In the context of the events in Ukraine, and in particular the measures taken in this respect against Russia and Belarus, the EU institutions have raised the question of how and to what extent a lawyer should examine his customers to find out if they are subject to the sanctions imposed. In particular, the question of what obligations and limitations arise for lawyers from the discovery that their client, counterparty or any person in the ownership structure of the client or the third party with whom they are dealing is a person subject to international sanctions, to what moment should he find and what should follow. This is not and cannot be an exhaustive impact analysis, but rather a general guide on what to catch in such a situation.
The sanctions against Russia and Belarus are based on European Union measures in the form of regulations and implementing decisions of the European Parliament and of the Council. The full file can be found here: https://eur-lex.europa.eu/search.html DTS_SUBDOM=ALL_ALL&orDNGroup=CM%3D36813_0840c6_9684&lang=&type=advanced&qid=1647864245619
The fundamental distinction is whether it is directed against a person (measures concerning restrictions on the disposal of goods, restrictions on entry, restrictions on technical cooperation) or against a certain activity (payment system, trading system , import and export, insurance, trade in financial derivatives), technical and scientific cooperation, financing and provision of financial and other assistance) or against raw materials or materials (so-called dual-use items, military equipment, chemicals and precursors , SW and many others).
The most important issue for advocacy is the issue of the so-called sanctions list, i.e. whether to screen your client against international sanctions, how to deal with people who have been included in this list.
Basic legal provisions:
- Act No. 253/2008 Coll., on certain measures against money laundering and terrorist financing, as amended (AMLZ)
- Act No. 6/2009 Coll. on the application of international sanctions, as amended (ZMS)
- Act No. 85/1996 Coll., on Advocacy
- Decree 281/2006 Coll., on details of how to fulfill the notification obligation under Act No. 69/2006 Coll., on the implementation of international sanctions
- Resolution of the Board of Directors No. 2/2008 of the Bulletin laying down details on the duties of lawyers and the procedure of the Supervisory Board of the Czech Bar Association in relation to the Law on Certain Measures against Money Laundering and financing of terrorism, as amended
Nothing changes in relation to the duties of the lawyer within the framework of the LBA. There are only two basic rules based on the ZMS – declaring possession of property or person and property subject to international sanctions and not disposing of such property unless it is in danger of destruction or deterioration.
Notification of suspicious matters according to § 18 AMLZ – notification of persons and property
If the lawyer carries out the execution of the obligations of AMLZ, he is obliged to verify whether the client or a person in the structure of ownership and management of the client is not subject to international sanctions, under the control of the customer in accordance with § 9 AMLZ. If he enters into a business relationship with the client, he is required to verify the client before concluding it. Finding out that a customer or other person is subject to international sanctions is an automatic reason to submit a notification even if a contractual relationship has not yet been agreed (i.e. under the regime of § 15 AMLZ).
Thus, even if a client does not hold any property of the client, but a person subject to international sanctions, the subject of international sanctions passes into the position of:
- persons belonging to the client’s ownership or management structure (members of corporate bodies, the person with final influence, the final beneficiary),
- the person acting on behalf of the client, this person also means the trustee acting on behalf of the trust fund,
- another person involved in the trade (intermediary, person with informal influence, authorized representative, adviser, etc.), if known to the person liable.
If in progress compliance with the notification obligation within the framework of the obligations provided for by the LBCZ, is carried out in the manner described in this law on the form annexed to Resolution of the Board of Directors No. 2/2008 of the Bulletin.
The list of sanctioned persons is available here:
Duty of confidentiality stipulated in § 38 AMLZ only applies to the submission of a suspicious transaction report, ie. the lawyer can inform the client that his property is subject to international sanctions, can take over his representation in the proceedings relating to the decision of the UAF or an appeal against him in accordance with § 12 ZMS and represent him in this procedure.
Notification of ownership according to § 10 and 11 ZMS
According to the provisions of § 10 ZMS, anyone who credibly learns that by him finds property subject to international sanctions, it is required to do so without undue delay notification Office. If at preparation or conclusion of the contract there is a suspicion that one of the parties to the obligation is subject to international sanctions, or that the object of the obligation is or should be property subject to international sanctions, but this suspicion cannot be verified reliably before or upon conclusion of the contract, the obligation to notify arises immediately after conclusion of the contract.
The limit of the lawyer’s duties in this case is the fact that the ZMS does not contain a breakthrough in the legal obligation of confidentiality, but this is fixed in relation to the processes applied within the framework of the measures to combat the money laundering and the financing of terrorism (LAB/CFT).
The mere fact that a lawyer’s duty of confidentiality would preclude reporting obligations under international sanctions law beyond obligations under AML/CFT does not exempt the lawyer from complying with other obligations. legal provisions set out in § 11 ZMS.
The details of the notification are defined in Decree No. 281/2006 Coll., in which they are defined the content of the notification. The asset notification must state the following:
- a brief description of the property, its value, if known to the notifier, and its location at the time of the notification,
- to whom the property belongs, if known to the notifier,
- if there is an imminent danger of damage or deterioration to the property or its use in violation of the law, and
- other information on the assets that the notifier deems relevant,
- contact the notifier.
Notification may be made by the usual means of legal deposit, including oral deposit and also by telephone. In the event of submission to the protocol, it is necessary to make an appointment by telephone. The telephone contact contains an annex to the decree, but it is also listed directly on the FAU website: https://www.financnianalytickyurad.cz/mezinarodni-sankce/oznameni-o-sankcionovanem-majetku-nebo-osobe.html
They have this notification obligation everyonei.e. possibly also the lawyer’s clients, their contractual partners, the counterparty, etc.
Prohibition to dispose of property
The prohibition on disposing of goods is general, it applies both to situations reported in accordance with § 18 AMLZ and to goods reported in accordance with § 10 ZMS. The prohibition stems from the observation that the property is subject to international sanctions, and not from the filing of a notification.
Persons in possession of property subject to international sanctions are required by law not to dispose of it otherwise than for the purpose of protecting it against loss, deterioration, destruction or other damage, from the time where they are aware that the property at their disposal is considered as property subject to international sanctions.
At the same time, it does not matter what kind of property it is and how it was acquired. These may be funds (custody, administration of the client’s property, collection or judgment of the dispute, funds acquired on the basis of a private law title, etc.).
A person holding property subject to international sanctions is entitled to claim compensation from the State for the necessary costs associated with their administration and protection from the time of delivery of the notification to the Office in accordance with in § 10. The internationally sanctioned entity or person, as well as persons cooperating with it, close to it or otherwise related to it, are not entitled to reimbursement of costs under this provision.
It should be noted that the client has a similar obligation in a situation where he has entered into a contractual or other relationship with the sanctioned person.
Release of property at the request of the FAU
The Bureau of Financial Analysis decides on the management of goods subject to international sanctions in accordance with Article 12 of the ZMS.
The restrictions are limited only with respect to the property of such persons, so that the lawyer may establish a contractual relationship with the person whose property is subject to international sanctions, the object of which is the provision of legal services, unless they are directed against the disposition of the property of the sanctioned person.
It is forbidden to knowingly or intentionally participate in activities whose object or effect is to circumvent the prohibitions enacted by these regulations.
The UAF has issued a warning about the increased risk of circumvention of international sanctions against Russia, including:
- with entities from countries favorable to the Russian regime or trading partners of Russia,
- with entities that do not raise suspicions of circumvention of international sanctions, such as EU-based entities with Russian or Belarusian participation of natural or legal persons,
- with goods subject to sanctions and which will be issued for goods not subject to such sanctions.
Msgr. Petra Vrábliková, head of ČAK’s disciplinary affairs department
 Considering the specifics of the legal understanding of the person of the client according to AMLZ, see also here https://www.cak.cz/assets/svz_final_2-zakladni-text.pdf