FATF AML Deficiency List
US Dept of State Money Laundering assessment
Non - Compliance with FATF MER Recommendations
The Czech Republic is not on the FATF List of Countries that have been identified as having strategic AML deficiencies
Compliance with FATF Recommendations
The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in The Czech Republic was undertaken in 2019. According to that Evaluation, The Czech Republic was deemed Compliant for 4 and Largely Compliant for 23 of the FATF 40 Recommendations. It was deemed Highly Effective for 0 and Substantially Effective for 3 of the Effectiveness & Technical Compliance ratings.
US Department of State Money Laundering assessment (INCSR)
The Czech Republic was deemed a Jurisdiction of Concern by the US Department of State 2016 International Narcotics Control Strategy Report (INCSR). Key Findings from the report are as follows: -
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. Proceeds from fraud and tax evasion - especially related to the value-added tax (VAT) and excise tax - are reportedly the primary sources of laundered assets in the country. A common tactic is “carousel trading,” in which a chain of related companies creates fictitious records of transactions and related invoicing, against which the final link in the chain claims a refund of the VAT. Commodities frequently misused for tax evasion include diesel and fuel oils, electric power, gas, scrap and precious metals, rapeseed, poppy seed, frozen meat, and carbon permits. Alcoholic beverages also are typically exploited in consumption tax fraud schemes. The key criteria for the selection of suitable commodities include the potential for high-volume transfers, difficulty in tracing goods, and cross-border transit.
According to the Czech police, there have been increased incidents of cyberattacks on banking networks, including cases during the past year of persons gaining illegal access to online banking systems through use of false identities, fake banking websites, breaking of passwords, skimming, and phishing. Online consumer fraud is another source of illicit funds. While perpetrators originally had targeted primarily customers interested in buying electronic goods, criminals have moved increasingly into fraudulent sale of items that fall below the $225 per item threshold for criminal prosecution, especially apparel.
The Czech police and Ministry of Finance (MOF) have also reported several cases of fraud and/or money laundering connected to bitcoin and other digital currencies. Though the government has expressed concern about potential abuse of digital currencies by criminals in connection to tax evasion, money laundering, terrorist financing, and sanctions circumvention, there were no reported cases of financing terrorism or avoidance of financial sanctions. The MOF’s Financial Analytical Unit (FAU), the country’s financial intelligence unit, recorded isolated cases of laundering of proceeds from tax evasion and internet fraud by purchase of bitcoin worth tens of thousands of euros.
Domestic and foreign organized criminal groups target Czech financial institutions for laundering activity, most commonly by means of financial transfers to tax havens. 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, 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 ready-made 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, gaming establishments, antique shops, pawnshops, restaurants, taxi companies, (executive) auction halls, imaginary research centers, and advisory companies have all been used to launder criminal proceeds.
There are 10 free trade zones operating in the Czech Republic, but Czech authorities do not consider them to be vulnerable to money laundering.
There are no international sanctions currently in force against this country.
BRIBERY & CORRUPTION
Rating (100-Good / 0-Bad)
Transparency International Corruption Index 54
World Governance Indicator – Control of Corruption 69
Corruption can impede business in the Czech Republic. Patronage and nepotism are considered especially problematic in the country. The Criminal Code criminalises attempted corruption, extortion, active and passive bribery, bribery of foreign officials and money laundering. Criminal liability for legal entities (Act No. 418/2011 Coll.) covers domestic and foreign corporate entities registered in the Czech Republic. Nonetheless, the government does not implement the legal framework for combatting corruption effectively. The Czech Republic prohibits facilitation payments, and although the majority of citizens do not encounter petty corruption in their daily lives, bribes or gifts are occasionally needed to speed up public administration processes. For further information - GAN Integrity Business Anti-Corruption Portal
Czechia is a stable and prosperous market economy that is closely integrated with the EU, especially since the country's EU accession in 2004. The auto industry is the largest single industry, and, together with its upstream suppliers, accounts for nearly 24% of Czech manufacturing. Czechia produced more than a million cars for the first time in 2010, over 80% of which were exported.
While the conservative, inward-looking Czech financial system has remained relatively healthy, the small, open, export-driven Czech economy remains sensitive to changes in the economic performance of its main export markets, especially Germany. When Western Europe and Germany fell into recession in late 2008, demand for Czech goods plunged, leading to double digit drops in industrial production and exports. As a result, real GDP fell sharply in 2009. The economy slowly recovered in the second half of 2009 and registered weak growth in the next two years. In 2012 and 2013, however, the economy fell into a recession again, due both to a slump in external demand in the EU and to the government’s austerity measures, returning to weak growth in 2014, and stronger growth in 2015.
Foreign and domestic businesses alike voice concerns about corruption, especially in public procurement. Other long term challenges include dealing with a rapidly aging population, funding an unsustainable pension and health care system, and diversifying away from manufacturing and toward a more high-tech, services-based, knowledge economy.
Agriculture - products:
wheat, potatoes, sugar beets, hops, fruit; pigs, poultry
motor vehicles, metallurgy, machinery and equipment, glass, armaments
Exports - commodities:
machinery and transport equipment, raw materials, fuel, chemicals
Exports - partners:
Germany 32.4%, Slovakia 9%, Poland 5.8%, UK 5.3%, France 5.1%, Austria 4.1% (2015)
Imports - commodities:
machinery and transport equipment, raw materials and fuels, chemicals
Imports - partners:
Germany 30%, Poland 9%, China 8.3%, Slovakia 6.6%, Netherlands 5%, Austria 4.1% (2015)
Investment Climate - US State Department
The Czech Republic is a medium-sized, open, export-driven economy. Around 80 percent of its GDP is comprised of exports – mostly from the automotive and engineering industries. Its strong dependence on foreign demand, especially from the Eurozone, of which it is not a member, was highlighted in the global financial crisis of the late 2000s. However, the Czech banking sector remained relatively healthy. After two years of economic contraction, the Czech economy emerged from recession in early 2013 and has enjoyed some of the highest GDP growth rates of the European Union – 2.3% and 4.3% in 2014 and 2015, respectively. Experts predict approximately 2.5 percent growth in 2016.
Since November 2013 the Czech National Bank (CNB) has intervened in the foreign exchange markets to prevent appreciation of the Czech Crown (CZK) beyond 27/Euro. The formal justification for this action has been to prevent deflation, though it has also had the benefit of making Czech exports more cost-competitive. As of April 2016 the Crown trades at approximately 24/dollar. The Czech crown is fully convertible and all international transfers of investment-related profits and royalties can be carried out freely without delay. While there has not been significant political momentum toward Euro accession in recent years, the current government under Prime Minister Sobotka has demonstrated a more positive approach to EU integration than any past government. CSSD, Sobotoka’s party and the coalition leader, expressed support in March 2015 for joining the Eurozone by 2020. President Zeman is also a strong supporter of Euro accession. The Czech government has met four of the five Maastrict criteria for adoption of the Euro, but decided in December 2015 not to seek to join the Exchange Rate Mechanism (ERM II) in 2016.
The Czech Republic fully complies with EU law and OECD standards for the equal treatment of foreign and domestic investors. Labor laws are comparable with most developed nations, but wages generally trail those in neighboring Western European countries. The U.S.-Czech Bilateral Investment Treaty from 1992 provides for international arbitration of investor–State disputes. Great strides have been taken since the fall of communism to open the market to competition and privatization, but the prosecution of anti-trust violations is still less than adequate. Corruption remains a problem. Czech Intellectual Property Rights (IPR) protections are still not optimal, but the legal framework for IPR protection has been tested and proven successful in punishing infringers. Other western concepts such as entrepreneurship and corporate social responsibility (CSR) are growing trends in the Czech business and NGO communities.
There are no general restrictions on foreign investment, although limits exist within certain sectors. The Czech Republic attracts a great deal of FDI for its size, and has taken strides to diversify its traditional investments in engineering into new fields of research, development and innovative technology. EU structural funding has enabled the country to open a number of world-class scientific and hi-tech centers. Companies from EU member states are the chief foreign investors in the Czech economy, but the government has signaled a desire to seek more export and investment opportunities from non-European regions, including the United States, China, and South Korea.
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