AML Obligations of an Exchange Office

What are the core AML duties of an exchange office?

1. Internal AML policy (system of internal principles) and risk assessment

As an obliged entity under Section 2(1)(b) of the AML Act, the operator must establish and apply an internal AML policy (system of internal principles, procedures and control measures) and carry out a risk assessment under Sections 21 and 21a of the AML Act. Unless one of the exemptions in Section 21(3) or (4) applies, the policy including a written risk assessment must be drawn up within 60 days of becoming an obliged entity and kept up to date.

The policy must reflect how the exchange office actually operates – during inspections, the CNB routinely sanctions both the absence of the policy and formally copied templates that do not match real operations.

The duty to notify the wording of the policy and its amendments to the Czech National Bank under Section 21(8) of the AML Act does not apply to bureau-de-change operators – it covers only obliged entities under Section 2(1)(b), points 1 to 4. That does not mean you can do without the policy: the CNB will ask for it during an inspection, and its absence or a purely formal document is sanctioned.

2. Customer identification and due diligence

The operator must identify the customer in particular where it is clear that the value of the transaction will exceed EUR 1,000, and in the other situations laid down by the AML Act, i.e. also irrespective of the amount – always, for example, for a suspicious transaction. Internal rules must also cover linked or deliberately split transactions. Where the statutory conditions are met (in particular for transactions of EUR 15,000 or more, for politically exposed persons, or for suspicious transactions), customer due diligence must also be performed – including establishing the origin of funds and the purpose of the transaction.

3. PEP and sanctions screening

Before executing a transaction, it is necessary to verify whether the customer is a politically exposed person (PEP) or a person subject to international sanctions. A transaction must not be executed if doing so would breach a binding restrictive measure; PEPs are subject to an enhanced regime. Read more on the PEP and sanctions screening page.

4. Reporting suspicious transactions to the FAÚ

A suspicious transaction must be reported to the Financial Analytical Office without undue delay after detection; where the circumstances so require, in particular if there is a danger in delay, immediately. The former five-day deadline has been removed from the Act. The customer must not be informed of the report (the tipping-off prohibition).

5. Record keeping

Identification data and transaction records must be retained for the statutory period (as a rule 10 years from the transaction or the end of the business relationship).

6. Staff training

Employees who may encounter suspicious transactions in their work must be trained at least once every 12 months and always before being assigned to such a position. Training records must be kept – their absence is a frequent inspection finding.

7. Contact person

The operator designates a contact person for communication with the FAÚ and for fulfilling the reporting duty, and notifies the FAÚ of the designation (and any change).

What sanctions can be imposed for AML breaches?

Breaches of AML duties expose an exchange office to fines in the hundreds of thousands to millions of Czech crowns; for the most serious breaches, the AML Act allows considerably higher sanctions. In addition to a fine, the withdrawal of the bureau-de-change licence is also possible. AML failures are, moreover, regularly published by the CNB, which damages the operator's standing with banks – and may even lead to the termination of its bank account (de-risking).

How can we help?

• we will draft a tailor-made internal AML policy and risk assessment for your exchange office that reflects your actual operations and withstands CNB scrutiny;
• we will set up customer identification and due diligence processes, including practical manuals for your counter staff;
• we will arrange PEP and sanctions screening of your customers;
• we will train your employees (including issuing confirmations of attendance);
• we will prepare you for a CNB or FAÚ inspection and represent you in any proceedings.

Where to next?

• Turnkey exchange office setup
• PEP and sanctions screening
• Preparing for a CNB inspection
• Whistleblowing policy
• Duties of a bureau-de-change operator