Table of contents
- What does the law say about politically exposed persons?
- Binding list of functions creating PEP status in Czechia
- Who are derived PEPs and why must you not overlook them?
- How to correctly determine whether a client is a PEP
- What should you do when the client is a PEP?
- Common mistake: is a municipal councillor a PEP?
What does the law say about politically exposed persons?
The legal definition of a PEP is set out in Section 4(5) of Act No. 253/2008 Coll. (the AML Act). A politically exposed person is a natural person who holds or has held a significant public function with national or regional impact, as well as persons connected to them.
The Act itself gives only an illustrative list of functions. In practice, that is not enough. To determine PEP status reliably, you must work with FAU Methodological Guideline No. 7, updated on 17 July 2024, which contains the exhaustive list of functions applicable in the Czech Republic.
The duty to verify PEP status arises during every client identification. Under Section 8(8) of the AML Act, you must determine and record whether the client, the natural person acting for the client in the transaction or business relationship, and the client's beneficial owner are not a PEP or a sanctioned person.
Binding list of functions creating PEP status in Czechia
Annex No. 1 to FAU Methodological Guideline No. 7 contains an exhaustive list of functions. A person who is not on this list is not a PEP. Overview by category:
Executive and central administration
- President of the Republic and Head of the Office of the President
- Prime Minister
- Ministers, deputy ministers and state secretaries
- Heads and statutory representatives of central administrative authorities (for example CSU, CUZK, CBU, UPV, UOHS, SSHR, SUJB, NBU, ERU, Office of the Government, CTU, UOOU, RRTV, UDHPSH, UPDI, NUKIB, NSA, DIA)
Legislature
- Members of the Chamber of Deputies and senators of the Parliament of the Czech Republic
- Heads of the Offices of the Chamber of Deputies and the Senate
- Chairperson and vice-chairpersons of the governing body of a political party or movement
Territorial self-government
- Mayor of a statutory city, deputy mayor, secretary of the municipal authority and Director of Prague City Hall
- Regional governor, deputy governor and director of the regional authority
- Mayor of a municipality with extended powers
- Mayor of selected Prague city districts under Decree No. 55/2000 Coll.
Judiciary
- Judges of the Constitutional Court, Supreme Administrative Court and Supreme Court
- Supreme Public Prosecutor
Financial institutions and audit
- Governor, vice-governors and members of the Bank Board of the Czech National Bank
- President, Vice-President and members of the Supreme Audit Office
Security and armed forces
- Police President and directors of regional Police directorates
- Directors of BIS, GIBS, Military Intelligence and UZSI
- Chief of the General Staff of the Czech Armed Forces and directors of regional military commands
- Commander of the Castle Guard and Head of the Military Office of the President
State-controlled corporations and enterprises
- Members of statutory and supervisory bodies of business corporations with a direct or indirect state share above 50%
- Directors and supervisory board members of state enterprises
- Management of VZP CR and sectoral employee health insurance funds
Diplomacy and international functions
- Ambassadors, consuls general and charge d'affaires
- Heads of permanent Czech missions to the EU, NATO, UN, OSCE, OECD and Council of Europe
- Judges of the ECtHR, ICJ, ICC and other international courts
- Heads of offices of selected international organizations accredited for the Czech Republic (IOM, WHO, UNHCR, OSCE, UN)
Who are derived PEPs and why must you not overlook them?
PEPs are not only the people listed above. Section 4(5)(b) of the AML Act distinguishes three groups of derived PEPs connected to a primary PEP:
| Group | Description |
|---|---|
| Close person | A direct-line relative, sibling, spouse, partner, sibling-in-law and persons permanently living together. |
| Person with a close business relationship | A partner or beneficial owner of the same legal entity or trust as the PEP, or a person in any other close business relationship with the PEP. |
| Beneficial owner of a purpose-built legal entity | A beneficial owner of a legal entity or trust that you, as an obliged entity, know was established for the benefit of a primary PEP. |
If you find that the beneficial owner of your client legal entity is a PEP, you must apply measures to that legal entity as if it were a direct PEP. This follows from Section 54(8) of the AML Act.
Verify the PEP status of the client and beneficial owner automatically
AML PROOF checks the client and beneficial owner against PEP databases and sanctions lists, then stores an audit record ready for an FAU inspection.
How to correctly determine whether a client is a PEP
FAU Methodological Guideline No. 7 expressly states that relying on a single verification method is not enough. An obliged entity should base the PEP-status result on a combination of approaches:
- Written client declaration — the basis of the process, but insufficient on its own; the client must also be clearly informed of the PEP definition under the AML Act and required to report any status change.
- Your own check against the exhaustive list of functions in Annex No. 1 to FAU Methodological Guideline No. 7 — mandatory; the result must be documented, for example with a timestamped screenshot.
- A specialized PEP-screening tool — recommended because it generates an audit trail and also covers derived PEPs and sanctions lists.
Note: The duty to determine PEP status does not apply only when the business relationship starts. Keep the result updated throughout the relationship, including at each transaction.
Procedures for determining PEP status must be a mandatory part of every obliged entity's system of internal policies.
What should you do when the client is a PEP?
Finding that a client is a PEP automatically triggers enhanced identification and due diligence under Section 9a of the AML Act. In practice, this means:
- Review the source of funds or other assets used in the transaction (Section 9(2)(e) of the AML Act).
- Take reasonable measures to determine the origin of all PEP assets within the business relationship (Section 9(2)(f) of the AML Act).
- Obtain approval from a member of the statutory body or an authorized person to establish or continue a business relationship with the PEP (Section 9a(3)(d) of the AML Act).
- Set up enhanced ongoing monitoring of the business relationship.
The depth of individual measures may be adjusted to the risk profile of the specific PEP. For a lower-risk PEP client, a declaration may be sufficient to establish the origin of assets; for a high-risk PEP, additional sources such as tax returns, public registers or other verifiable documents may be needed. Even for a low-risk PEP, however, this duty cannot be skipped entirely.
A key restriction that obliged entities often forget: under Section 15(2) of the AML Act, a transaction with a PEP must not be carried out if you do not know the origin of the assets or funds used in that transaction, even within an ongoing business relationship.
Common mistake: is a municipal councillor a PEP?
Membership in a municipal, city or district council does not create PEP status. Annex No. 1 to FAU Methodological Guideline No. 7 is exhaustive and ordinary councillors are not listed. Among territorial self-government leaders, only the following are PEPs:
- mayor of a statutory city and deputy mayor
- secretary of the municipal authority and Director of Prague City Hall
- regional governor, deputy governor and director of the regional authority
- mayor of a municipality with extended powers
- mayor of selected Prague city districts under Decree No. 55/2000 Coll.
An ordinary councillor, regardless of the size of the municipality or district, does not fall within the list.
Keep PEP screening under control without unnecessary administration
AML PROOF checks every client against PEP and sanctions databases, stores the record and alerts you to changes, all in line with FAU expectations.