 100,000 and keep identifying information for cash and non-cash transactions (sections 7 and 20 CNB Decree No. 434/2002). - CNB posted the Basel Customer Due Diligence paper on its website and informed banks it expects them to follow principles; compliance not enforceable. - CNB identified absence of customer acceptance policies in banks; banks are increasingly developing these policies. - CNB issued a regulation on internal management and control system of banks in the area of money laundering prevention; it requires procedures for accepting and knowing customers, including high-risk customers and beneficial owners. - Mission view: CNB should consider elaborating this regulation with additional practical guidance. Insurance sector - Identification requirements for insurance companies are solely based on the AML Act; none in the Act on Insurance. - Insurance companies and pension funds reported they have fulfilled statutory obligations and developed internal procedures including client identification as required under section 9 of the AML Act. - Recommendation: consider a specific regulation for the insurance sector modeled on the CNB provision; supervision of compliance with customer identification requirement is insufficient. Securities sector - Sections 47a and 47b of the Securities Act regulate internal operations and conduct in relation to customers; section 47b(1)d requires securities traders to obtain customer information on financial situation, investment experience and goals as appropriate to services. - CSC Decree No. 466/2002 (October 2002) on Detailed Organization Rules for Internal Operations of Securities Traders and for Conduct in relation to Customers requires securities traders to provide internal rules for obtaining customer information; section 15 details this. - CSC developed a questionnaire considered a standard for KYC application; CSC uses this questionnaire in inspections. Analysis of Effectiveness — customer identification - Financial institutions visited were aware of high-risk customers and countries and use UNSCR lists and self-developed higher-risk country lists. - When doubts arise during business relationships, financial institutions may ask additional information based on internal policies, but no legal basis exists for this. - Inspectors of the Office for Personal Data Protection (OPDT) interpret Act 101 of April 4, 2000 on the Protection of Personal Data strictly: section 5(1)(d) allows collection of personal data only insofar as necessary for fulfilling a specified purpose. Mission shares view that this should not limit required AML data collection and recording. - Protection of Personal Data Act requires explicit consent to process sensitive data (nationality, racial/ethnic origin, criminal activity, sexual life). Financial institutions fear customers could refuse copying identification documents — banks would then only write down required identification details, harming identification record quality. - For banks: Act on Banks section 37(2) permits collection and processing of personal data (including sensitive data) necessary to allow the banking transaction to be executed without the bank incurring undue legal and material risks. Recommendations and Comments — customer identification 1. Introduce new AML Act requirements regarding: - (i) updating identification information of customers when doubts appear during a business relationship; - (ii) identification of beneficial owner when customer is a legal person; - (iii) including accurate and meaningful originator information on funds transfers and related messages. - Authorities indicated draft amendment proposing that if a financial institution finds or suspects a customer is not acting on his own behalf or attempts to conceal acting on behalf of a third person, the institution will require the customer to confirm in writing the name of the person on whose behalf he is acting and provide identification information about that third person. Draft expected to come into force January 2004 per authorities. 2. Ensure lawyers and notaries cannot invoke confidentiality vis-à-vis financial institutions when acting on behalf of a client; amendment to the AML Act should resolve exemption vis-à-vis FAU but currently does not address confidentiality vis-à-vis financial institutions. 3. Monitor OPDT inspections: if OPDT interpretation of the Protection of Personal Data Act and financial institutions’ fears are confirmed, authorities should address the problem. 4. Ensure originator information remains with a transfer by all financial institutions, including money remitters, in accordance with FATF Interpretative Note to Special Recommendation VII — completion by end 2004 recommended. Implications for compliance with FATF Recommendations 10, 11, SR VII - Because Czech legislation does not yet require identification of beneficial owners of companies or renewing identification when doubts arise, the Czech Republic is largely compliant with FATF Rec. 10 and 11. - Authorities have not taken additional measures to ensure originator information remains with a transfer. In accordance with FATF Interpretative Note to Special Recommendation VII this should be completed by end 2004. - No rating against FATF SR VII is provided at this time. ### III — Ongoing monitoring of accounts and transactions (criteria 49-51; sector-specific criteria) Description — financial institutions in general - No specific provision in Czech legislation (except for banks) requires financial institutions to: - pay special attention to all complex, unusual large transactions, or unusual patterns of transactions with no apparent economic or lawful purpose; - examine background and purpose of such transactions and set forth findings in writing and keep them available for competent authorities; - give special attention to business relationships and transactions with persons in jurisdictions lacking adequate ML/FT systems. - AML Act requires reporting suspicious transactions to FAU (section 4(1)). - Section 1(5) AML Act defines suspicious transaction as transactions effected under conditions generating suspicion of attempted legitimization of proceeds, including but not limited to: - Cash deposits and their immediate withdrawal or transfer to another account; - Opening by one client of numerous accounts in obvious imbalance with client’s business activities or wealth, and transfers among these accounts; - Client transactions that do not correspond to scope or nature of client’s business activities or wealth; - Number of transactions effected in a single day or over several days inconsistent with the usual flow of transactions of the given client. - Recommendation: require financial institutions by law, regulation or enforceable guidance to routinely monitor accounts and transactions for the reasons indicated above. Banking sector — regulatory measures - CNB regulation on internal management and control system in money laundering prevention (effective October 1, 2003) requires banks to have internal principles, procedures and control measures to prevent money laundering, including: - establish and keep customer information to evaluate risk status; - when opening accounts, establish account purpose, assumed movements, whether customer is an employee, whether account is for business, and object of customer’s business activities; - establish origin of customer financial funds in cases set by the bank; - where relevant, establish reason for customer’s termination of prior bank relationship if suspecting potential money laundering; - during contractual relationship, check validity and completeness of recorded customer information and update such information; - pay increased attention to sophisticated, unusually extensive transactions and transactions of unusual character without apparent economic or legal reason; - pay increased attention to private banking transactions — require prior consent by at least one employee of higher title than proposing employee(s); - pay increased attention to transactions to accounts of persons engaged in significant public posts (bank shall define which posts are significant); - for technology-based transactions where customer is not directly contacted, develop and apply procedures proving the deal is performed with an already identified customer. - Issuance of this CNB regulation is important progress to complete AML/CFT framework for banks. - Czech Banking Association (CBA) Banking Activities Standards No. 4 identify cross-border transfers—especially to/from “risk territories” and to tax havens—as signs of suspicious transactions; standards are not binding. CNB inspections found banks apply this standard in practice. Other financial sectors - Supervisors of securities and insurance sectors should develop similar AML/CFT targeted regulations and provide more substantive and practical guidance to the entities they regulate. Analysis of Effectiveness — monitoring - Monitoring of accounts and transactions is applied to some extent in practice; financial institutions check transactions primarily to report suspicious transactions and have developed ‘red flags’. - No legal obligation means financial institutions do not routinely pay special attention to complex, unusually large transactions and unusual patterns lacking apparent economic or lawful purpose, nor examine and retain findings for competent authorities. - CNB regulation requires banks to implement monitoring systems by December 31, 2003. - Financial institutions visited are aware of higher-risk customers and countries and check customers and accounts against UNSCR lists and self-developed higher-risk country lists. *Source: IMF staff report content provided in the supplied PDF excerpt.* ### 1. Similar to the CNB regulation, the Czech AML/CFT system would benefit from the introduction of new ### _cr0446 - 1. Similar to the CNB regulation, the Czech AML/CFT system would benefit from the introduction of new ### Ongoing monitoring and enhanced due diligence - Financial institutions should pay special attention to: - "all complex, unusual large transactions, and unusual patterns of transactions, that have no apparent or visible economic or lawful purpose," - examine "as far as possible the background and purpose of such transactions," - "set forth their findings in writing, and to keep such findings available for competent authorities." - Authorities should introduce provisions requiring special attention to business relations and transactions with persons (including legal entities) in jurisdictions that "do not have adequate systems in place to prevent and deter ML or FT." - The securities and insurance supervisors should develop AML/CFT regulations similar to the one issued by the CNB. - Financial supervisors should give more practical guidance to regulated entities on monitoring client accounts and transactions. - Implications for FATF compliance: - "the Czech Republic is largely compliant with Rec. 14 and 21," - "materially non-compliant with Rec. 28" due to lack of additional guidance. ### Record keeping (Criteria 52-54; sector-specific criteria 88, 106, 107, 112) - Legal requirements: - Section 3 AML Act: financial institutions "shall record and keep identification data as well as all data and documentation concerning transactions subjected to the identification requirement for a period of no less than ten years after implementation of the transaction in question. The hereinbefore period shall commence on the first day of the calendar year following the year in which the last act of the transaction, the financial institution is aware of, was implemented." - Section 8(1) AML Act: financial institutions must, upon request and in the period determined by the FAU, submit information on transactions affected by the identification requirement and investigated by the FAU; submit documentation or provide access in investigations or inspections; and submit information on persons involved. - Supervisory acts (section 25 and 38 (2) Act on Banks, sections 6 and 26 Act on Insurance, section 3 Act on the Securities Commission) make records on customer identification available to supervisory authorities. - Sector details: - Banking: Act on Banks, section 11(4) requires banks to keep records of agreements and to submit relevant documents to the CNB; accounting and transaction records for "a period of at least ten years" (section 21 Act on Banks). Banking secrecy does not apply to supervisory or law enforcement requests (section 38(3) Act on Banks). - Insurance: section 24 Insurance Act requires accounts per Act on Accounting. Insurance companies can provide client information upon written request of police, criminal proceedings authorities, Ministry of Finance when exercising supervision, and the CSC (section 39 Act on Insurance). "There is not sufficient supervision of compliance with the record keeping requirement in relation to AML/CFT." - Securities: Securities Act section 47c(2) obliges securities traders to keep documents concerning services "for at least 10 years." Section 47(1) requires daybooks of received instructions and transactions. Section 47a(1)a requires administrative procedures, control and security measures for processing and keeping data. - Analysis of effectiveness: - AML Act record-keeping is limited to "transactions subjected to the identification requirement" and does not require keeping all necessary records concerning customer transactions and accounts for the obliged period following completion of the transaction. - No requirement to maintain records on account files and business correspondence for the given period following termination of an account or business relationship. - Data retention timing: kept "for a period of no less than ten years after the implementation of the transaction in question" but no requirement to keep records on identity, account files and business correspondence for ten years following termination of a business relationship. - Recommendations and comments: - Authorities are amending the AML Act to regulate record keeping in more detail to comply with the second EU Directive on Money Laundering; the amendment "will require financial institutions to also keep records on identification data, copies of identification documents and in case of representation the original of the proxy for 10 years following the termination of a business relationship." - Advisement to add to the AML Act that financial institutions "are required to keep all necessary records concerning customer transactions and accounts and also to maintain records on account files and business correspondence." - Implications for FATF Recommendation 12: - "The Czech Republic is largely compliant with Recommendation 12, since only minor shortcomings in these requirements have been identified." ### Suspicious transactions reporting (Criteria 55-57; criteria 101-104 for insurance) - Legal framework: - Sections 4(1)–4(3) AML Act require reporting of suspicious transactions to the FAU including all relevant identification data. Reports must be drafted "with no delay, but no later than five days after the implementation of the transaction." If there is danger of default, the reporting institution must notify the FAU "immediately" after uncovering the suspicious transaction. - Reports may be submitted orally or in writing and must remain confidential. - Section 1(5) defines suspicious transaction and lists illustrative cases including: - a) "Cash deposits and their immediate withdrawal or transfer to another account;" - b) "Opening by one client of numerous accounts, the number of which is, in keeping with section 1(6) in obvious imbalance with the client’s business activities or wealth, and transfers among these accounts;" - c) "Client transactions which, in keeping with section 1(6), do not correspond to the scope or nature of client’s business activities or wealth;" - d) "Number of transactions effected in a single day or over several days is in imbalance with the usual flow of transactions of the given client." - Transaction defined (section 1(4)) as "any action aimed at movement of money or transfer of assets, or directly triggering them, except for activities involving implementation of a requirement stipulated hereby or by a decision of a relevant government body." - No current requirement to report suspicions of terrorist financing; a draft amendment to the AML Act includes such a provision. - FAU and financial supervisors distributed UN and European lists of terrorist individuals and organizations; financial institutions are encouraged to report related transactions to the FAU. - Internal procedures: - Sections 9(1)&(2) AML Act require written internal procedures including steps from detection to submission, rules of processing and appointment of personnel to analyze suspicious transactions, and "a detailed list of features of a suspicious transaction with regard to specific activity of its institution." - CBA and Czech Insurance Association issued general AML guidelines to aid banks and insurance companies. - AML Act section 4(6) and section 14 provide protections for reporting; section 7(1) imposes secrecy on reporting institutions and employees upon detection. - Analysis of effectiveness: - System for reporting suspicious transactions is "comprehensive and compliant with international standards." - Practices vary: some FIs monitor accounts and consult FAU before reporting; others report all suspicious transactions within the five-day requirement. These approaches "result in significant differences in the quality and quantity of reported transactions." - Financial institutions have filed only a few reports on terrorist financing; alleged hits on UNSCR list often proved to be different persons or unused accounts. - Neither the FAU nor supervisors have issued formal guidelines to assist FIs in detecting patterns of suspicious financial activity; FAU provides informal guidance in day-to-day contact. - Recommendations and comments: - "The FAU in cooperation with the supervisors should take it upon themselves to provide the financial institutions with more guidance on recognizing suspicious transactions," including references to typologies reports of the FATF, FATF-style regional bodies, and the Egmont Group; IAIS and IOSCO papers could be useful. - The draft amendment to the AML Act will extend the definition of suspicious transactions to include suspicion that funds are intended for "the financing of terrorism, terrorist acts or terrorist organizations." - "There should be a requirement for financial institutions to report suspicions of terrorist financing." - Implications for FATF Recommendations 15, 16, 17, 18, 28, SR IV: - "The Czech Republic is fully compliant with recommendation 15, 16, 17 and 18, and materially non-compliant with SR IV. Since the authorities have not given any guidance to the financial institutions, they are materially non-compliant with recommendation 28." ### Internal controls, compliance and audit (Criteria 58-61; sector-specific criteria 89-92, 109-110, 113) - Internal procedures required by sections 9(1) and 9(2) AML Act must include: - a) "A detailed list of features of suspicious transactions;" - b) "A client identification procedure;" - c) "A mechanism to allow access by the FAU to the data kept in keeping with section 3 of the AML Act;" - d) Steps from detection to reporting and appointment of personnel to analyze suspicious transactions; - e) Measures "to prevent an imminent danger that by executing the transaction, securing of the proceeds would be frustrated or substantially impeded;" - f) "Technical and personnel measures to enable the FIU to implement in the financial institution activities as stipulated in sections 6 and 8 of the AML Act." - Training: - Section 9(5) AML Act: obligation for financial institutions to provide "annual training of the staff that is likely to come to contact with suspicious transactions" focused on detection methods and implementing AML Act measures. - Banking sector: - Act on Banks section 9(1)d requires banks to specify internal control organizational arrangements in their articles of association. - Internal audit must analyze and evaluate functionality and effectiveness of management and control system (section 8(6) Act on Banks). - CNB regulation on Internal Management and Control System (Provision No. 12 of 11 December 2002) came into effect "July 1, 2003" and requires internal management and control systems to ensure compliance with laws and regulations; internal audit to monitor efficiency and effectiveness. - New CNB regulation on internal management and control in money laundering prevention requires banks to have internal principles, procedures and control measures, a customer acceptance policy and a training program. - Insurance sector: - Czech Insurance Association developed a guideline as an example for internal procedures. Insurance companies have informed the mission that they "have fulfilled their statutory obligations" and developed internal procedures under section 9 AML Act. - "Overall, AML/CFT supervision has not yet been implemented in this regard, as the insurance supervisor, the Office of the State Supervision in Insurance and Pension Funds, has no responsibilities in AML." - Securities sector: - Sections 47a and 47b Securities Act regulate internal organisation and conduct in relation to customers. - Decree on Organisation Rules elaborates internal control system requirements, duties of compliance staff, internal auditor, and rules on managing financial risk and liquidity. - Compliance officer: - AML Act section 9 requires financial institutions employing "three and more persons" to appoint a contact person to coordinate and exchange information with the FAU and monitor reporting requirements, unless functions are performed by the statutory body. The FI must inform the FAU about the appointment. - Contact person must be in a position to perform required AML Act tasks. - Screening procedures and foreign branches: - No legal requirement for screening when hiring employees except for senior staff in regulated entities; banks routinely require a statement of criminal records when hiring. - Foreign branches of Czech financial institutions must comply with both Czech and foreign regulations in practice; branches and subsidiaries are subject to consolidated supervision (section 26c Act on Banks) and sanctions can be imposed (section 26h Act on Banks). - Analysis of effectiveness: - All FIs must submit internal procedures to the FAU; non-submission has led to fines. - Financial supervisors check presence and submission of internal procedures. CNB began a more risk-based approach in 2002, and specific AML audits have been executed for several banks. - Compliance officers have been appointed across institutions; typically not at management level, but "in general can decide if a transaction has to be filed with the FAU." - Banks have developed training programs (e.g., e-learning, introductory courses, AML materials). Other financial sectors have not focused training on AML/CFT sufficiently and "these efforts need to be enhanced further." - Recommendations and comments: - Enhance sectoral AML/CFT supervision for insurance. - Improve and expand AML/CFT training programs across all financial sectors. - Provide formal guidance and typologies to assist financial institutions in recognizing suspicious transactions and implementing effective internal controls. *IMF/mission text* ### 1. Although all financial institutions have internal procedures and a compliance officer, the mission is of ### 1. Although all financial institutions have internal procedures and a compliance officer, the mission is of the view that financial institutions approach AML/CFT from a legalistic point of view, especially in the insurance sector. The authorities should therefore enhance their efforts to raise awareness on ML and FT in the financial institutions and monitor the skills of the compliance officers. ### Compliance culture and staffing - Finding: Financial institutions have internal procedures and a compliance officer, but approach AML/CFT from a legalistic point of view, particularly in the insurance sector. - Recommendation: Authorities should enhance efforts to raise awareness on ML and FT in financial institutions and monitor the skills of compliance officers. - Recommendation: Authorities must ensure financial institutions put in place adequate screening procedures when hiring employees. - Implication for FATF Recommendations 19, 20: Full compliance with recommendations 19 and 20. ### Integrity standards — overview - Coverage: Criteria 62 and 63 for (i) banking sector; (ii) insurance sector; (iii) securities sector; and (iv) other financial institutions sector, plus sector specific criterion114 for the securities sector. - Analysis summary: Financial supervisors have adequate powers to check integrity and can prohibit criminals from taking control of financial institutions. - Recommendation/Implication for FATF Recommendation 29: Compliant. ### Integrity standards — banking sector (selected requirements and procedures) - Licensing and fit-and-proper assessments: - CNB assesses competence to exercise shareholder rights during licensing (section 4(3)c of the Act on Banks). - CNB consent required prior to acquisition or increase of a qualifying holding above 20, 33 or 50 percent (section 20(3) of the Act on Banks). - CNB assesses competence, trustworthiness and experience of founders and nominees for executive managerial positions (section 4(3)d of the Act on Banks). - Persons lawfully convicted of a willful criminal offence are not allowed to act in such positions (section 4(5) of the Act on Banks). - Documentation and controls: - CNB Decree No. 166/2002 stipulates essential elements for banking license application, e.g., a recent extract from the criminal register and a list of all previous employment and business activities. - CNB requires documents on origin of contributions to capital by persons having qualifying holdings and of funds from which a qualifying holding was acquired. - Foreign exchange activities: - Under section 3(3) of the Foreign Exchange Act, CNB assesses competence and integrity for licensing bureaux de change and money service providers. - For Foreign Exchange Act purposes, any person lawfully convicted of a willful criminal offence or a negligent criminal offence of a property nature is not deemed a person of integrity. - Remedial procedures of section 22 of the Foreign Exchange Act can be applied where a person with previous conviction for property crime gains proprietary influence over a licensed foreign exchange entity. ### Integrity standards — insurance sector (selected requirements and procedures) - Licensing and fit-and-proper assessments: - Section 8 of the Act on Insurance: authorization application must contain name and surname, date of birth, place of permanent residence and proof of good repute for each natural person who is a founder, member of statutory or supervisory body, or a natural person authorized to act on behalf of a legal person founder. - Education and professional experience particulars required for board members, supervisory board, control board members, or proxy holders. - Notifications and consent for share acquisitions: - Section 11 of the Act on Insurance: persons intending to acquire or increase voting rights to reach or exceed 20, 33 or 50 percent must request consent prior to acquisition and notify within 30 days if acquisition effected through transfer of rights. - Application must contain amount of intended share and proof of good repute of relevant natural persons. - Grounds for refusal: - Ministry of Finance/Insurance supervisor shall not approve application if: a) natural person has not proved good repute; b) such person was in past three years a member of statutory/supervisory body or proxy holder of legal person that went bankrupt during this period; c) authorization withdrawn for infringement of special legal provision. - Proof of good repute may be demonstrated by checking criminal records. ### Integrity standards — securities sector (selected requirements and procedures) - Licensing: - CSC grants license to perform activities of a securities trader under section 45 of the Securities Act; sections 45 to 46d set procedure and include providing an extract from the criminal registers. - CSC’s Methodology elaborates licensing procedure and requirements. - Entities authorized only to receive and transmit instructions may be registered pursuant to section 45a of the Securities Act. - Ongoing supervision: - CSC screens license requirements during licensing, on-site examinations and state inspections and may withdraw license where requirements are not met. ### Legal entities - Civil code and commercial code regulate incorporation and further action of legal entities to reduce risk of abusive practices and prevent abuse for money laundering. ### Enforcement powers and sanctions — overview - Coverage: Criteria 64 for (i) banking sector; (ii) insurance sector; (iii) securities sector; and (iv) other financial institutions sector, plus sector specific criteria 93-96 for banking and 115-117 for securities. - Summary finding: Supervisory authorities generally have sufficient enforcement powers and sanctions to enforce compliance with the AML Act, except the Insurance Supervisor (overall AML/CFT supervision not yet implemented for insurance). ### Enforcement powers and sanctions — AML Act sanctions - Section 12(1) AML Act: - Violation of AML Act requirements (unless secrecy breach or stricter penalty applies) subject to a fine not exceeding CZK 2 million by the Ministry of Finance (FAU) or another supervisory body (CNB, CSC, CUSA). - Repeated violation or failure to comply for 12 successive months: fine up to CZK 10 million. - Section 13(2) AML Act: - FAU may submit motion to repeal a business or self-employment license where long-term or repeated violations of AML Act occur; reasons for repeal may include long-term or repeated violations. ### Enforcement powers and sanctions — banking sector - CNB powers (Act on the Czech National Bank; Act on Banks): - CNB may impose remedial measures, demand restriction/cessation of activities, replace management or supervisory board members, change license, order extraordinary audit, impose conservatorship, impose a fine up to CZK 50 million (section 26(1) of the Act on Banks). - If serious shortcomings persist, CNB can, in consultation with Ministry of Finance, revoke a license (section 34 Act on Banks). - Foreign Exchange Act (sections 22 and 23): CNB can restrict, suspend or revoke foreign exchange license; impose a fine even if shortcomings are remedied within set time limit. ### Enforcement powers and sanctions — insurance sector - Insurance supervisor (Office of the State Supervision in Insurance and Pension Funds of the Ministry of Finance) powers (sections 27-33 Act on Insurance): - Order submission of restoration plan; impose forced administration; suspend authorization to conclude (re)insurance contracts; order transfer of portfolio to another insurer; withdraw authorization to carry on (re)insurance activity. - Section 35 Act on Insurance: power to impose fines up to CZK 100 million. - Caveat: Overall AML/CFT supervision has not yet been implemented as the insurance supervisor has no responsibilities in AML. ### Enforcement powers and sanctions — securities sector - CSC powers: - Under section 9 of the Act on the Securities Commission: impose corrective measures and penalties for breaches; corrective measures require prescribed remedy and reporting. - Penalties: fines up to CZK 100 million for discovered illegal conduct. - Act on Securities (section 86) powers: - Order remedial measures (restrict/stop activities), prohibit or suspend public offer of a security for up to one year, change or deprive authorization, impose fine up to CZK 20 million, publicize a report about the defect. - Act on Investment Companies and Investment Funds (sections 37 to 37m): - Powers include ordering redress, replacement of investment company, forced transfer of asset-management, receivership, reduction of registered capital, revocation of permits; fines up to CZK 100 million. ### Enforcement effectiveness and observed practice - Finding: Supervisory authorities generally have sufficient powers and sanctions, except Insurance Supervisor (no AML responsibilities). - Observed enforcement to mission date: - CNB and CSC: no significant sanctions imposed against financial institutions for failure to comply with AML/CFT preventive measures; CNB inspections found deficiencies and granted time for remedial actions. - FAU fines: 14 fines in 2001 totaling CZK 12 million; 33 fines in 2002 totaling CZK 30 million. - Institutions fined by FAU: mainly bureaux de change and money remitters, real estate agents, pension funds, credit unions and casinos for not filing internal procedures on time. - Recommendation: Financial supervisors should follow up inspections with appropriate measures and/or sanctions where needed to ensure effective implementation of the AML/CFT regulatory framework. ### Cooperation between supervisors and other competent authorities — FAU and inter-agency cooperation - FAU staffing and structure: - Current staff: 28 divided into four departments: the collecting and processing of data department; the analytical department; the audit and legal department; and the international cooperation department. - Supervisory function performed by Legal and Supervisory Department comprising four staff. - International cooperation: - FAU authorized within scope of international treaty to cooperate with foreign counterparts for data transmission and acquisition (section 10(5) AML Act). - Current limitation: FAU not authorized to cooperate with FIUs from countries without a bilateral or multilateral treaty; amendment to AML Act (supposed to come into effect in January 2004) will enable cooperation on basis of agreement or reciprocity. - FAU has concluded Memoranda of Understanding with 14 FIUs. - FAU international activity since creation: sent 493 requests for information to FIUs of 42 countries since 1998; received requests on 188 occasions from 40 countries. - Domestic cooperation: - FAU cooperates with Police, State Prosecution Offices, CSC, CNB, Customs, tax revenue offices and others. - 1996 agreement between Ministry of Finance and Ministry of Interior on cooperation regarding AML Act; Executive Protocol between FAU and Police Unit for Combating Corruption and Major Economic Crimes sets concrete conditions for mutual cooperation. ### Cooperation between financial supervisors - February 2003 agreement between Ministry of Finance, CSC and CNB to improve exchange of information covering licensing, inspections, corrective measures and sanctions, exchange of information, regulation of financial market, procedures towards foreign supervisory authorities and international institutions. - FAU provides other supervisors with internal procedures of financial institutions but cannot give specific reporting behavior statistics. ### CNB cooperation and staffing - CNB AML staffing: - Internal control unit of the On-site Banking Supervision Division: seven staff, of which three staff are fully dedicated to AML inspections. - Licensing and Enforcement Division: four staff involved in AML issues. - CNB international cooperation powers: - Section 2(3) Act on Central National Bank authorizes cooperation with foreign central banks and supervisory authorities. - Section 25(2) Act on Banks allows CNB to ask other supervisory authorities for on-site examinations abroad and to allow home country supervisory authorities to carry out on-site examinations on basis of reciprocity. - Exchange of information based on MOUs; MOUs signed with banking supervisory authorities in France, Germany, the USA, Austria and Slovakia; negotiations underway with Belgium, Italy, the Netherlands and Poland. ### Insurance supervisor cooperation and staffing - Office of State Supervision in Insurance and Pension Funds supervision department staff: 19 staff in charge of on-site and off-site inspections. - Section 39(5) Act on Insurance: exchange of information between Ministry of Finance and foreign supervisory authorities not considered an infringement of secrecy where related to activities of foreign insurers in Czech Republic or the activity of persons involved in insurance/reinsurance activity; exchange permitted between Ministry, CSC and CNB accordingly. ### CSC cooperation and staffing - CSC staffing: - Eight staff for onsite inspections for securities dealers. - Four staff in monitoring department for off-site inspections. - Legal bases for cooperation: - Section 16 Act on the Securities Commission: CSC, CNB and Ministry of Finance mutually provide information significant for execution of powers, unless restricted by other acts (e.g., AML Act). - Section 26 Act on the Securities Commission: exchange of information with EU/EEA member states or other countries on basis of an MOU. - MOUs: CSC concluded MOUs with regulators in Germany, Austria, Hungary, Poland, France, Portugal, Slovenia, Italy, Slovakia, Greece, Luxembourg, Cyprus, Belgium, the Netherlands and Spain. ### Effectiveness of cooperation - FAU, CNB and CSC cooperate on planning on-site inspections, sharing information on money laundering activities and experiences, and interpretation of the AML Act. - CNB and CSC have used exchange-of-information possibilities with foreign supervisors on a few occasions, mainly when a foreign manager is nominated. *Source: _cr0446 — mission report content provided in source PDF.* ### 1. Since there are several authorities involved in supervising and enforcing compliance of the AML Act, ### _cr0446 - 1. Since there are several authorities involved in supervising and enforcing compliance of the AML Act, ### Supervisory cooperation and staffing - Authorities must ensure there are no legal impediments for cooperating by allowing the FAU to exchange information and statistics on financial institutions’ reporting behavior with the other relevant supervisors. - Given the high number of entities under FAU supervision, especially bureaux de change and money transmission services that pose ML/FT risk, the FAU should benefit from additional staffing. - The mission does not consider two staff for on-site inspections sufficient to perform effectively this task. - The insurance supervisor requires more resources and training for inspectors to strengthen investigative capabilities and enhance skills and expertise in money laundering and financing of terrorism inspections. - Implications for compliance with FATF Recommendation 26: Compliant ### Controls and monitoring of cash and cross‑border transactions (FATF Recommendations 22–23) - FATF Recommendation 22 — Description (under section 5 of the AML Act): - A natural person entering or exiting the Czech Republic shall in writing report to the customs authorities importation or exportation of valid Czech or other currency, banknotes and coins, or travelers checks or money orders exchangeable for cash exceeding CZK 350,000 in total value. - This reporting duty also applies to a legal person importing or exporting instruments listed above with help of a natural person importing or exporting such valuables. - A natural or legal person sending from the Czech Republic abroad or receiving in the Czech Republic from abroad a letter or a package containing valid Czech or other currency banknotes and coins, or travelers checks or money orders exchangeable for cash total value of which exceeds CZK 20,000, shall be required to report the letter or the package to the customs authorities and shall submit the letter or the package to the customs authorities for a check. - Compliance and enforcement under Rec 22: - Customs authorities oversee compliance with the reporting duty. - Reports are to be submitted on forms issued by the Ministry of Finance and available from the customs authority. - Customs authorities submit to the Ministry of Finance (FAU) reports on compliance at points of entry and reports containing all available data on senders, addressees, and parcels, including reports on breaches. - When the customs authority determines failure to fulfill the reporting requirement, it shall impose a fine up to the value of the unreported banknotes, coins, or cashable traveler’s checks or money orders. - FATF Recommendation 23 — Description: - The authorities do not have a threshold reporting duty. - Interpretative Note to FATF Recommendation 22 — Description: - See description of Rec 22 ### Ratings of compliance (selected FATF Recommendations and Special Recommendations) - Table of selected ratings (Based on Criteria — Rating): - 1 – Ratification and implementation of the Vienna Convention: 1 — Compliant - 2 – Secrecy laws consistent with the 40 Recommendations: 43 — Compliant - 3 – Multilateral cooperation and mutual legal assistance in combating ML: 34, 36, 38, 40 — Compliant - 4 – ML a criminal offense (Vienna Convention) based on drug ML and other serious offenses: 2 — Largely compliant - 5 – Knowing ML activity a criminal offense (Vienna Convention): 4 — Compliant - 7 – Legal and administrative conditions for provisional measures (Vienna Convention): 7, 7.3, 8, 9, 10, 11 — Largely compliant - 8 – FATF Recommendations 10 to 29 applied to non-bank financial institutions: See answers to 10 to 29 - 10 – Prohibition of anonymous accounts and implementation of customer identification policies: 45, 46, 46.1 — Largely compliant - 11 – Obligation to take reasonable measures to obtain information about customer identity: 46.1, 47 — Largely compliant - 12 – Comprehensive record keeping for five years of transactions, accounts, correspondence, and customer identification documents: 52, 53, 54 — Largely compliant - 14 – Detection and analysis of unusual large or otherwise suspicious transactions: 17.2, 49 — Largely compliant - 15 – If financial institutions suspect that funds stem from a criminal activity, they should be required to report promptly their suspicions to the FIU: 55 — Compliant - 16 – Legal protection for financial institutions, their directors and staff if they report their suspicions in good faith to the FIU: 56 — Compliant - 17 – Directors, officers and employees, should not warn customers when information relating to them is reported to the FIU: 57 — Compliant - 18 – Compliance with instructions for suspicious transactions reporting: 57 — Compliant - 19 – Internal policies, procedures, controls, audit, and training programs: 58, 58.1, 59, 60 — Compliant - 20 – AML rules and procedures applied to branches and subsidiaries located abroad: 61 — Compliant - 21 – Special attention given to transactions with higher risk countries: 50, 50.1 — Largely compliant - 26 – Adequate AML programs in supervised banks, financial institutions or intermediaries; authority to cooperate with judicial and law enforcement: 66 — Compliant - 28 – Guidelines for suspicious transactions’ detection: 17.2, 50.1, 55.2 — Materially non-compliant - 29 – Preventing control of, or significant participation in financial institutions by criminals: 62 — Compliant - 32 – International exchange of information relating to suspicious transactions, and to persons or corporations involved: 22, 22.1, 34 — Largely compliant - 33 – Bilateral or multilateral agreement on information exchange when legal standards are different should not affect willingness to provide mutual assistance: 34.2, 35.1 — Compliant - 34 – Bilateral and multilateral agreements and arrangements for widest possible range of mutual assistance: 34, 34.1, 36, 37 — Compliant - 37 – Existence of procedures for mutual assistance in criminal matters for production of records, search of persons and premises, seizure and obtaining of evidence for ML investigations and prosecution: 27, 34, 34.1, 35.2 — Compliant - 38 – Authority to take expeditious actions in response to foreign countries’ requests to identify, freeze, seize and confiscate proceeds or other property: 11, 15, 16, 34, 34.1, 35.2, 39 — Compliant - 40 – ML an extraditable offense: 34, 40 — Compliant - SR I – Take steps to ratify and implement relevant United Nations instruments: 1, 34 — Materially non-compliant - SR II – Criminalize the FT and terrorist organizations: 2.3, 3, 3.1 — Materially non-compliant - SR III – Freeze and confiscate terrorist assets: 7, 7.3, 8, 13 — Materially non-compliant - SR IV – Report suspicious transactions linked to terrorism: 55 — Materially non-compliant - SR V – provide assistance to other countries’ FT investigations: 34, 34.1, 37, 40, 41 — Compliant - SR VI – impose AML requirements on alternative remittance systems: 45, 46, 46.1, 47, 49, 50, 50.1, 52, 53, 54, 55, 56, 57, 58, 58.1, 59, 60, 61, 62 — Not applicable – No informal remittance activities identified (see ratings in other applicable FATF Recommendations) - SR VII – Strengthen customer identification measures for wire transfers: 48, 51 — Not rated ### Summary of effectiveness of AML/CFT efforts (selected assessments) - Criminal Justice Measures and International Cooperation: - Weaknesses in some aspects of the ML offence and the seizure and confiscation regime; level of sanctions for ML are below international standard. - FT prosecution jeopardized by absence of a formal and comprehensive legal basis. - Legal framework appears comprehensive enough to ensure some efficiency, but law enforcement results are poor. - Confiscation of proceeds of crime or property used to finance terrorism: - Lack of specified and itemized statistics; need precise registration of comprehensive statistics per specific criminality. - Training opportunities exist but have not yet improved results; need for reinforced training and awareness raising, particularly for prosecutors and judges. - The FIU (FAU) and financial intelligence processes: - FAU has matured and acquired experience in processing financial intelligence to support law enforcement. - FAU provides informal guidance to reporting entities and has satisfactory legal resources to collect additional information for analysis. - Cross-border cooperation by the Czech FAU is broad but formally restricted to jurisdictions party to bilateral treaties or the Strasbourg Convention. - Law enforcement and prosecution authorities, powers and duties: - Creation of the special police unit UCCFC should ensure proper police follow-up on FAU reports. - Prosecutorial authorities have some specialization in ML cases, but no ML prosecutions have been initiated yet. - Financing of terrorism is not established as an autonomous offence, posing an obstacle to effective prosecution. - Special investigative techniques are up to standard but unused to date in ML investigations. - Resources for police and prosecution and statistics provided seem adequate. - Creation of the interdepartmental “Clearing House” should provide an appropriate law enforcement coordinating mechanism. - Overall law enforcement results are poor; great need for specialized training, particularly for the judiciary. - International cooperation: - Cooperative attitude and practice are beyond reproach. - Apart from absence of specific ML and FT statistics and awaiting an autonomous FT offence, international standards are fully met. - Allocated resources for international cooperation seem adequate. ### Legal and institutional framework for all financial institutions — findings - General framework: - Supervisors have no restrictions in providing the FAU or law enforcement agencies with information on entities under their supervision. - Supervisors other than the CNB cannot receive specific information on reporting entities from the FAU. - CNB increased AML/CFT targeted on-site inspections since end of 2002; CSC incorporated AML within on-site and off-site inspections of securities dealers since 2002. - AML/CFT supervision has not yet been implemented in the insurance sector; no inspections have focused on AML issues. - CUSA has taken a very limited role: inspects credit unions to ensure internal AML procedures forwarded to FAU and identification/record keeping requirements met, but does not monitor suspicious transaction reporting. - Given the large number of entities FAU supervises, the number of on-site inspections is considerably low and should be increased; mission recognizes need for additional audit staff. - Customer identification: - Financial institutions seem aware of high risk customers and countries; some check new customers against UN lists and other internal lists. - When suspicions arise, institutions may seek more information if allowed by internal policies, but there is no legal backing for this practice. - Difficulty obtaining all customer information because of strict interpretation of the Protection of Personal Data Act. - Mission believes Act on Banks, Sec. 37 (2) grants banks the right to obtain information “necessary to allow the banking transaction to be executed without the bank incurring undue legal and material risks”. - Ongoing monitoring of accounts and transactions: - Financial institutions check transactions primarily for suspicious transaction reporting and have “red flags”. - No legal obligation to routinely examine complex or unusually large transactions or patterns and preserve findings for competent authorities. - Record keeping: - AML Act legal requirement limited to transactions subject to identification; institutions are not required under the AML Act to keep all necessary records concerning customer transactions and accounts for the obliged period following completion of the transaction. - No requirement to maintain records on account files and business correspondence for the given period following termination of an account or business relationship. - Suspicious transactions reporting: - System is comprehensive and compliant with international standards. - Financial institutions required to draft and enforce internal procedures including a detailed list of suspicious transaction features. - Neither the FAU nor supervisors have issued guidelines to assist financial institutions in detecting patterns of suspicious activity. - Internal controls, compliance and audit: - All financial institutions are required by the AML Act to submit internal procedures to the FAU; those that have not been fined by the FAU. - CNB has indicated to banks which areas external auditors should examine, moving to a more risk-based approach. - Financial institutions have appointed compliance officers responsible for determining which transactions to report to the FAU. - Banks visited have developed AML training programs; other financial sectors have not focused training programs on AML/CFT issues. - Integrity standards: - Financial supervisors have adequate powers to check integrity and can prohibit criminals from taking control of financial institutions. - Enforcement powers and sanctions: - Supervisory authorities generally have sufficient enforcement powers and sanctions to enforce compliance with the AML Act, with the exception of the Insurance Supervisor. - Cooperation between supervisors and other competent authorities: - FAU, CNB and CSC cooperate in planning on-site inspections, sharing information on money laundering activities and interpretation of the AML Act. - FAU actively participates in international exchange of information with other FIUs since creation. - CNB and CSC have used their possibilities to exchange information with foreign supervisors on a few occasions. ### Recommended action plan (selected recommendations) - Criminalization of ML and FT — Recommended actions: 1. Enlarge the scope of section 252a of the Criminal Code to align with Vienna, Strasbourg and Palermo conventions and to cover “acquisition, possession, use or disposition of assets with the knowledge that such assets originate from a criminal activity”. Amend the requirement to prove “the aim to pretend that such asset or financial benefits have been obtained in compliance with law”, which sets a higher burden of proof on the prosecution than required by these conventions. 2. Introduce in legislation a criminal offence of financing of terrorism, consistent with the definition given by the UN International Convention for the Suppression of the Financing of Terrorism, to ensure coverage of all cases related to the financing of terrorism as defined therein. 3. Amend the Criminal Code to introduce criminal liability for legal persons in Czech law. 4. Ratify and implement fully the UN International Convention for the Suppression of the Financing of Terrorism. 5. Adjust penalties for ML to the average international standard and create a formal legal basis for CFT; use existing legal means and resources to bring cases to court and establish case law to guide law enforcement and legislators. *Source: IMF staff report content from the provided PDF chapter/section.* ### 6. All legal remedies recommended by the previous ### 6. All legal remedies recommended by the previous ### II—Confiscation of proceeds of crime or property used to finance terrorism - The authorities should consider giving a mandatory nature to the forfeiture/confiscation regime (Section 55 of the Criminal Code). - Amend legislation to allow for the unconditional freezing, without delay, of funds, or other assets or property, in accordance with the UNSCRs and FATF Special Recommendation III. - The precise registration of comprehensive statistics per specific criminality is necessary for outside evaluation and internal critical review; the establishment of the UCCFC specialization in detection and seizure of criminal proceeds should remedy the current lack of relevant statistics. - The FAU should keep reliable statistics on this aspect, including: - automatic freezing of terrorism assets by the banks, and - disclosures to the central authority resulting from relevant UN resolutions and EU regulations, so arrangements are made to ensure compliance. - Organize focused training and awareness-raising programs with attention to experience and practices in other countries where ML-related seizure and confiscation is successful. ### III—The FIU and processes for receiving, analyzing, and disseminating financial information and other intelligence at the domestic and international levels - Issue guidelines to help financial institutions implement AML/CFT requirements and detect and report suspicious transaction patterns. - The FAU should assess its management of the STRs and examine ways to speed up the analytical process whenever not dependent on outside factors beyond its control. - The self-evaluation of the reporting system would benefit from more detailed statistics, including figures on: - probable predicate criminality, - the money laundering stage of the transactions, - the nature of the transactions, and - the geographical spread of the cases. - The supervisory function of the FAU calls for an extension of its staff to be effective and comprehensive. - It is advisable for the FAU to produce an annual report on its activity and findings to provide analysis and feedback to reporting entities and other agencies. - For international cooperation at FIU level, lift the formal treaty or Strasbourg Convention adherence condition; permit cooperation at least whenever the counterpart meets the Egmont Group standards. The draft amendment to the AML Act, if passed, would allow cooperation where the counterpart meets Egmont standards. ### IV—Law enforcement and prosecution authorities, powers and duties - Creation and specialization of the UCCFC is commendable; establishment of a section focused on detection and seizure of criminal proceeds is particularly welcome, but it has not yet translated into successful ML prosecutions. - Legislative amendments to the Criminal Code and effective implementation are needed; specialization within police and prosecution should improve understanding and awareness, but the system must pass the test of the courts. - Introduction of FT as an autonomous offence will address a legal deficiency regarding FT. - The ‘Clearing House’ concept should receive full support and active input from all authorities; it is an ideal forum to address AML difficulties and to learn from international training initiatives (EU PHARE, GPML, Egmont Group). - Review of typologies and trends should be joint work by the FIU, police and prosecution, and included in annual reports. - A system with all components yet no convictions or asset recovery requires a thorough audit; the problem appears primarily in judicial follow-up and requires raising awareness and expertise of the judiciary. - The “mens rea” standard is cited as a problem; there are still no prosecutions for negligent money laundering, which requires minimal criminal intent. - Proof of predicate offences, particularly when committed in a foreign country, is a serious challenge. - Consider treating money laundering as an autonomous offence rather than following the classical approach of starting with the predicate offence. - Review adequacy of sanctioning to ensure sanctions are proportionate and dissuasive and brought into compliance with the European Union Council Decision of June, 2001 which established a four-year minimum for money laundering offences. ### V—International cooperation - Timely introduction of the FT offence is of utmost importance to create a clear and unequivocal situation in relation to FT extradition. - Attention should be given to the statistical aspect. ### Legal and Institutional Framework for Financial Institutions — I. General framework - Ensure no legal impediments to cooperation among multiple authorities by allowing the FAU to provide information on financial institutions’ compliance with reporting duties to other relevant supervisors; the draft amendment to the AML Act, if passed, would remedy this situation. - Priority should be given to plans to establish the Office of the State Supervision in Insurance and Pension Funds as the overall AML/CFT supervisor for the insurance sector. - As the Czech Republic is working on an amendment to the AML Act assigning the Office of the State Supervision in Insurance and Pension Funds AML/CFT supervisory tasks, cooperation between the Ministry of Finance/FAU, the CSC and the CNB (based on an agreement) should be strengthened (with legal basis if necessary) and include other supervisors tasked with AML/CFT supervision. ### II—Customer identification - Introduce new AML Act requirements regarding: - updating identification information when doubts appear during a business relationship, - identification of the beneficial owner when the customer is a legal person, - including accurate and meaningful originator information on funds transfers and related messages. - The amendment to the AML Act should resolve the exemption from confidentiality for lawyers and notaries with respect to the FAU, but it does not address their confidentiality vis-à-vis financial institutions; ensure lawyers and notaries cannot invoke confidentiality in relation to financial institutions when acting on behalf of a client. - OPDT started inspections only this year; if the Protection of Personal Data Act interpretation and fears expressed by financial institutions are confirmed by OPDT inspections, the authorities should address this problem. - Although originator information is included in domestic and SWIFT transactions and banks follow up on transactions missing this information, ensure all financial institutions, including money remitters, comply. ### III—Ongoing monitoring of accounts and transactions - Introduce new AML Act requirements similar to CNB regulation for ongoing monitoring, specifically: - financial institutions should pay special attention to all complex, unusual large transactions, and unusual patterns of transactions that have no apparent or visible economic or lawful purpose; - examine background and purpose of such transactions as far as possible; - set forth findings in writing and keep such findings available for competent authorities. - Introduce provisions ensuring financial institutions pay special attention to business relations and transactions with persons (including legal entities) in jurisdictions without adequate systems to prevent and deter ML or FT. - Securities and insurance supervisors should develop AML/CFT regulations similar to those issued by CNB. - Financial supervisors should give more practical guidance to regulated entities on monitoring client accounts and transactions. ### IV—Record keeping - Amend the AML Act to regulate record keeping requirements in more detail to comply with relevant international standards, particularly the second EU Directive on Money Laundering. - The amendment, once enacted, will require financial institutions to keep customer identification records, copies of identification documents and in case of representation the original of the proxy for 10 years following the termination of a business relationship. - Authorities are advised to add to the AML Act that financial institutions are required to keep all necessary records concerning customer transactions and accounts and to maintain records on account files and business correspondence. ### V—Suspicious transactions reporting - The FAU, in cooperation with supervisors, should provide financial institutions with more guidance on recognizing suspicious transactions, referencing typologies reports of the FATF, FATF-style regional bodies, and the Egmont Group, and papers from IAIS and IOSCO. - At the time of the mission, financial institutions were not required by law to report transactions suspected of being related to terrorism. - An amendment to the AML Act is being prepared to oblige financial institutions to report suspicious transactions suspected of financing terrorism; the proposed amendment will extend the definition of suspicious transactions to include suspicion that funds used are intended for financing of terrorism, terrorist acts or terrorist organizations. - There should be a requirement for financial institutions to report suspicions of terrorist financing. ### VI—Internal controls, compliance and audit - Although all financial institutions have internal procedures and a compliance officer, institutions approach AML/CFT from a legalistic point of view, especially in the insurance sector; authorities should enhance efforts to raise awareness on ML and FT and monitor skills of compliance officers. - Ensure financial institutions put in place adequate screening procedures when hiring employees. ### VII—Integrity standards - (No specific recommendations or numeric items beyond heading content in the supplied text.) ### VIII—Enforcement powers and sanctions - Financial supervisors should follow up inspections with appropriate measures and/or sanctions where needed to ensure effective implementation of the AML/CFT regulatory framework. ### IX—Cooperation between supervisors and other competent authorities - Ensure no legal impediments for cooperating by allowing the FAU to exchange information and statistics on financial institutions’ reporting behavior with other relevant supervisors. - In light of the high number of entities under FAU supervision, especially bureaux de change and money transmission services, the FAU should receive additional staffing for its supervisory function; two staff for on-site inspections is not considered sufficient. - Enhance AML/CFT supervision by the insurance supervisor through more resources and training for inspectors to strengthen investigative capabilities and skills in money laundering and financing of terrorism inspections. *Source: _cr0446 - 6. All legal remedies recommended by the previous* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr0446.pdf_