Czech Republic Legal Alert | Be aware of international sanctions
What exactly are international sanctions?
Restrictive measures or sanctions are an instrument of the EU's Common Foreign and Security Policy ("CFSP").
Sanctions are imposed to promote the objectives of the CFSP in order to bring about a change in the policies or behaviour of the entities concerned.
Measures that interrupt or partially or completely restrict economic relations with a third country, including measures to freeze funds and economic resources, are implemented through regulations that are binding and directly applicable throughout the EU.
Does the Czech legal system regulate international sanctions?
In the Czech Republic, Act No. 69/2006 Coll., on the Implementation of International Sanctions, as amended (the "Act") was adopted for the implementation of international sanctions.
The Financial Analytical Office (the "FAO") was designated as the body responsible for the implementation of international sanctions in the Czech Republic.
Details regarding written notification to the FAO are set out in Decree of the Ministry of Finance No. 281/2006 Coll., on the Details of the Manner of Fulfilling the Notification Obligation Pursuant to Act No. 69/2006 Coll., on the Implementation of International Sanctions, as amended.
How to proceed if you suspect property or an entity may be subject to international sanctions?
Anyone learning that they have property subject to international sanctions must report this to the FAO without undue delay.
It is obligatory to examine when concluding a contract whether the subject of performance or the contracting party is subject to international sanctions, and even if a mere suspicion arises in this regard, this must be notified to the FAO immediately after the conclusion of the contract.
At the same time, the notifier is obliged not to dispose of these assets other than to protect them against loss, impairment, destruction or other damage.
The notifier is entitled to compensation from the state for the necessary costs related to the management of these assets and their protection.
After notification of the next specific procedure, the FAO will make a decision.
Is there a risk of sanctions for violating the Act?
Failure to comply with the notification obligation can result in a fine of up to CZK 4,000,000.
If a breach of this obligation results in a benefit exceeding CZK 5,000,000, or damage exceeding CZK 5,000,000 or another particularly serious consequence, the FAO may impose a fine of up to CZK 50,000,000.
Violation of international sanctions can also be classified as a criminal offence. The perpetrator of such a crime can be both a natural and a legal person.
For the sake of completeness, we point out that in addition to international sanctions imposed by the UN or the EU, so-called national sanctions may also be imposed on a sanctioned person by third countries (e.g. the USA). National sanctions of third countries are not binding in the Czech Republic and non-compliance cannot be sanctioned in the Czech Republic. However, it is recommended to verify the sanctions imposed and to determine the possible consequences of non-compliance.
If you have a business partner from a risk area, make sure that this partner is not on the sanctions list (a clear map managed by the European Commission, which is available at https://sanctionsmap.eu/#/main, can also facilitate the check).
Be advised that it is sufficient for the sanction element to be present in anyone associated with the business partner, i.e. the sanctioned party is the business partner directly, or natural persons acting on their behalf, or the beneficial owner or other persons in the partner's ownership or management structure.
If you find a person on the list and, under the relevant international sanction, all their assets are frozen in the EU and it is forbidden to provide them with this service, you cannot do business with them.
If a contract has already been concluded with such a person, this must be notified to the FAO without delay and no performance may be provided to the person.
Even if you discover that you have property subject to international sanctions, this must be reported to the FAO without undue delay.
If you need to check whether your business partner is in the sanctions lists or need help with reporting to the FAO, you can contact us at any time.