PRAGUE -- The Czech Republic, where there is a thriving black economy, has moved to curb money-laundering by gangsters who exploit the country's underdeveloped financial system.
Last month, the Justice Ministry presented a draft law to counter money-laundering, according to which financial institutions will have to demand identification and keep 10-year records of any person making a cash transaction of more than 500,000 crowns ($17,920).
According to the Economy Ministry, between 8 and 16 percent of the country's 1993 gross domestic product, which totaled about $14.4 billion, came from illegal activities such as prostitution, arms and drug dealing, and a booming trade in stolen cars.
"I wouldn't over-estimate the strength of the existing system -- the security and infrastructure surrounding the banking sector is not very strong or mature yet," said Ivan Angelis, general secretary of the Czech Banking Association.
All the former East Bloc countries have been grappling with money-laundering in their fledgling financial systems since the 1989 collapse of communism opened once tightly-controlled economies to a flood of legal and illegal cash.
The draft law, which for the first time makes money-laundering a criminal offense, still has to be ratified by parliament and is expected to be in force by early next year.
Both local and international criminals are using the Czech Republic to launder their profits and the law will apply to foreign and domestic banks alike.
"Crime looks for new ways to get around the state. The draft law ... hinders those who want to launder dirty money, so they'll go and do it somewhere else," Justice Minister Jiri Novak told journalists when presenting the draft law.
Experts say fighting money-laundering is becoming more difficult as it is often perpetrated by organized crime, another unwanted by-product of free market reforms.
"This is a dangerous period of time generally ... the frauds are coming from a quite educated or experienced environment," said Czech National Bank spokesman Martin Svehla.
"Certainly it is easier in a country like the Czech Republic to find some way to operate," he said.
At present, banks alone must compile reports on all transactions over 100,000 crowns ($3,584) and retain them for five years. They are not obliged to file them to another body.
The draft law aims to introduce a system where the authorities can be immediately alerted to attempts at larger-scale laundering, Svehla said.
According to the Justice Ministry, the raised limit was proposed to bring the country in line with a European Union recommendation of 15,000 Ecus ($18,510), and cast a wider net over all areas of the system at risk from money-laundering.
Under the draft law, all financial "institutions," ranging from banks and pension funds to casinos and betting shops, are obliged to file a report to the financial prosecutor's office if they discover a transaction which they view as "suspicious."
The prosecutor's office is a body expected to come into existence at the same time as the anti-laundering law.
Any pay-out of more than 200,000 crowns at a betting shop, games arcade or casino would also require the winner to produce identification.
If the institution neglects to file the report, it can be fined up to 2 million crowns.
One common means by which criminals launder money in the Czech Republic is to open a small expensive restaurant and then file a tax return with a substantially higher income, Svehla said.
The criminal would pay taxes on the "dirty money" like any other citizen and, typically, plough it back into one of the country's hundreds of investment funds.
"One dangerous situation regarding money-laundering ... is to change lots of money in a short period of time, for example in auctions, through investment companies," Svehla added.
Investment companies have mushroomed to take advantage of the country's vouchers-for-shares scheme, which was set up to privatize assets and holdings owned by the former communist government, ousted in Czechoslovakia's bloodless 1989 "velvet revolution."
Experts fear that criminals will have more incentive to launder their ill-gotten gains in the Czech Republic when the currency, the crown, becomes fully convertible.
Although controls on capital flows are being gradually relaxed, allowing private citizens to buy more hard currency, full convertibility seems to be two to three years away.
"When we introduce full convertibility of the crown," Angelis said, it "will massively increase the attractiveness of the Czech Republic as the terrain for money-laundering."
"This tightening of the legal and institutional infrastructure, intended to protect against money-laundering, must be done before introducing external convertibility."
Last month, the Justice Ministry presented a draft law to counter money-laundering, according to which financial institutions will have to demand identification and keep 10-year records of any person making a cash transaction of more than 500,000 crowns ($17,920).
According to the Economy Ministry, between 8 and 16 percent of the country's 1993 gross domestic product, which totaled about $14.4 billion, came from illegal activities such as prostitution, arms and drug dealing, and a booming trade in stolen cars.
"I wouldn't over-estimate the strength of the existing system -- the security and infrastructure surrounding the banking sector is not very strong or mature yet," said Ivan Angelis, general secretary of the Czech Banking Association.
All the former East Bloc countries have been grappling with money-laundering in their fledgling financial systems since the 1989 collapse of communism opened once tightly-controlled economies to a flood of legal and illegal cash.
The draft law, which for the first time makes money-laundering a criminal offense, still has to be ratified by parliament and is expected to be in force by early next year.
Both local and international criminals are using the Czech Republic to launder their profits and the law will apply to foreign and domestic banks alike.
"Crime looks for new ways to get around the state. The draft law ... hinders those who want to launder dirty money, so they'll go and do it somewhere else," Justice Minister Jiri Novak told journalists when presenting the draft law.
Experts say fighting money-laundering is becoming more difficult as it is often perpetrated by organized crime, another unwanted by-product of free market reforms.
"This is a dangerous period of time generally ... the frauds are coming from a quite educated or experienced environment," said Czech National Bank spokesman Martin Svehla.
"Certainly it is easier in a country like the Czech Republic to find some way to operate," he said.
At present, banks alone must compile reports on all transactions over 100,000 crowns ($3,584) and retain them for five years. They are not obliged to file them to another body.
The draft law aims to introduce a system where the authorities can be immediately alerted to attempts at larger-scale laundering, Svehla said.
According to the Justice Ministry, the raised limit was proposed to bring the country in line with a European Union recommendation of 15,000 Ecus ($18,510), and cast a wider net over all areas of the system at risk from money-laundering.
Under the draft law, all financial "institutions," ranging from banks and pension funds to casinos and betting shops, are obliged to file a report to the financial prosecutor's office if they discover a transaction which they view as "suspicious."
The prosecutor's office is a body expected to come into existence at the same time as the anti-laundering law.
Any pay-out of more than 200,000 crowns at a betting shop, games arcade or casino would also require the winner to produce identification.
If the institution neglects to file the report, it can be fined up to 2 million crowns.
One common means by which criminals launder money in the Czech Republic is to open a small expensive restaurant and then file a tax return with a substantially higher income, Svehla said.
The criminal would pay taxes on the "dirty money" like any other citizen and, typically, plough it back into one of the country's hundreds of investment funds.
"One dangerous situation regarding money-laundering ... is to change lots of money in a short period of time, for example in auctions, through investment companies," Svehla added.
Investment companies have mushroomed to take advantage of the country's vouchers-for-shares scheme, which was set up to privatize assets and holdings owned by the former communist government, ousted in Czechoslovakia's bloodless 1989 "velvet revolution."
Experts fear that criminals will have more incentive to launder their ill-gotten gains in the Czech Republic when the currency, the crown, becomes fully convertible.
Although controls on capital flows are being gradually relaxed, allowing private citizens to buy more hard currency, full convertibility seems to be two to three years away.
"When we introduce full convertibility of the crown," Angelis said, it "will massively increase the attractiveness of the Czech Republic as the terrain for money-laundering."
"This tightening of the legal and institutional infrastructure, intended to protect against money-laundering, must be done before introducing external convertibility."
A Message from The Moscow Times:
Dear readers,
We are facing unprecedented challenges. Russia's Prosecutor General's Office has designated The Moscow Times as an "undesirable" organization, criminalizing our work and putting our staff at risk of prosecution. This follows our earlier unjust labeling as a "foreign agent."
These actions are direct attempts to silence independent journalism in Russia. The authorities claim our work "discredits the decisions of the Russian leadership." We see things differently: we strive to provide accurate, unbiased reporting on Russia.
We, the journalists of The Moscow Times, refuse to be silenced. But to continue our work, we need your help.
Your support, no matter how small, makes a world of difference. If you can, please support us monthly starting from just $2. It's quick to set up, and every contribution makes a significant impact.
By supporting The Moscow Times, you're defending open, independent journalism in the face of repression. Thank you for standing with us.
Not ready to support today?
Remind me later.
Remind me later.
×
Remind me next month
Thank you! Your reminder is set.
We will send you one reminder email a month from now. For details on the personal data we collect and how it is used, please see our Privacy Policy.