Everyone who buys and sells real estate on a commercial basis must submit to the AML Act by 2 March 2021. In practice, this means in particular that they have to conceive their own AML program. Failure to do so exposes obliged entities to fines in the millions of crowns.
The European Union has built a comprehensive body of legislation to fight money laundering and the financing of terrorism, to be implemented in the individual Member States through national legislation. One of the laws designed for the implementation of the EU rules in this field in Czech law is Act No. 253/2008 Coll., on measures aimed against the legitimization of proceeds from crime and the financing of terrorism, commonly known as AML Act.
However, not everyone of us has obligations under the AML Act, but only those who meet the definition of the “obliged person” contained in that AML Act. Towards the end of last year, a comprehensive amendment to the AML Act was passed which substantially widens the circle of those obliged persons (i.e., persons who must comply with the duties set out in the AML Act). In the real estate sector, this circle of obliged persons newly includes all those who:
• buy or sell real estate,
• act as real estate broker (with the proviso that the AML Act only applies to the brokerage of leases and sub-leases within the meaning of Sec. 2 (d) (2) of the Real Estate Brokerage Act if the amount of monthly rent payments or the prorated amount of monthly proceeds from the property flowing to the lessor in the case of a usufructuary lease, or the sum of both, is at least EUR 10,000.
Aside from real estate brokers, the explanatory memorandum for the AML Act amendment bill makes specific reference to real estate developers – natural or legal persons who invest into the construction of real estate designated for resale or lease. Of course, the circle of obliged persons does not encompass e.g. private individuals who sell, say, their own apartment in the market – these activities must be pursued on a commercial basis for the given person to qualify as an obliged person.
Obliged persons who have newly come within the purview of the AML Act must within 60 days (i.e., in the case at hand, by 2 March 2021) comply with the duties and obligations set out for them in the AML Act.
In this respect, one may differentiate between two categories: firstly, obligations in connection with a particular transaction (which include e.g. the KYC procedure), and secondly, obligations directly tied to the status of being an obliged person. These include, in particular, the duty to prepare a written system of internal principles, processes, and monitoring measures designed to ensure AML compliance, including a written risk assessment (the “AML program”).
The AML program is a system of internal principles whose introduction and implementation serves the goal – among other things – to mitigate and effectively manage the risks of money laundering or the financing of terrorism, whereas these risks are identified in a separate part about risk assessment in connection with the business operations of the obliged person. Examples include an AML policy, an AML form, risk assessment rules, etc. – all in all, a complex set of documents, to which one must add e.g. adequate staff training.
The amendment has also significantly raised the fines for violations of the AML Act. One such violation is the failure to implement the system of internal principles called for by the AML Act, which carries a fine of up to CZK 10,000,000 – or even higher for repeat offenders; in the extreme case, it is even conceivable that the obliged party in question will be prohibited from further operations. In the light of these facts, our advice is not to underestimate the obligations arising from the AML Act.
We are of course available to assist you in achieving compliance with the AML duties. Several developers and realtors have already turned to us for AML programs which reflect their specific needs and requirements, and we have also administered training to their employees in order to thoroughly familiarize them with the issues.
Regulation (EU) 2020/1503 of the European Parliament and the Council of 7 October 2020