FATF Status

​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 follow-up Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in The Czech Republic was undertaken in 2022. According to that Evaluation, The Czech Republic remains Compliant for 6 and Largely Compliant for 29 of the FATF 40 Recommendations. It remains 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.

Rating                                                                           (100-Good / 0-Bad)

Transparency International Corruption Index                           57

World Governance Indicator – Control of Corruption             75

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

The Czech Republic is a medium-sized, open economy with 72.7 percent of its GDP based on exports, mostly from the automotive and engineering industries.  According to the Czech Statistical Office, most of the country’s exports go to the European Union (EU), with 26.3 percent going to Germany alone.  The United States is the Czech Republic’s second largest non-EU export destination, following the United Kingdom.  Czech GDP growth slowed from 3.3 percent in 2021 to 2.4 percent in 2022, according to the Czech Statistical Office. High inflation, driven primarily by significant increases in energy prices caused in part by Russia’s war against Ukraine, contributed to the GDP drop. In 2022, the average inflation rate reached 15.1 percent, which was the highest since the establishment of the independent Czech Republic in 1993. The Ministry of Finance forecasts Czech GDP will decline by 0.5 percent in 2023 due to the continued impact of high inflation.

The “Bill on Screening of Foreign Investments” entered into force May 1, 2021.  The law gives the government the ability to screen greenfield investments and acquisitions for risks to national security by non-EU investors.

The Czech Republic has made progress in diversifying its traditional investments in engineering into new fields of research and development (R&D) and innovative technologies.  EU structural funding has enabled the country to open a number of world-class scientific and high-tech centers.  EU member states are the largest investors in the Czech Republic.

The United States announced on February 15, 2020, plans to provide up to USD 1 billion in financing through the Development Finance Corporation (DFC) to the Three Seas Initiative Investment Fund, the dedicated investment vehicle for the Three Seas Initiative and its participating Central and Eastern European countries, which includes Czech Republic. The Three Seas Initiative seeks to reinforce security and economic growth in the region through the development of energy, transportation, and digital infrastructure. During the June 2022 Three Seas Initiative summit in Latvia, the DFC and the Three Seas Initiative Investment Fund agreed to a term sheet that formed the basis of the agreement under which DFC will provide the first tranche of U.S. financial support for the Fund amounting to $300 million.

The European Bank for Reconstruction and Development (EBRD) agreed March 24, 2021, to a request from the Czech cabinet to return as an investor to the Czech Republic after a 13-year hiatus to help mitigate the impact of the COVID-19 pandemic on the economy.  The EBRD’s investments in the Czech Republic primarily focus on private sector assistance and are projected to reach EUR 100 – 200 million annually (USD109-218 million). The EBRD plans to be involved in investment projects in the Czech Republic temporarily (maximum five years).

The Czech Republic’s state budget deficit amounted to CZK 316.1 billion (USD 14.4 billion) in 2022. As a result of Russia’s war against Ukraine, the Czech Republic appropriated in 2022 nearly USD 1 billion to support Ukrainian refugees and approximately USD 3.2 billion to help companies and citizens cope with high energy prices and inflation.

The Czech Republic has adopted environmental strategies to address the climate crisis. Public procurement policies include environmental considerations, and the government provides subsidies to companies for using modern low-carbon technologies, renewables, and resource-effective processes.

There are no significant risks to doing business responsibly in areas such as labor and human rights in the Czech Republic. While Russia’s war against Ukraine has contributed to an increase in energy prices, it has not otherwise impacted the investment climate in the Czech Republic.

The Czech Republic fully complies with EU and the Organization for Economic Cooperation and Development (OECD) standards for labor laws and equal treatment of foreign and domestic investors.  Wages continue to trail those in neighboring Western European countries (Czech wages are roughly one-third of comparable German wages).  While nominal wages rose by 6.5 percent in 2022, real wages decreased by 7.5 percent due to high inflation, according to the Czech Statistical Office. As of the fourth quarter of 2022, wages grew primarily in the electricity, gas, steam, and air conditioning supply, as well as in the financial and insurance sectors. As of January 2023, the unemployment rate remained the lowest in the EU, at only 2.5 percent.

Country Links

Czech National Bank

Financial Analytical Unit (FAU-CR)

Business Register | CZSO