Extension of the notarial obligation for AML control; ban on cash payments for real estate (in Germany) - comparison with the Czech Republic

6. 1. 2023
Extension of the notarial obligation for AML control; ban on cash payments for real estate (in Germany) - comparison with the Czech Republic

At the beginning of 2023, the Sanctions Enforcement Act II (Sanktionsdurchsetzungsgesetz II) enters into force in Germany, from which the German legislators expect to make the fight against anti-money laundering ("AML") and the enforcement of economic sanctions more effective. One of the innovations brought about by this law is a ban on cash payments for the purchase of real estate. However, this measure has been criticized by public notaries, not only because of the additional obligations it imposes on them when transferring ownership, but many of them also point to diminishing of the principle of protecting good faith in the status registered in the Land Registry.

Although German public notaries agree in principle with a ban on cash real estate transactions, they point out the problematic nature of the intended concept. If a cash payment were made despite the ban, the ownership of the property would not pass to the purchaser, which, according to some notaries, would undermine the legal certainty not only of potential purchasers but also of creditors, such as banks, as they would no longer be able to rely in practice on the data entered in the Land Registry.

In order to apply for a transfer of ownership, the parties would therefore have to prove to the notary that a cashless transfer has taken place between them, for example by means of an account statement, otherwise he would not be able to submit such an application (for the sake of completeness, we note that in Germany the notary directly registers the property in the Land Register). This therefore entails a new obligation for notaries, namely the obligation to keep track of any consideration made in the two years following the transfer of ownership. This monitoring would be made more difficult if the transferring parties died or if the notary resigns.

For this reason, these plans were eventually abandoned after pressure from the professional community. Therefore, even in the event of a breach of the ban on cash payments, the transfer of the property in rem to the purchaser remains unaffected. The prohibition ultimately also applies to payment in precious metals or diamonds. As regards the new obligation of the notary to monitor the consideration between the parties, this period has been reduced to one year, as there is generally a lower risk of money laundering in the case of long-term transactions. If the notary nevertheless suspects that the proceeds of crime are involved, he or she can file a complaint with the Central Bureau for the Investigation of Financial Transactions before applying for registration.

In the Czech Republic, daily cash payments are restricted by law in connection with the AML legislation. Both individuals and legal entities are prohibited from making and receiving cash payments if they exceed CZK 270,000 (i.e. approximately €10,000). However, there are a few exceptions to this prohibition, such as payments of taxes and fees, payments of insurance premiums or payments received by law-enforcement officers, administrative authorities or courts in the course of execution or enforcement of a decision. The ban also applies to foreign currencies that are converted at the CNB exchange rate on the date of payment. In the event of a breach of this prohibition, both entrepreneurs and other persons are liable to heavy fines.

Other obligations in connection with AML and the sale of real estate also arise from the law when using attorney and notary escrows, for example, the obligation to carry out the so-called identification and control under the Money Laundering Act or the registration of escrows with the relevant chamber.

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