Obliged Entity – Step by Step

Who is an obliged entity?

An obliged entity within the meaning of the AML Act is any subject defined in § 2(1) and (2). For better orientation, we can divide obliged entities into three basic groups:

Financial sector

This category includes credit and financial institutions under § 2(1)(a) and (b) of the AML Act, including foreign entities operating in the Czech Republic. An important characteristic of the financial sector is that for credit institutions, the AML Act applies to all their business activities.

Non-financial sector

This group encompasses eleven categories of obliged entities defined in § 2(1)(c) to (m) of the AML Act. These include, for example, real estate agents, art dealers, lawyers, notaries, or providers of services related to company formation. For these entities, the AML Act applies only to the specific subject of their business that falls within the defined categories.

Other entities

This includes any entrepreneur conducting a cash transaction exceeding EUR 10,000 and non-business legal entities that carry out activities falling within the financial or non-financial sector or conduct cash transactions above this limit (§ 2(2) of the AML Act).

The common feature of all these groups – with the exception of § 2(2)(d) – is business activity. This also includes activities carried out in a similar manner, such as the practice of law.

Six key steps to AML compliance

If you have determined that you will become an obliged entity under the AML Act, we recommend going through the following steps. Each contains key questions you should be able to answer.

1. Clarifying your role as an obliged entity

Am I truly an obliged entity under the AML Act?

The answer depends on the type of entity and the field of business you conduct. Carefully review the provisions of § 2 of the AML Act and identify which category you fall into.

Do I carry out this activity as the subject of my business?

The answer should almost always be yes. Only for entities listed in § 2(2)(d) of the AML Act is the situation different.

For financial institutions: Is my business activity a main or ancillary activity?

If it is an ancillary activity and all statutory conditions set out in § 34 of the AML Act are met, you may apply to the Financial Analytical Office (FAÚ) for an exemption. An example could be a hotel that provides currency exchange services as an ancillary service for its guests.

2. Authorisation to conduct business

Is registration or licensing required for my activity?

Some categories of obliged entities must obtain the relevant authorisations before commencing their activity. For example, non-bank loan providers need a licence, currency exchange operators need an activity permit, and providers of services to legal entities must have a registered trade.

3. Determining when obliged entity status begins

From when am I considered an obliged entity?

The decisive moment is primarily when the entity obtained authorisation for the given activity or fulfilled the registration obligation. This could be, for example, the granting of a licence to non-bank loan providers, an activity permit for a currency exchange operator, or a trade registration for providing services to legal entities.

4. Overview of AML obligations

The scope of obligations varies by type of obliged entity. Basic AML obligations include:

• Client identification (§ 7, 8, 8a, 10 to 13a)
• Client due diligence (§ 9, 9a, 13 and 13a)
• Refusal to carry out a transaction (§ 15)
• Record keeping (§ 16)
• Reporting suspicious transactions (§ 18)
• Deferral of client instructions (§ 20)
• Information obligation (§ 24)
• Duty of confidentiality (§ 38)

Other important AML obligations include:

• Establishing and applying internal control and communication strategies and procedures (§ 21/1)
• Developing internal policies and procedures (§ 21/2)
• Preparing a risk assessment (§ 21a)
• Designating a contact person (§ 22)
• Designating a responsible person (§ 22a)
• Employee training (§ 23)

The AML Act takes into account the specifics of certain categories of obliged entities. Modified regimes apply, for example, to:

• Entities supervised by the CNB – in addition to standard obligations, requirements under § 25 and § 25a of the AML Act may also apply, and they must comply with the AML Decree
• Auditors, court executors and tax advisers – the scope of AML obligations is set out in § 26
• Lawyers and notaries – the scope of AML obligations is set out in § 27
• Professional chambers – obligation to prepare methodology and risk assessment under § 21(12) and § 21a(4)

5. Overview of required resources

There is no universal answer to this question – it depends on the type and nature of your organisation. To properly fulfil AML requirements, you should ensure:

• Qualified human resources – employees with appropriate knowledge of AML issues
• Technical equipment – systems for client identification and record-keeping
• Technological tools – software for screening, transaction monitoring and reporting
• Educational programmes – regular training for employees

6. Fulfilling obligations properly and on time

AML obligations have different timing requirements:

Immediate fulfilment

Reporting a suspicious transaction to the FAÚ must be done without undue delay after its detection.

One-off fulfilment with a deadline

For example, notifying the FAÚ of the contact person or submitting internal policies including the risk assessment must be completed within 60 days from the date the entity became an obliged entity. Changes to these documents must then be notified within 30 days.

Ongoing fulfilment

Some obligations require continuous fulfilment, such as updating the risk assessment or conducting client reviews within an ongoing business relationship.

Proper fulfilment of obligations means not only meeting deadlines, but also the required scope and form. Make sure you have processes in place to enable timely and high-quality fulfilment of all AML requirements.

Conclusion

All obliged entities are an integral part of the system for combating money laundering and terrorist financing in the Czech Republic. Compliance with AML obligations is not just a legal requirement, but an important contribution to the protection of the financial system and society as a whole.

If you become an obliged entity, it is crucial to systematically go through all the above steps and ensure that your organisation has processes, resources, and documentation ready for proper fulfilment of AML requirements. If anything is unclear, do not hesitate to consult experts or contact the Financial Analytical Office directly.