Explanation

Under Czech law, anti-money laundering (AML) requirements align with European Union directives and the general principles established by the Financial Action Task Force (FATF). This includes the obligation to identify and verify the identity of investors and their beneficial owners to mitigate the risk of money laundering and financing illegal activities.

Management companies operating in the Czech Republic must comply with Act No. 253/2008 Coll., on Selected Measures Against Legitimization of Proceeds of Crime and Financing of Terrorism (AML Act), which imposes obligations to ensure the integrity of investments.

In the Czech jurisdiction, the management company is directly responsible for implementing these measures, which may include:

• Conducting customer due diligence (CDD) on all investors.
• Identifying the ultimate beneficial owner (UBO) of the investing entities.
• Verifying the source of funds.
• Monitoring ongoing compliance throughout the relationship with the investors.

Recommendation

The Czech-based management company must ensure compliance with applicable AML laws and regulations, including adherence to the Czech AML Act.

This compliance obligation extends to the operational policies and the company documentation.

Specifically, the following steps are recommended:

1. Investor Screening and Due Diligence

   • Require investors to submit detailed identification and verification documentation, including information about the UBO.
   • Verify the source of funds to ensure they do not originate from high-risk or FATF-blacklisted countries.
   • Conduct enhanced due diligence if the investor or its beneficial owner presents heightened risks.

2. Inclusion of AML Provisions in the Company Documents

   • Management agreements must mandate investors to provide identifying information as required by the AML policies and Czech legal requirements.
   • Include clauses in the asset management agreement to request updates to identification documents and information throughout the business lifecycle.
   • Establish the manager’s right to demand the withdrawal of an investor if they fail to comply with these requirements or if compliance risks arise.

3. Regulatory Reporting and Documentation

   • Maintain thorough records of all AML checks and due diligence activities to demonstrate compliance with Czech authorities, such as the Financial Analytical Office (FAÚ).
   • Be prepared to provide this documentation to regulatory authorities upon request.

4. Fundraising and Capital Commitments

   • Ensure that commitments are not accepted if there are concerns about the source of funds, such as investments tied to sanctioned entities or persons.
   • Implement robust screening processes during the fundraising phase to identify potential compliance risks early.

5. Legal and Professional Advice

   • Seek legal guidance to ensure all AML obligations are adequately incorporated into the company’s structure and operational processes.
   • Establish policies to manage situations where an investor’s non-compliance jeopardizes the manager’s obligations or the company’s reputation.

Additional Notes

Under Czech law, non-compliance with AML requirements can result in severe penalties, including administrative fines and reputational damage to the management company. Therefore, thorough adherence to AML regulations and robust internal policies are crucial for any company domiciled or managed in the Czech Republic.

Managers can minimize the risks of money laundering and protect the integrity of the company and its investors by ensuring these measures are implemented.