Duty to identify clients and ascertain beneficial owners
According to the ruling of the Municipal Court in Prague, it is not possible to simply identify a statutory body, director or other top manager as the beneficial owner in cases of unclear ownership structures, as such persons may not be in a direct relationship with the ownership structure of the corporation or have ultimate control over it.
The Ministry of Finance penalised a savings cooperative for failing to fulfil its duties under the AML Act as regards customer identification and review. Specifically, the ministry considered it a failure that the cooperative did not make sufficient efforts to identify the beneficial owner for some of its clients. The penalised cooperative filed an administrative action, claiming that the AML Act only required them to identify the customer’s ownership and control structure and beneficial owner; the law, however, did not stipulate any duty to actually ascertain the customer’s beneficial owner, especially where the customer is passive and relevant information cannot be obtained. The plaintiff was of the opinion that it had met its identification duty by having its customers fill-in an AML questionnaire. For customers with an unclear ownership structure, the cooperative designated the statutory body as the beneficial owner, and classified the given customer as high-risk.
The court ruled for the Ministry of Finance. It pointed out that the beneficial owner is the person who ultimately owns or controls the customer, or the individual for whom the transaction is effected or the activity carried out. This means the individual at the very end of the possible chain of ownership relations, since that person ultimately and factually controls the entire chain.
In the court’s opinion, unclear ownership structures call for repeated efforts to fulfil the statutory duty to ascertain them. Otherwise, under the AML Act, the liable person should refuse to effect the transaction and should not enter into a relationship with the customer. The effort should also be supported and documented to allow for retrospective reconstruction – a sole oral inquiry of the person acting on behalf of the customer is insufficient in this respect.
Effecting a transaction after filling-in an AML questionnaire stating only that the ownership structure is unclear, that the statutory body has been designated as the beneficial owner and the customer classified as high-risk, constitutes a breach of the AML Act. According to the court, the impossibility to identify a beneficial owner cannot be a reason to lower the standard of control – instead pursuant to the AML Act it is a reason not to effect the transaction.