This week in our Sanctions Enforcement Around the World series, we bring you the view from the Czech Republic.
- What are the recent sanctions enforcement trends in the Czech Republic?
While historically the Czech Republic has had legal tools to enforce the international sanctions, the actual enforcement activities of the Czech authorities were rather limited in the past. In reaction to the EU and subsequently also national sanctions targeting Russia and Belarus, the Czech Republic has intensified its activities in this area.
From the legislative standpoint this was manifested by amendment of the Act on Implementation of International Sanctions, the aim of which was to increase the effectiveness of the enforcement action of the competent authorities, strengthening their powers when it comes to obtaining information, freezing of assets or communication with foreign authorities. In addition, by adopting the Sanctions Act and thereby establishing a national sanctions list, the Czech Republic has become one of the few EU Member States with a dual sanctions regime.
As to the enforcement activities of the Czech authorities, as of 2022 the Czech authorities have frozen assets of 80 natural and legal persons in the approximate aggregate value of CZK 10 billion (approx. EUR 420 million).
To date the authorities have confirmed 45 cases of suspected sanctions violations. We are also aware of two publicly known pending criminal investigations relating to violation or circumvention of international sanctions. The latter one involves a suspected circumvention of the EU sanctions allegedly committed by a Czech-based, Russian owned company exporting dual-use heavy machinery to Russia through Turkey. Apart from this documented case the Czech authorities have confirmed increase of (potentially problematic) exports to Turkey and the post-Soviet states of Kazakhstan, Uzbekistan and Kyrgyzstan, at least some of which are believed to be attempts at circumventing the applicable sanctions.
- What are the maximum penalties for violations?
Any circumvention of the applicable sanctions may be punishable with a financial penalty of up to CZK 50 million (approx. EUR 2 million) imposed by the competent authorities, i.e. the Financial Analytical Office or the Ministry of Industry and Trade (even due to negligence) and under certain conditions could also be qualified as a criminal offence.
In the event of violation or deliberate circumvention of the sanctions, an individual may face imprisonment of up to three years, a financial penalty or a prohibition of activity (depending on the circumstances). In the event that the individual obtains a significant benefit for himself/herself or for another person, causes a large-scale damage, he/she may be punished by imprisonment for six months to five years, while in the event of particularly grave circumstances, the individual may be punished by imprisonment for three to eight years.
In addition, it should be noted that various sanctions may also be imposed on a legal entity, including a financial penalty, prohibition of activity or dissolution of the legal entity.
- Is there a mechanism by which countries can submit a voluntary self-disclosure of possible violations to mitigate penalties?
No, the Czech law does not recognize any voluntary self-disclosure mechanism of possible violations which could lead to penalties mitigation. However, self-disclosure of possible non-compliance and cooperation with authorities may in practice result in mitigation of the imposed penalties.
- Do you anticipate increased coordination on enforcement matters with allies?
Yes, the Czech officials have actively participated in various coordination initiatives with allies, primarily with their counterparts in other EU Member States.
A significant achievement of the Czech Presidency of the Council of the EU from 1 July to 31 December 2022 and its leadership in “Sanctions RELEX” (a formation within the Working Party of Foreign Relations Counsellors within the Council of the EU) was the agreement on a document detailing the procedure for the annual review of sanctions regulations to methodically reflect current knowledge on the state of implementation of a particular sanctions regime, including information on the methods of circumvention and violation of sanctions.
In the context of the discussion on the implementation of freezing measures in sanctions regimes responding to the Russian aggression, the Financial Analytical Office, which is the competent authority in sanctions enforcement, initiated a study, co-financed by the European Commission and the Council of Europe, on the issue of freezing the assets of legal persons and entities controlled by sanctioned entities.
- What is one thing that you would recommend companies do now to get ready for increased enforcement?
We recommend that companies implement effective internal compliance programs and controls. In this regard, thorough product classification and identification of potentially problematic counterparts and end-users is crucial especially for companies routinely engaging in trade with non-EU Member States.