The analysis was prepared by Kateřina Mahdalová, KohoVolit.eu
- The beneficial ownership registry in the Czech Republic has undergone significant developments since 2018, evolving from a limited non-public register to a publicly accessible Register of Beneficial Owners.
- The Act on the Registration of Beneficial Owners No. 37/2021 Coll., effective from June 1, 2021, implemented the requirements of the 5th EU AML Directive and significantly expanded the scope of recorded information.
- The amendment to the Act No. 245/2022 Coll. (effective from October 1, 2022) further refined the definition of beneficial owner and expanded the range of obligated entities, responding to practical experiences and EU requirements.
- The Russian invasion of Ukraine in February 2022 highlighted the strategic importance of beneficial ownership registration for national security and the implementation of international sanctions.
- A study from 2023 revealed significant deficiencies in the quality of data in the Register of Beneficial Owners, especially for companies with potential ties to Russia.
- A trend of Russian owners withdrawing from the Register of Beneficial Owners was observed, raising questions about actual changes in ownership versus concealment of real ownership structures.
- Challenges persist in identifying beneficial owners in complex ownership structures, especially when using trust funds (the Agrofert case).
- Sanctions for non-compliance with obligations related to beneficial ownership registration have proven to be insufficiently deterrent, especially for large corporations.
- New problems include the use of "grey exports" to circumvent sanctions and the relocation of post-Soviet criminal groups' activities to the Czech Republic.
- Upcoming legislation, including the law against money laundering through transit accounts and the implementation of the European AML package, has the potential to further strengthen the fight against financial crime and sanctions evasion.
Beneficial ownership transparency is a key tool in the fight against money laundering, terrorist financing, and sanctions evasion. In the Czech Republic, this area has undergone dynamic developments since 2018, responding to changing international standards, European Union requirements, and new security challenges.
The importance of this issue dramatically increased following the Russian invasion of Ukraine in February 2022, which emphasized the need for effective tools to identify and monitor corporate ownership structures, particularly with regard to implementing international sanctions and protecting national security.
This analysis maps the development of legislation and practice in the area of beneficial ownership registration in the Czech Republic from 2018 to the present, identifies key milestones, persistent problems and new challenges, and offers recommendations for further enhancing the transparency and effectiveness of the system.
Before 2018, there was no specialized beneficial ownership registry in the Czech Republic. Information on ownership structures was fragmented across various public registers and often incomplete or inaccessible.
- Introduction of beneficial ownership registration by Act No. 304/2013 Coll., on Public Registers of Legal and Natural Persons and on the Register of Trusts.
- The register was non-public, accessible only to a limited circle of state authorities.
- The definition of beneficial owner was limited and often unclear.
- Effective sanctions for non-compliance were lacking.
- Effective since June 1, 2021.
- Implements the requirements of the 5th EU AML Directive (Directive (EU) 2018/843).
- Key changes:
○ Introduction of a publicly accessible Register of Beneficial Owners.
○ Expansion of the definition of beneficial owner.
○ Establishment of sanctions for failure to register beneficial owners, including fines of up to CZK 500,000 (approximately EUR 20,000).
○ Introduction of automatic transcriptions of certain data from public registers.
- Effective since October 1, 2022.
- Responds to practical experiences and European Commission requirements.
- Main changes:
○ Change in the concept of beneficial owner:
■ Unification of terminology - now only the umbrella term "beneficial owner" is used instead of the previous distinction between "ultimate beneficiary" and "person with ultimate influence".
■ The Ministry of Justice ensured automatic change of terminology in existing entries in the registry.
■ It is recommended to check the accuracy of this automatic process due to possible technical errors.
○ Expansion of the circle of beneficial owners:
■ Persons now considered as beneficial owners are those who:
- Have more than a 25% share in the registered capital
- Have more than a 25% share in voting rights
- Have more than a 25% share in profits, other own resources or liquidation balance
■ It is sufficient to meet only one of these conditions.
■ A beneficial owner can also be a silent partner or a statutory body with the right to bonuses.
■ Now, beneficial owners of a corporation also include persons who exercise decisive influence in a corporation that has a share of more than 25% in the given (examined) corporation.
○ Expansion of the circle of obliged entities:
■ Currently, entities such as homeowners' associations, trade unions, churches, political parties, or hunting associations must register their beneficial owner.
■ For these entities, an automatic transcription of members of statutory bodies into the beneficial owners’ registry is introduced.
○ Expansion of automatic transcriptions:
■ Implementation of a new interface for the registration system.
■ Expansion of the scope of automatic transcriptions, including structures of business corporations, where decisive influence is exercised based on control.
- Approved in 2023.
- Expands the Czech Republic's tools for implementing and enforcing international sanctions.
- Enables more effective identification and sanctioning of entities violating sanctions regimes.
- Law against money laundering through transit accounts (in preparation).
- Amendment to the Criminal Code strengthening penalties for violations of international sanctions (in preparation).
- Implementation of the European AML package (planned for 2025).
- A recent judgment of the Court of Justice of the EU invalidated the provision of EU law regarding the possibility of public access to the beneficial ownership registry.
- EU Member States have been obliged to make their beneficial ownership registries inaccessible to the public and allow access only to persons with a legitimate interest.
- Although the Czech Republic has not yet taken this step, it is likely to do so in the near future.
- Low compliance rate with the obligation to register in the non-public registry.
- Limited possibilities for control and enforcement by state authorities.
- Cases of circumventing registration obligations by using complex ownership structures and offshore companies.
- Launch of the publicly accessible Register of Beneficial Owners at https://esm.justice.cz/.
- Increased transparency and accessibility of information for the public, media, and non-profit sector.
- Gradual increase in compliance with registration obligations, but persistent problems with data quality and completeness.
- Analysis conducted on a sample of 18,585 Czech companies with potential links to the Russian Federation revealed significant deficiencies:
- Only 35.5% of companies have a full-fledged registration of a Russian person in the registry.
- 13% of companies have no beneficial owner registered at all.
- 18% have only persons of other nationalities registered.
- 33% have incomplete records that do not meet legal requirements.
- A trend of Russian owners withdrawing was observed - 3% of companies lost their record of a Russian owner during 2022.
- Increased need for rapid and accurate identification of companies with ties to sanctioned individuals and entities.
- Increase in "grey exports" to Russia through third countries (Turkey, Kazakhstan, Kyrgyzstan).
- Relocation of activities of post-Soviet criminal groups to the Czech Republic.
- Increased risk of money laundering and sanctions evasion.
- Long-lasting case illustrating the complexity of identifying beneficial owners when using trust funds.
- Development:
○ 2017: Transfer of Agrofert shares to trust funds in response to an amendment to the Conflict of Interest Act.
○ 2019: European Commission audit finds a persistent conflict of interest for Andrej Babiš.
○ 2021: European Commission confirms the conflict of interest, leading to the suspension of subsidies for Agrofert.
- Demonstrates the functionality of the system in the case of politically exposed persons, but also reveals gaps in legislation concerning trust funds.
- Dramatic increase in exports to third countries after the start of the Russian invasion of Ukraine:
○ Turkey: increase from CZK 11 billion to CZK 20 billion annually.
○ Kazakhstan: more than doubled.
○ Kyrgyzstan: tenfold increase.
- Indicates potential sanctions evasion and the need for better monitoring of cross-border transactions.
- According to Národní centrála proti organizovanému zločinu (NCOZ, National Centre for Combating Organized Crime), CZK 100 billion (EUR 4 billion) was laundered through the Czech Republic in 2020-2021.
- Demonstrates the inadequacy of current tools for combating financial crime and the need for new legislation.
- Increased transparency of ownership structures.
- Better access to information for media, non-profit sector, and the public.
- Strengthened tools for combating money laundering and terrorist financing.
- Improved possibilities for implementing international sanctions.
- Insufficient effectiveness in combating sanctions evasion.
- Threat to national security due to incomplete or inaccurate data.
- Complications in preventing conflicts of interest in public procurement and subsidies.
- Hindered fight against money laundering due to gaps in the registry.
- Reputational risk for the Czech Republic in the international context.
- New methods of concealing beneficial ownership, including the use of complex cross-border structures.
- Strengthen verification mechanisms in the Register of Beneficial Owners, including the introduction of regular checks and cross-verification with other databases.
- Improve cross-border cooperation and exchange of information on beneficial owners, especially within the EU and with key partner countries.
- Accelerate the adoption of the legislation against money laundering through transit accounts and ensure its effective implementation.
- Significantly strengthen the state's analytical capacities in the area of sanctions implementation and enforcement, especially within the Financial Analytical Office, Ministry of Foreign Affairs, Ministry of Industry and Trade, and National Centre for Combating Organized Crime (NCOZ).
- Prioritize quality and timely implementation of the European AML package, with emphasis on the practical applicability of new rules.
- Consider introducing a stricter regime for registering property owners, especially for foreign entities, following the UK model.
- Introduce rules to cut off companies from tax havens from public money, including public contracts and subsidies.
- Implement more sophisticated data analysis tools for screening public procurement bidders and grant applicants, using artificial intelligence and machine learning.
- Consider legislative solutions enabling the confiscation of designated sanctioned assets for the purpose of rebuilding Ukraine, in accordance with international law and practices in other EU countries.
- Introduce rules for transparent lobbying to limit the space for undesirable interference by persons associated with undemocratic regimes.
- Strengthen education and support for companies in the area of proper identification and registration of beneficial owners, including the creation of detailed methodological guidelines and a helpdesk.
- Increase sanctions for violations of obligations related to beneficial ownership registration, with a progressive scale of penalties taking into account the size and significance of the entity.
- Improve coordination between various state bodies responsible for monitoring and enforcing obligations related to beneficial ownership registration.
- Regularly evaluate the effectiveness of legislation and practice in the area of beneficial ownership registration and flexibly respond to newly identified gaps and challenges.
- Consider introducing mandatory identity verification when registering in the Beneficial Ownership Registry, for example through electronic identification or notarial verification.
The development of beneficial ownership registration in the Czech Republic since 2018 shows significant progress, but also reveals critical gaps that require immediate attention. The Russian invasion of Ukraine in February 2022 dramatically underscored the strategic importance of effective beneficial ownership registration, transforming it from an administrative matter into a national security issue.
While the introduction of the publicly accessible Register of Beneficial Owners in 2021 represented a major step forward in terms of transparency, practice has revealed a number of persistent problems and new challenges. Deficiencies in the quality and completeness of registered data, especially for companies with potential ties to Russia, undermine the effectiveness of the entire system. New threats, such as the increase in "gray exports" to circumvent sanctions and the relocation of post-Soviet criminal groups' activities to the Czech Republic, require further strengthening of the legislative framework and practical tools for monitoring and enforcement.
- Urgently submit and pass legislation against money laundering through transit accounts.
- Strengthen verification mechanisms in the Register of Beneficial Owners to increase data reliability.
- Immediately strengthen the personnel and technological capacities of the Financial Analytical Office, National Centre for Combating Organized Crime (NCOZ), and other relevant bodies.
- Actively promote harmonization of beneficial ownership registration standards at the EU level and intensify international cooperation.
- Launch extensive educational campaigns for the business sector and provide tools to facilitate compliance with their obligations.
- More intensively involve civil society and media in their watchdog role.
Upcoming legislation, including the implementation of the European AML package, has the potential to address some of these challenges. Key to future success will be not only the adoption of new legislation but, more importantly, its effective implementation and enforcement. This will require significant strengthening of the state's analytical capacities, improved international cooperation, and the use of advanced technologies for data analysis.
The Czech Republic has the opportunity to become a key player in the field of beneficial ownership transparency and the fight against financial crime. Implementation of the proposed recommendations could significantly strengthen the country's resilience to influences from undemocratic regimes and organized crime, improve the business environment, and enhance public trust in the integrity of the economic system.
Beneficial ownership transparency is not a luxury, but a necessity for the security and prosperity of the Czech Republic. We face unprecedented challenges, but we also have an unprecedented opportunity to face them head-on. Only through joint and coordinated efforts of all responsible actors – politicians, officials, entrepreneurs, journalists, and citizens – can we build a system that effectively protects our economy from abuse and ensures that the Czech Republic will not be a haven for dubious money and influences.
The fight for beneficial ownership transparency is a long-term process that requires constant adaptation to new threats and challenges.
1. ECJ Ruled on Invalidation of Part of the Directive on the Prevention of the Use of the Financial System for the Purposes of Money Laundering or Terrorist Financing: https://www.centrumlidskaprava.cz/sdeu-rozhodl-o-zneplatneni-casti-smernice-o-predchazeni-vyuzivani-financniho-systemu-k-prani-penez
2. JUDGMENT OF THE COURT (Grand Chamber) 22 November 2022 (Judgment of the Court of Justice of the EU of 22 November 2022 in the case of Luxembourg Business Registers, Case C‑37/20 (Joined Cases C-37/20, C-601/20).): https://curia.europa.eu/juris/document/document.jsf;jsessionid=4EEC84B1D7C35594845C118D2A7B756A?text=&docid=268059&pageIndex=0&doclang=CS&mode=req&dir=&occ=
3. Partial Extract of Valid Data from the Register of Beneficial Owners
AGROFERT, a. s., B 6626 registered at the Municipal Court in Prague: https://esm.justice.cz/ias/issm/rejstrik-sm.vysledky?subjektId=525681&typ=PLATNY_CASTECNY_SM
4. Analysis of the Reliability of the Beneficial Ownership Registry 5 December 2022: https://datlab.eu/blog/analyza-spolehlivosti-evidence-skutecnych-majitelu/
5. We're Counting Companies with Russian Influence. However, Applying Sanctions is Difficult. 14 March 2022: https://datlab.eu/blog/scitame-firmy-s-ruskym-vlivem/
6. 'The measure appears to be incorrect.' Brussels has initiated a dispute with the Czech Republic over the definition of beneficial owners of companies 6 December 2021: https://www.irozhlas.cz/zpravy-domov/evropska-komise-rizeni-evidence-skutecnych-majitelu_2112060500_kno
7. Beneficial owner unknown. The fight against Russian influence has exposed Czech shortcomings 13 April: 2022: https://www.idnes.cz/zpravy/domaci/rusko-vliv-spinave-penize-skutecni-majitele-sankce-zakony-sedivy-petr-pavel-porusovani-lidskych-prav.A220413_115240_domaci_remy
8. New rules for the beneficial owners in the Czech Republic 5 October 2022: https://accace.com/new-rules-for-the-ultimate-beneficial-owners-in-the-czech-republic-news-flash/
9. Russians own about 15,000 companies in the Czech Republic, only a minimal decrease
Analysis 2 May 2024: https://faei.cz/rusove-vlastni-v-cesku-na-15-tisic-firem-ubylo-jich-jen-minimum/
10. Register of Beneficial Owners in 2023 14 February 2023: https://www.epravo.cz/top/clanky/evidence-skutecnych-majitelu-v-roce-2023-115903.html
11. Resilient Czechi (Europe) - joint platform of five NGOs (actively advocate for executive and legislative measures to strengthen the Czech Republic’s resilience to the influence of undemocratic regimes): https://odolnejsicesko.cz/en/
12. DIRECTIVE (EU) 2018/843 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32018L0843&qid=1626044899667
13. Act No. 304/2013 Coll., on public registers of legal and natural persons. https://www.zakonyprolidi.cz/cs/2013-304#f5939442
14. Act No. 37/2021 Coll., on the registration of beneficial owners. https://www.zakonyprolidi.cz/cs/2021-37
15. Act No. 259/2006 Coll., on Conflict of Interest. https://www.zakonyprolidi.cz/cs/2006-159
16. Chamber of Deputies of the Parliament of the Czech Republic: Parliamentary Print 886/0, Government Bill on the Registration of Beneficial Owners https://www.psp.cz/sqw/text/tiskt.sqw?O=8&CT=886&CT1=0
17. Chamber of Deputies of the Parliament of the Czech Republic: Final Vote on Chamber Print 886/0, Government Bill on the Registration of Beneficial Owners https://www.psp.cz/sqw/hlasy.sqw?G=74421
18. Ministry of Justice of the Czech Republic: Register of Beneficial Owners: https://esm.justice.cz/ias/issm/rejstrik
19. Schaffer & Partner: Changes to the regulation of beneficial ownership registration - transposition V. AML Directive https://www.schaffer-partner.cz/cs/aktualita/4854-zmeny-v-uprave-evidence-skutecnych-majitelu-transpozice-v-aml-smernice
20. Info.cz: Who owns the empire? https://www.info.cz/zpravodajstvi/byznys/kdo-vlastni-imperium
21. Czech Television: Babiš is the end beneficiary of Agrofert benefits. Concern will enter him in the database of owners https://ct24.ceskatelevize.cz/domaci/3319932-babis-je-koncovy-prijemce-vyhod-z-agrofertu-koncern-ho-zapise-do-databaze-majitelu
22. Constitutional Court: provisions of the Conflict of Interest Act restricting public officials remain unchanged https://www.usoud.cz/aktualne/ustanoveni-zakona-o-stretu-zajmu-omezujici-verejne-funkcionare-zustavaji-beze-zmeny/
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The analysis has been developed under the framework of the project “Empowered Watchdog Community and Enhanced Transparency Standards for Government Accountability”, co-financed by the Governments of Czechia, Hungary, Poland, and Slovakiathrough Visegrad Grants from the International Visegrad Fund. It is also co-funded by the Ministry of ForeignAffairs of the Republic of Korea. The mission of the fund is to advance ideas for sustainable regional cooperation in Central Europe.
The content of the analysis is the responsibility of Kohovolit.eu (Czech Republic) and the opinions expressed therein may not reflect the position of the International Visegrad Fund and the Ministry of Foreign Affairs of the Republic of Korea.
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