AML Policy

Definition of Money Laundering in the Context of Cryptocurrency

Money laundering in the realm of cryptocurrency refers to the process of concealing the illicit origins of funds obtained through illegal activities by making them appear to be derived from legitimate sources within the digital asset space. This involves intricate transactions or movements across various cryptocurrency platforms, aiming to obscure the trail and make it challenging to trace the digital funds back to their illegal source. The use of cryptocurrencies in money laundering poses significant concerns, often tied to activities such as organized crime and terrorism, and can potentially impact the integrity of the global financial system.

Cryptocurrency Regulatory Considerations in the Czech Republic

The most significant legislation regarding crypto firms in the Czech Republic has been from the EU. According to the security summary of Internet payments and cryptocurrency, published in 2018 by CNB, all such firms operating in the Czech Republic are obliged to adhere to EU legislation.

Although crypto activities in the Czech Republic are largely unregulated, the authorities have maintained transparency as a key operational principle by transposing the 4AMLD, the Fifth Anti-Money Laundering Directive (5AMLD), and the Sixth Anti-Money Laundering Directive (6AMLD), which obliges cryptocurrency exchanges and crypto purse providers to apply strict internal AML/CFT procedures. These directives address standard due diligence, information gathering, recording and retention, AML/CFT risk assessment, ultimate beneficial ownership, and reporting of suspicious transactions; perform customer transactions and apply enhanced customer due diligence for customers resident in high-risk countries.

In fact, national authorities have gone even further, covering a wider range of economic activities related to cryptography. It follows that the businesses to which AML/CFT applies are those trading, storing, managing, or mediating the purchase or sale of virtual currencies, or offering other cryptography-related services. In this context, virtual currency is defined as a digital unit that does not fall into the category of fiat money but is still accepted as a means of payment for products and services by persons who are not issuers of the unit.

The following anti-money laundering/terrorist financing laws apply to companies involved in crypto-related economic activities in the Czech Republic:

AML Act(Act 253/2008 Coll.) sets the principles of the AML/CFT.
Money Laundering Ordinance (Decree No 281/2008 Coll.) sets requirements for corporate policy and procedures in the area of combating money laundering/terrorist financing.
Criminal Code (Law No. 40/2009 Coll.) defines criminal acts.
Act on International Sanctions (Act No. 69/2006 Coll.), which stipulates the conditions under which international sanctions are imposed.

To comply with the AML/CFT regulations, crypto companies shall undertake the following:

Gathering and processing disclosure of ultimate beneficiaries (owners DOE) of the companies/institutions who are originators of transactions.
Reporting of suspicious transactions and customers.
Drawing up reports, if necessary, at the request of authorities.
Be ready to share information with regard to cross-border transfers.

Following the Directives of the EU, their transposition into the law system of the Czech Republic requires that every crypto company collects at least the following information from their customers to conduct the procedures of KYC:

Natural persons – name, number of birth certificate, date and place of birth, address of residence, nationality, and in case of a person with business, name of the company, business address, and information on corporate identity.
Companies: company name, address of headquarters, identification data, including data of beneficiaries.
Institutions without legal personality: denomination, identity of the administrator or equivalent.

Failure to comply with AML/CFT obligations/requirements is therefore a crime and hence punishable with such measures as the termination of activity, expropriation of property, fine, and publication of judgment. The measure required in law would depend upon the particular prudent consideration of the nature of the violation and the type of person responsible.

Key elements of the AML Policy

Client Due Diligence (CDD). CDD refers to the minimum due diligence measures which must be performed at the start of each business relationship. The establishment of the identity of the Client and Beneficial Owner is the process of collection and verification of the Client’s information. Know Your Client (KYC) is an obligatory due diligence process in the Company performed in order to identify its Clients and ascertain relevant information pertinent to doing financial business with them. The main purpose of the KYC process is to prevent identity theft, fraud, ML or TF. The initial step of the KYC process is to collect and document identification data about the Client and the Client’s beneficiary. Additionally, Dragonfly Diamond verifies the obtained information against reliable and independent sources. CDD information allows assessing the extent to which the Client poses certain risks. Information, documents and data provided to Dragonfly Diamond during the identity verification of the Client are processed in accordance with the Company’s Privacy Policy.

Risk Assessment. While assessing the risks, Dragonfly Diamond applies the risk-based approach. A risk-based approach means that the Company has an understanding of the ML and TF risks to which it is exposed and applies prevention measures in a manner and to an extent that would guarantee the mitigation of such risks. This allows Dragonfly Diamond to focus its resources and adopt enhanced measures in higher-risk scenarios.

Periodic review. The process refers to periodic review of Clients’ activity, updating the Clients’ profile and comparing new information to the previously obtained data.

Transaction monitoring. Dragonfly Diamond is conducting continuous monitoring of the Clients’ transactions in order to ensure that the executed transactions correspond to the Company’s knowledge of the Clients (nature of transactions, nature of risk and knowledge about the source of funds, etc.). Ongoing monitoring is performed on all business relationships regardless of the Clients’ risk rating calculated under the risk-based approach.

Objectives of transaction monitoring are the following:

• To identify suspicious transactions
• To ensure the relevance of the Client and beneficiary data, the purpose and nature of the business relationship
• To ensure the relevance of the Client’s risk in the event of a change in circumstances
• To determine whether the Client’s transactions correspond to the information previously collected on the Client
• To properly understand the Client’s activities and to create an exhaustive Client profile
• Communication with Competent Authorities

Dragonfly Diamond is obligated to notify the appropriate authorities and assist with any subsequent actions if there is any reason to believe that any property, regardless of value, is derived either directly or indirectly from criminal activity or participation in such activity, or that its intended use is to support one or more terrorists or terrorist organizations.

Suspicious Activity Reporting.

The Company identifies suspicious transactions by taking into account the Client’s activities that seem to be related to money laundering/terrorist financing during verification of the Client’s identity and performing continuous monitoring, including investigation of the transactions that have been processed during the business relationship.

The Company has established comprehensive transaction monitoring systems and a vigilant compliance team responsible for identifying suspicious activities or transactions. Suspicious activities can encompass a wide range of behaviors, including but not limited to unusual financial transactions, potential money laundering, fraudulent activities, or violations of regulatory requirements.

Record Keeping.

Dragonfly Diamond maintains appropriate records in relation to every Client according to the regulations of the Czech Republic. In order to enable efficient investigation, prosecution, and confiscation of criminal property, record keeping is crucial part of the AML program within the company.

AML Training.

Employee training at the Company is a fundamental element of our commitment to maintaining the highest standards of AML, compliance and financial integrity. The Company recognizes that the employees play a crucial role in upholding regulatory standards and combating financial crimes, including money laundering. Further, Dragonfly Diamond is committed to maintaining the highest standards of integrity and compliance.