Changes to the Czech AML Act and their impact on the real estate sector
March 2021 – New Amendment no. 527/2020 Coll. (the “Amendment”) to Act no. 253/2008, on certain measures against money laundering and terrorist financing (the “AML Act”), implementing the EU’s Anti-money Laundering Directive no. V (AMLD V), took effect as of 1 January 2021. As of this date, Czech law also imposes obligations resulting from the AML Act on obliged persons (i) buying or selling real estate, and/or (ii) acting as real estate brokers. The AML Act’s obligations, and potential fines of up to CZK 10 million (approximately EUR 381,750) for related breaches, may newly affect certain developers, private equity investors, real-estate funds and facility managers.
The AML Act amended by the Amendment newly designates as obliged persons those (i) buying or selling real estate, and/or (ii) acting as real estate brokers.
(i) Persons buying or selling real estate
The AML Act does not contain a more precise definition of persons “buying or selling real estate”. Under the AML Act, this specification includes only those persons pursuing such activities as a subject of their business. The AML Act also states that the obligations resulting under the AML Act apply only to the activities conducted as a subject of the obliged persons’ business or of the services they provide. The explanatory report to the Amendment specifically states that the obligations apply to developers who “invest into construction of the real estate intended for resale or lease”.
It could be concluded that a one-off purchase or sale of real estate property is exempted from the AML Act. In addition, a real estate SPV purchasing a real estate property (e.g. an industrial park, office building or residential building) for the purpose of holding and letting the property or a part thereof for a certain period with the intention of selling the property after such a period, would also not qualify, provided that the SPV only makes a one-off purchase and sale. By contrast, an SPV making repeated purchases or sales of real-estate properties, or residential real estate developers purchasing land for the purpose of construction and subsequently selling units, would likely fall under the new obligations under the AML Act. It is questionable, whether logistics developers who conclude more than one purchase agreement for acquisition of land for the purpose of construction and subsequently letting the premises would also need to comply with the AML Act – it could be presumed that such requirement would be irrational. Ultimately, a determination whether the respective person is an obliged person is based on the actual activities carried out by the respective person.
(ii) Real estate brokers
Persons who act as real estate brokers are obliged persons only when arranging the conclusion of real estate agreements, according Act No. 39/2020 Coll., on Real Estate Brokerage (e.g. persons having the respective trade licence). The real estate broker is, inter alia, the obliged person in the event of arranging the conclusion of a lease agreement (or sublease or usufructuary lease) exceeding a monthly rent of EUR 10,000; in the event of arranging the conclusion of a purchase agreement the real estate broker is bound by obligations relating to both parties (the seller and the purchaser).
As a result, the respective obligations are not applicable to companies owning real estate property (e.g. office buildings or logistics parks) and directly letting premises to its respective tenants. However, if a holding company establishes a subsidiary to serve as a leasing manager (instead of involving a real estate agent), such a subsidiary would need to possess the respective trade licence and would need to comply with the obligations under the Act on Real Estate Brokerage. In this respect, the subsidiary would become an obliged person required to fulfil the obligations resulting from the AML Act.
In particular, the AML Act imposes the following obligations on obliged persons:
(i) client identification (KYC procedure),
(ii) client inspection,
(iii) preservation of the respective business transaction information for 10 years
(iv) notification of suspicious transactions to the Financial Analytical Office (the “FAU”),
(v) preparing internal principles, processes, and monitoring measures designed to ensure AML compliance, including a written risk assessment,
(vi) designation of the contact person,
(vii) authorisation of a member of the obliged person’s statutory body to ensure the fulfilment of the obligations arising from the AML Act,
(viii) providing training for the respective employees at least once per year,
(ix) providing the FAU with the requested information on clients or business activities,
(x) prohibition on concluding a business transaction in certain cases (e.g. when the client refuses identification or inspection, or identification cannot be conducted),
Obligations under (v)-(vii) must be fulfilled within 60 days from the day of a person becoming obliged under the AML Act, i.e. by 2 March 2021 in a case of persons buying or selling real estate or real estate brokers who became the obliged persons as of 1 January 2021. .
Although the definition of a “Client” in relation to Persons Buying or Selling Real Estate is not specified in the AML Act (or the AMLD V Directive), the other party in a respective business transaction with the obliged person can be considered a “client”.
Furthermore, the obliged person that is a member of a group (a group of controlling and controlled entities, associated or connected persons) performing the above activities must comply with the obligations resulting from the AML Act for such a group – meaning, for example, it is obliged to prepare a group strategy and internal risk mitigation and management process.
The AML Act provides fines for breaches of the above-listed obligations ranging from CZK 200,000 (approx. EUR 7635, for example for breaching confidentiality obligations) to CZK 10,000,000 (approx. EUR 381,750, for example for breaching the obligation to identify or inspect a client, preservation of documents, or providing the FAU with the requested information on clients or business activities).
For more information please contact Klára Štěpánková, Partner, at , Jan Lehký, Counsel, at , and Anna Veselská, Associate, at .
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