The Czech Republic’s Act No. 253/2008 Coll., on certain measures against money laundering and financing terrorism (the “Act on Money Laundering”) is not a no-velty. Despite this fact, the Act is still neglected and underestimated, even among big corporations. This stance is connected to legal entities’ general unawareness of being a bearer of obligations pursuant to the law, as well as to their mistaken belief that if they do not launder the money deliberately, they cannot be under threat of sanction. However, pursuant to the new Act No. 418/2011 Coll., on Criminal Liability of Legal Entities and Legal Proceedings against them (the “ACLLE”), the crime of money laundering can easily be committed without anyone in the company noticing.
Liable person pursuant to the Act on Money Laundering
The Act on Money Laundering has been in force for almost four years. It sets out many obligations that should prevent activities leading to the disguising of the illeg-al origin of economic benefits derived from criminal activity, activities that are de-signed to give the impression that the economic benefit was acquired in accordance with the law. In other words, the purpose of the Act is to prevent activities leading to concealing the origin of the funds in order to “launder” them.
The keyword of this Act is liable person, because the obligations provided under this Act apply only to the liable person. In the first place, liable persons are credit insti-tutions and other financial institutions, such as entities entitled to provide leasing, guarantees and credit loans, as well as entities entitled to intermediate savings, loans or credits.
Liable persons under the Act also include providers of so-called readymade compa-nies, including services consisting in acting as a statutory body or the provision of registered office. Another relatively widespread range of persons liable under the Act are persons authorised to trade with used goods or to receive goods in pledge, typically bazaars and pawnshops. The Act also applies to foreign legal entities or natural persons carrying out these activities in the Czech Republic through a branch office or establishment.
While all of these entities are more or less conscious of their obligations under the Act, most entrepreneurs have no idea that they too are liable persons whenever they receive cash of EUR 15,000 or more, regardless of their line of business. More-over, the amounts (advance payments, instalments, etc.) received in connection with one transaction are added up.
Obligations of liable persons
All of these liable persons have several key obligations under the Act on Money Laundering. In particular, the client must be identified if the amount of the trade exceeds EUR 1,000. The obligation of identification also arises in some cases irres-pective of the amount. This is the case in particular when the transaction being car-ried out is suspicious, for example, when a client transfers property without an ex-plicit economic reason or makes withdrawals or transfers of money immediately af-ter the cash is deposited. The identification of a client who is a natural person shall be carried out in the actual presence of this person at the liable person through an ID card. The legal entity must submit an extract from the Commercial Register or other evidence of the legal entity’s existence.
In specific cases set out by the Act, the client must be checked, in particular when the liable person does business with a client that exceeds EUR 15,000, when the transaction is suspicious, or at the beginning of a business relationship. The check-ing of the client includes inter alia detection of the purpose and nature of the busi-ness, as well as a review of the source of funds. The obligation of such checking shall be carried out to the degree necessary to assess the extent of the risk of mon-ey laundering with regards to the type of client or the business relationship.
If the liable person detects a suspicious trade, they are obliged to notify the Ministry of Finance within five days at the latest.
Criminal liability of legal entities in money laundering
ACLLE regulates the criminal liability of legal entities with effect from 1 January 2012. In compliance with ACLLE, a crime by a legal entity is defined as an offence committed in its name, interest or within the scope of its activity under the condi-tion that it is committed by the statutory body of the respective legal entity or other person entitled to act on behalf or in the name of the legal entity, or by a person carrying out management or supervisory activity or exercising a decisive influence on the management of the legal entity. Last but not least, the legal entity is crimi-nally liable even if the activity is carried out by its employee.
The criminal liability of legal entities also covers the offence of money laundering, which according to the Criminal Code is committed by those who obscure the origin or otherwise seek to make substantially more difficult or impossible to identify the origin of things acquired through the offence, or as a reward for it, or a thing ac-quired for such thing. Those who enable others to commit this offence are criminally liable as well.
The offence itself does not require intentional conduct. Under the Criminal Code, such an offence may be committed also by a person acting negligently. To commit a crime by acting negligently, it is sufficient for the legal entity to negligently enable another to disguise the origin or prevent the origin of the thing from being found.
Key link of ACLLE and the Act on Money Laundering
The most problematic is the above-mentioned criminal liability for acts of employees and the possibility of committing the crime of money laundering by negligence, in particular due to its scope and the possibility of execution of controls in the case of big companies with hundreds or thousands of employees.
According to ACLLE, the offence is attributable to a legal entity if it is committed by an employee in two situations: (i) the employee acted on the basis of the legal enti-ty’s instruction or (ii) the bodies of the legal entity did not take measures which they should have taken pursuant to another legal regulation or which could be rea-sonably required from them. The latter applies in particular if the entity’s bodies did not carry out obligatory or necessary checks of employees’ activity or the activity of other persons to which they are superior, or if they did not take necessary meas-ures to prevent or avert the consequences of the committed crime.
The Act on Money Laundering applies in such cases as it sets out the measures that a legal entity must take to prevent the potential flow / laundering of funds. It is an obligation to establish and implement internal control and communication proce-dures in order to fulfil the obligations set out by this Act. In this context, the liable person is required to develop a system of internal principles in writing, procedures and control measures, which include a well-defined range of legal issues, set out in the Act. The liable person shall also provide training at least once per year to em-ployees who may come into contact with suspicious transactions.
These obligations are crucial, because failure to meet them may establish the liabili-ty of the legal entity for the crime of money laundering. If the legal entity, which is a liable person pursuant to the Act on Money Laundering, does not meet these obli-gations, it may be found guilty of committing the crime of money laundering, for example, if it accepts cash instalments of an amount exceeding EUR 15,000.
Consequences connected to breach of obligations under the Act on Money Laundering
Failure to meet the obligations set out by the Act on Money Laundering may be sanctioned by the Ministry of Finance up to CZK 50,000,000.
In addition, failure to meet these obligations and the consequent even only negli-gent conduct of the employee of a legal entity can also lead to the criminal liability of the legal entity for the crime of money laundering. In such a case, a fine or ban on activities may be imposed on the legal entity. As a last resort, forfeiture of prop-erty or cancellation of the legal entity may be imposed.
These sanctions can seriously affect the existence of a legal entity. Without taking sufficient measures to adopt internal controls and internal regulations, breach of le-gal obligations and consequent sanctions may very easily ensue.