Countries/Jurisdictions of Primary Concern - Czech Republic
The Czech Republic has a mid-sized, export-oriented economy. The country’s central location in Europe and openness as a market economy leave it vulnerable to money laundering. Fraud and tax evasion, especially related to the value added tax (VAT) and consumption tax, are reportedly the primary sources of laundered assets in the country. A common tactic for hiding the origin of illicit proceeds is to transfer or layer funds among multiple companies, creating a system of “carousel trading,” whereby fictitious invoices, wages, and benefit payments are created. The ultimate goal of the carousel system is to benefit from an unauthorized VAT allowance. Commodities frequently misused for tax evasion include diesel and fuel oils, gas, and gold. Alcoholic beverages are typically exploited in consumption tax fraud schemes. Online consumer fraud is another source of illicit funds, with perpetrators targeting customers interested in buying electronic goods, such as computers, cell phones, and audio-video equipment. The Czech police have recently reported fraud related to the bitcoin virtual currency.
Domestic and foreign organized criminal groups target Czech financial institutions for laundering activity, most commonly by means of financial transfers. Illicit proceeds from narcotics, trafficking in persons, or smuggling counterfeit goods are often associated with foreign groups, particularly from the former Soviet republics, the Balkans region, and Asia. Proceeds from fraud and tax evasion are typically laundered by specialized groups from various EU states and the Middle East, using the services of local lawyers and tax advisors who specialize in trading with shell companies and creating offshore structures, allowing for fund transfers under the umbrella of tax optimization. According to the Czech police, development and investment companies, real estate agencies, currency exchange offices, casinos, and other gaming establishments have all been used to launder criminal proceeds.
While authorities have made substantial progress in combatting counterfeits in physical markets, the Czech Republic has not completely eliminated the black market for smuggled cigarettes and other tobacco products, as well as pirated products from Asia, including CDs, DVDs, and counterfeit designer goods. The Czech Customs Administration has found that Asian criminal groups use a portion of the illegal funds from contraband smuggling for the purchase of real properties, which they then use for business activities. There are 11 free trade zones operating in the Czech Republic, but Czech authorities do not consider them to be vulnerable to money laundering.
For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found at: http://www.state.gov/j/ct/rls/crt/
DO FINANCIAL INSTITUTIONS ENGAGE IN CURRENCY TRANSACTIONS RELATED TO INTERNATIONAL NARCOTICS TRAFFICKING THAT INCLUDE SIGNIFICANT AMOUNTS OF US CURRENCY; CURRENCY DERIVED FROM ILLEGAL SALES IN THE U.S.; OR ILLEGAL DRUG SALES THAT OTHERWISE SIGNIFICANTLY AFFECT THE U.S.: NO
CRIMINALIZATION OF MONEY LAUNDERING:
“All serious crimes” approach or “list” approach to predicate crimes: List approach
Are legal persons covered: criminally: YES civilly: YES
KNOW-YOUR-CUSTOMER (KYC) RULES:
Enhanced due diligence procedures for PEPs: Foreign: YES Domestic: NO
KYC covered entities: Banks, currency exchanges, insurance companies, and postal license holders; securities dealers and exchanges; gaming enterprises; attorneys, trusts, and company service providers; realtors, notaries, accountants, tax advisors, and auditors; pawnshops and dealers of precious metals and stones and of secondhand goods, including vehicles
Number of STRs received and time frame: 2,175: January 1 - October 31, 2013
Number of CTRs received and time frame: Not applicable
STR covered entities: Banks, currency exchanges, insurance companies, and postal license holders; securities dealers and exchanges; gaming enterprises; attorneys, trusts, and company service providers; realtors, notaries, accountants, tax advisors, and auditors; pawnshops and dealers of precious metals and stones and of secondhand goods, including vehicles
MONEY LAUNDERING CRIMINAL PROSECUTIONS/CONVICTIONS:
Prosecutions: 8: January 1 - June 30, 2013
Convictions: 22: January 1 - June 30, 2013
RECORDS EXCHANGE MECHANISM:
With U.S.: MLAT: YES Other mechanism: YES
With other governments/jurisdictions: YES
The Czech Republic is a member of the Council of Europe Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), a FATF-style regional body. Its most recent mutual evaluation can be found at: http://www.coe.int/t/dghl/monitoring/moneyval/Countries/Czech_en.asp
ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:
Two aspects of the Czech legal framework continue to constrain efforts to prosecute money laundering. First, prosecutors must prove that the accused also committed a predicate offense resulting in the laundering of assets. Second, a court can only sentence an individual to prison for one crime, even if several crimes were committed. Convictions for predicate offenses generally result in prison sentences at least as long as those for money laundering, so prosecutors have little motivation to pursue money laundering convictions. Nevertheless, the Czech police report the situation is improving as some prosecutors have expressed willingness to prosecute both the predicate offense and the money laundering in one procedure. Prosecutors initiated 459 criminal investigations in 2012, which resulted in approximately $266.7 million in frozen assets. Approximately $14.5 million was ultimately forfeited.
After numerous failed attempts in the past to address anonymous bearer shares, Parliament voted unanimously in May 2013 to require Czech companies issuing bearer shares to register their shares with the Central Securities Depository of the Prague Stock Exchange; to have the shares held in a legal entity’s safe deposit box; or to convert the shares into registered stocks. The legislation will close a significant loophole reportedly used to disguise conflicts of interest in public contracts and money laundering schemes. The legislation enters into effect on January 1, 2014. Approximately 13,000 joint stock companies are owned via bearer shares. Law enforcement personnel acknowledge companies are already searching for other ways to obscure true ownership.
There is weak AML regulatory oversight of the gaming industry. The Czech gaming industry is represented by a powerful lobby that has succeeded in blocking many proposed regulations. Casinos file a relatively small number of STRs. Other gaming entities, including bars and restaurants with electronic games and slot machines, are not subject to the Anti-Money Laundering Act (AMLA) requirements, even though the concentration of such machines is relatively high compared to other EU member states. Without robust oversight and the applicability of the AMLA to all gaming establishments, the potential exists for money laundering to become more significant in the gaming sector. The Ministry of Finance’s Financial Analytical Unit has stated the Government of the Czech Republic will amend the AMLA following European Commission actions regarding gaming restrictions.
The Czech Republic became a party to the UN Convention against Transnational Organized Crime on September 24, 2013, and to the UN Convention against Corruption on November 29, 2013.