Czech Republic: Government readies money-laundering bill

By Markéta Hulpachová
Staff Writer, The Prague Post
August 1st, 2007

A new law against money laundering may soon limit the privacy rights of Czech bank clients. So says the global financial analyst Ernst & Young in a July 23 study exploring the readiness of Czech banks to comply with a European Commission (EC) directive that seeks to tighten bank security.

Requiring all member states to implement corresponding legislation by the end of the year, the EC directive, which aims to prevent banks from being used for money laundering and terrorist financing, is prompting European financial institutions to implement systematic and technological reforms.

The Czech Republic has not yet passed the bill that will bring it into compliance with the directive. Such a bill is now under consideration at the Legislative Council and is expected to pass into law by Dec. 15.
An anti-money laundering law has been in effect in the Czech Republic since 1996, but a series of amendments — 11 in all — has made its interpretation confusing.

Instead of making further amendments to the current legislation, the Finance Ministry drafted a new bill to replace the 1996 law.

“Because of systematic and organizational concerns, the ministry agreed to draft a new bill instead of amending the current law,” said Finance Ministry spokesman Jakub Haas.

Primarily, the bill’s new features take a stricter stance on client accountability by requiring banks to closely monitor the identity of their clients.

“The main goal is to stymie the shielding of client identity by preventing the ‘crumbling up’ of financial transactions,” Haas said.

The bill also redrafts several client protection protocols by allowing banks to exchange information regarding questionable transactions and curtailing the ongoing investigation of clients not directly linked to suspicious accounts.

Additionally, the bill prohibits any correspondence with financial institutions without a physical presence in any country, or so-called “shell banks.”

According to the Finance Ministry, major Czech banks are comfortable with the bill, which was drafted in close cooperation with the Czech National Bank and the Czech Banking Association, representing the interests of local banks.

“We expect the responsible financial institutions to adopt these new measures without any significant problems,” Haas said.

Unanswered questions
Polling financial institutions in the Czech Republic, Hungary, Slovakia and Slovenia, the Ernst & Young study found that, while most Czech banks are not concerned about the new directive’s effects on profits or expenditures, “the direct impact on the market and the clientele is still an unanswered question.”

Based on past experiences of banks in Western Europe, where similar requirements have already been met, the study expects the directive to have a profound impact on all branches of banking.

“The implementation of these mechanisms will cost hundreds of thousands of euros in direct expenditures,” said Markus Lohmeier, Ernst & Young’s director for investigative services and conflict resolution. “The changes will not only affect internal processes and information technology, but also the clientele.”

Czech banks say the directive’s stricter regulations will limit client privacy. But it is unlikely that it will increase fees, said spokeswoman Kristýna Havligerová of Česká spořitelna, the largest bank by number of customers.
“In the near future, it will be necessary to react to certain regulatory changes, especially those regarding client identification, client screening and the monitoring of politically active individuals,” she said. “Legislative compliance will be achieved through updates in software and methodology, which do not require significant expenditures.”

Since the EC first passed the anti-money laundering directive in 2005, Czech banks have started to play a stronger role in screening suspicious client accounts. For the past two years, local financial institutions have made significant investments into new organizational and technological systems to enable closer monitoring of financial transactions.

“Banks are investing substantial sums into systematic programs for the prevention of money laundering, and their efforts are producing results,” wrote KPMG analyst Vladimír Dvořáček in a 2005 report.

http://www.praguepost.com/articles/2007/08/01/government-readies-money-laundering-bill.php