Commission Report (2002): Czech Republic

• Progress since the last Regular Report
• Overall assessment
• Conclusion

Chapter 4: Free movement of capital

Progress since the last Regular Report

Since the previous Regular Report, significant progress has been made regarding this chapter.

In the field of capital movements and payments, an amendment to the Foreign Exchange Act has been adopted. As of January 2002 it abolishes restrictions on acquisition of real estate by branches and agencies established in the Czech Republic.

In terms of payment systems, the amendment to the Act on Banks, which entered into force on 1 May 2002, has abolished the Czech National Bank`s monopoly on clearing domestic inter-bank currency payments. It has also aligned Czech legislation with the acquis concerning the single licence for institutions authorised to issue electronic payment instruments.

The new Act on Payments, together with amendments to the Act on Bankruptcy and Act on International Private Law, implements the acquis on cross-border credit transfers and provides protection for banks` customers. It also partially transposes the provisions of the acquis on transactions by electronic payment instruments.

The Act on Financial Arbitration, which will enter into force as of January 2003, aims at establishing an out-of-court redress scheme for the settlement of payment disputes. It creates an independent arbitrator, elected by the Chamber of Deputies, who will solve disputes of up to EUR 50 000, and will function as an autonomous department of the Czech National Bank.

As regards money laundering, the amendment to the Act on Banks prohibits any new deposit or payment of interest on existing anonymous accounts (bearer passbooks) from 1 January 2003. Thereafter, holders of these passbooks will have a period of 10 years to close their accounts. An amendment to the Criminal Act establishes the effective criminalisation of acts of money laundering.

In 2001, 1 750 reports of suspicious transactions were received by the Financial Analytical Unit, while 101 complaints were transmitted to the Police Service for the Discovery of Corruption and Serious Economic Crime (SPOK). In the first seven months of 2002, the respective figures were 742 and 52.

Overall assessment

In the field of capital movements, liberalisation in line with the acquis is almost completed. The main remaining restrictions concern acquisition of real estate by non-residents and foreign direct investment in air transport, as well as the full alignment of rules relating to placement of assets of institutional investors.

Concerning payments systems, alignment with the acquis is almost complete. However, the remaining provisions on transactions by electronic payment instruments, as well as the provisions on securities settlement systems of the Settlement Finality acquis need to be transposed.

As regards administrative capacity, the Ministry of Finance and the Czech National Bank ensure the supervision of foreign exchange and are also responsible for collecting statistical data.

Necessary infrastructure in relation to payment and securities` settlement is now in place.

As regards money laundering, existing anonymous accounts (bearer passbooks) will be abolished on 1 January 2003. However, holders of these bearer passbooks will have a rather long period of 10 years to close their accounts.

The specialist institutions -- the Financial Analytical Unit (FAU) and the SPOK, -- are collaborating quite effectively. The FAU, created in 1996, currently has a staff of 28 and the SPOK has 212 policemen and 12 civilian employees. Further strengthening of the FAU and the SPOK is necessary, in particular by filling vacancies. More emphasis should be placed on reinforcing co-operation between the responsible bodies and on rendering prosecution of complaints lodged by the FAU with the law enforcement bodies more effective. Compliance with the recommendations of the Financial Action Task Force should be ensured.

Conclusion

In its 1997 Opinion, the Commission concluded that the degree of capital movement liberalisation already achieved by the Czech Republic was very substantial, with liberalisation of inward capital movements proceeding much more rapidly than that of outward capital flows. It added that the Czech Republic was expected to face no major difficulties in eliminating the remaining restrictions on the movement of capital in the medium term, thus fully assuming the Community acquis in this area.

Since the Opinion, the Czech Republic has made steady progress, both in aligning its legislation and in developing the necessary administrative structures. The overall level of alignment is almost complete.

Negotiations on this chapter have been provisionally closed. The Czech Republic has been granted transitional arrangements concerning the acquisition of secondary residences (for a period of five years following accession) and the acquisition of agricultural and forestry land (for a period of 7 years following accession), with the exclusion of self-employed farmers from the EU. The Czech Republic is generally meeting the commitments it has made in the accession negotiations in this domain.

In order to complete preparations for membership, the Czech Republic`s efforts should now focus on completing alignment and eliminating all remaining restrictions, completing the administrative structures necessary to implement the acquis in this area, and reinforcing administrative capacity, paying particular attention to the bodies involved in the fight against money laundering.

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