Obchodníci s alkoholem a tabákem a zákon proti praní špinavých peněz

Basic definition of AML obliged entities

Traditional obliged entities include banks, insurance companies, and other financial institutions. However, legislative developments in the Czech Republic also include entities from the non-financial sector whose activities pose a risk of money laundering.

For alcohol and tobacco traders, it is crucial to understand that they become an obliged entity at a specific moment. Under Section 2(1)(l) of the AML Act, this is the situation where they act as a person authorised to trade in goods and accept cash of EUR 10,000 or more.

This obligation applies both to one-off transactions and to situations where the payment is split into multiple operations. It is precisely the cash nature of the transactions that triggers the mechanism moving an alcohol or tobacco trader into the regulated AML regime in the Czech Republic.

Specific obligations of traders in the context of the Czech AML Act

Once an alcohol or tobacco trader accepts a cash payment of EUR 10,000 or more, they must follow the AML rules for that transaction. This amount represents the threshold that triggers identification and due diligence obligations under Czech legislation.

Under Section 7 of Act No. 253/2008 Coll., the client must be identified no later than at the moment the transaction exceeding the set limit is carried out.

Identification includes recording and verifying data from a valid identity document. The trader must record the first name, surname, personal identification number, place of birth, address, and identity document details. It is essential to verify that the person’s appearance in the document matches the person carrying out the transaction.

This must be carried out mandatorily before a transaction of EUR 15,000 or more, for clients from high-risk countries, or for politically exposed persons.

Due diligence includes establishing the purpose of the transaction and verifying the source of funds. In the case of a legal entity or a trust fund, it is also necessary to identify the beneficial owner and verify the ownership and management structure.

Detection of suspicious transactions and their reporting

A suspicious transaction is defined in Section 6 of the AML Act as a transaction carried out under circumstances that give rise to suspicion of an attempt to legalise proceeds of crime. The Act contains an illustrative list of risk indicators.

This also includes situations where the customer refuses to be identified or attempts to split the payment to just below the EUR 10,000 threshold.

A practical example may be a situation where an unknown buyer suddenly starts purchasing alcohol in unusual quantities and insists on paying in cash. It is often not even clear for which premises the goods are being purchased.

The aim is to avoid identification, even though these persons act in concert.

The obligation to report a suspicious transaction is one of the most important duties. If the trader assesses a transaction as suspicious, they must report it to the Financial Analytical Office (FAÚ) in the Czech Republic without undue delay.

The obliged entity must not carry out the transaction if doing so could frustrate the securing of proceeds.

Risk table: Identification and reporting of suspicious transactions

Register of beneficial owners

In the context of combating money laundering, a key concept is the beneficial owner. This is a natural person who ultimately exercises effective control over a legal entity or is the ultimate beneficiary of the benefit.

For alcohol and tobacco traders, this obligation is relevant when conducting due diligence on a client that is a legal entity.

Act No. 37/2021 Coll., on the Register of Beneficial Owners imposes an obligation on legal entities in the Czech Republic to record this information. As part of client due diligence, the trader must verify the beneficial owner’s identity by consulting the register.

This discrepancy must be reported to the court maintaining the register, or directly to the client for rectification.

If the trader cannot identify the beneficial owner or has doubts about the accuracy of the data, they must act with caution. If the client does not provide cooperation, the transaction must not be carried out.

Politically exposed persons and enhanced measures

A specific category of clients are politically exposed persons, the definition of which can be found in Section 4(5) of the AML Act. These are natural persons in prominent public functions, such as heads of state, ministers, judges, or members of parliament.

These measures include, in particular, establishing the origin of assets and the source of funds used in the transaction.

For politically exposed persons, approval by the trader’s statutory body is also often required to establish a business relationship. In the case of wholesale transactions or exclusive supplies, this status must be verified.

Risk assessment and a system of internal policies

Every obliged entity—i.e., including a trader accepting cash above EUR 10,000—must apply procedures for managing the risks of money laundering. Act No. 253/2008 Coll. requires the preparation of a so-called Risk Assessment.

Under Section 21(3) of the AML Act, these entities are not required to prepare a written system of internal policies unless the FAÚ stipulates otherwise by decision.

However, this does not mean that the trader has no obligations, as they must in fact comply with the statutory procedures. From a practical perspective and for the purposes of any potential inspection in the Czech Republic, it is highly recommended to have at least a basic procedures manual prepared.

Training for employees who may come into contact with suspicious transactions is mandatory at least once every 12 months and upon the onboarding of a new employee.

Range of sanctions and their consequences

Sanctions for breaches of AML obligations under Czech law are very severe. For an offence consisting in failing to carry out identification or customer due diligence, a legal entity faces a fine of up to CZK 10,000,000.

In certain situations, the sanction may reach up to 10% of total annual turnover, if this exceeds EUR 5,000,000.

In addition to financial penalties, a ban on activity or publication of the decision on the offence may also be imposed, which can lead to reputational damage. At the same time, Czech legislation also allows sanctions to be imposed on specific individuals who caused the breach.

In the trade in goods, inspections focus specifically on entities accepting high cash payments.

A frequent finding is the absence of identification for payments split into multiple parts or insufficient archiving of documents. A common issue is unauthorised copying of ID documents where recording the details is sufficient, or conversely missing copies where a copy is required.

Risk table: Sanctions and their impact

Link between the AML Act and the Act on limiting cash payments

Traders in alcohol and tobacco are subject not only to the AML Act, but also to Act No. 254/2004 Coll., on limiting cash payments. This Act prohibits making cash payments exceeding CZK 270,000.

Given the current exchange rate, this amount is approximately CZK 250,000. This creates an important legal intersection, as the threshold for AML obligations for a trader in goods is EUR 10,000. There is a narrow band between approximately CZK 250,000 and CZK 270,000.

By accepting cash above this limit, the entity breaches the Act on limiting cash payments. If the amount exceeds CZK 270,000, the payment must be made cashless. At the same time, it is exposed to the risk of breaching Czech AML regulations if it did not carry out identification, because the EUR 10,000 threshold has been exceeded.

This allows them, in most cases, to avoid the administrative burden associated with the status of an obliged entity under the Czech AML Act.

For traders, the safest strategy is to limit acceptance of cash below the EUR 10,000 threshold. If a cash transaction is necessary and the amount falls within the critical range, AML identification must be strictly complied with.

High-risk countries and international sanctions

The AML Act and related EU regulations require increased caution for transactions linked to high-risk third countries. If a trader does business with an entity from such a country, they must automatically carry out enhanced customer due diligence.

Sanctions lists

In addition to the AML Act, traders must comply with Act No. 1/2023 Coll. on restrictive measures against certain serious conduct. This is particularly relevant for the export and import of alcohol and tobacco. 

Trading with persons on sanctions lists or importing goods subject to an embargo is strictly prohibited. Traders should screen their foreign partners against sanctions databases, as sanctions breaches constitute a criminal offence under Czech law.

Executive summary for management

Traders in alcohol and tobacco who accept cash payments above approximately CZK 250,000 fall under regulation of the Czech AML Act. This is not merely a formality, as the risks include fines in the millions of Czech crowns, criminal liability of statutory bodies, and severe reputational damage.

It should be borne in mind that exceeding the CZK 270,000 limit is already prohibited by the Act on limiting cash payments. The law relieves traders in goods of the obligation to have a written system of internal policies, unless the FAÚ determines otherwise. Nevertheless, you must have processes in place for identification, due diligence, and archiving that work in practice.

Trading with sanctioned persons or countries is a criminal offence, so consistently screen your wholesale partners.

The attorneys at ARROWS, a Prague-based law firm, have experience in setting up AML processes for commercial companies. They will help you minimise the risks associated with this agenda.

The importance of compliance

Compliance with AML regulations is not a choice for traders in alcohol and tobacco, but a necessity under Czech legislation. The rules are strict and supervisory authorities have broad powers.

What appears to be a routine transaction can, due to a lack of knowledge of the rules, turn into a serious legal problem.

The attorneys at ARROWS, a Prague-based law firm, deal with clients’ AML obligations on a daily basis and have deep practical expertise. Our services include consultations on setting up processes, employee training, and representation during inspections.

Feel free to contact our office by email at consultation@arws.cz.

Most common legal questions on AML obligations

1. What is the difference between client identification and client due diligence?
Identification means establishing and verifying identity—i.e., who the client is. Due diligence is a broader process that includes checking the source of funds, the purpose of the transaction, and the beneficial owner. Identification is carried out for cash transactions exceeding EUR 10,000; due diligence applies above EUR 15,000 or where there is suspicion.

2. How do I report a suspicious transaction?
A report is submitted primarily electronically, ideally via a data box (datová schránka) to the Financial Analytical Office (Finanční analytický úřad) or through its secure portal. Reporting by phone or in writing is used only in specific urgent cases.

3. What if a customer refuses to present an ID card when making a cash purchase of CZK 300,000?
In such a case, you have a legal obligation not to carry out the transaction under Section 11 of the Czech AML Act. At the same time, you should consider filing a suspicious transaction report if the circumstances indicate illegal activity.

4. Does the Czech AML Act apply to me if I sell alcohol only on invoice?
As a trader in goods, you become an obliged entity primarily based on accepting cash above EUR 10,000. In purely cashless dealings, these obligations generally do not apply to you; however, you must still comply with international sanctions applicable in the Czech Republic.

5. Do I have to have an anti-money laundering policy in writing?
If you are an obliged entity solely due to trading in goods for cash, the law grants you an exemption. You do not have to have a written internal policy system unless the authority orders it by decision. However, you must still implement the procedures in practice.

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