Precious metals dealers

Are you a dealer in precious metals? Then the AML Act applies to you

According to Section 2(1)(n) of the AML Act, any "dealer in precious metals or precious stones" is an obligated person. This applies not only to sellers of investment gold and silver but also to jewellers and wholesalers. The law covers gold, silver, platinum, iridium, osmium, palladium, rhodium, ruthenium, as well as diamonds, rubies, sapphires, and emeralds.

The key moment that activates your AML obligations is a transaction with a value reaching or exceeding EUR 10,000. This threshold is the trigger that turns a regular sale into a regulated transaction. It is not enough to simply be aware of it; you must have a process in place that identifies such a transaction before it is completed. A reactive approach is not only risky but also illegal.

Furthermore, legislative changes in 2024 have explicitly anchored dealers in precious metals in the law, signalling increased attention from regulators. This step is a direct response to identified risks where precious metals are used for the easy transfer of high values and to conceal their illicit origin, as evidenced by cases of carousel fraud investigated by the Financial Analytical Office (FAÚ). For you, this means one thing: the era of "flying under the radar" is definitively over.

Client Identification and Due Diligence: The Two Pillars of Your Defence

Once the AML Act applies to you, your two fundamental and most important obligations are client identification and client due diligence. Although related, these are two distinct processes. Identification answers the question, "Who is my client?", while due diligence goes deeper: "What is my client doing, why, with whose money, and for whose ultimate benefit?".

Step 1: Client Identification (KYC)

Identification is the initial verification of a client's identity. According to Sections 7 and 8 of the AML Act, you must perform it for any transaction over EUR 1,000, when establishing a business relationship, or whenever you suspect money laundering.

• For a natural person, you must verify their identity in their physical presence (or via an approved remote method) using a valid identity document. You record their name, surname, birth number or date of birth, address, and other data from the document. You have the right to make a copy of the document even without the client's explicit consent.

• For a legal entity, you verify its existence (e.g., with an extract from the Commercial Register) and simultaneously perform a full identification of the natural person acting on behalf of the company (e.g., the executive director).

Step 2: Customer Due Diligence

Customer due diligence is a more in-depth check that, according to Section 9 of the AML Act, is necessary for transactions over EUR 15,000, for example, but for you as a dealer in precious metals, it is relevant for every transaction that establishes your AML obligation (i.e., over EUR 10,000).

As part of the due diligence, you must ascertain and record:

• The purpose and intended nature of the transaction: Why is the client buying investment gold of this value? Is it for savings, or for a quick transfer of funds?

• The source of funds: Where does the money for the purchase come from? Is it savings from a business, an inheritance, the sale of real estate?

• The Ultimate Beneficial Owner (UBO): If the client is a company, you must actively search for the natural person (or persons) who ultimately owns or controls it.

The obligation to identify the UBO is active, not passive. It is not enough to simply check the Register of Beneficial Owners (RBO). You must take reasonable steps to verify that the entry corresponds to reality. If you find a discrepancy, you are obliged to address it and, if necessary, report it to the court.

Special Attention: Politically Exposed Persons (PEPs) and High-Risk Transactions

From the perspective of the AML Act, not all clients are equal. Special and much stricter rules apply to so-called Politically Exposed Persons (PEPs). This is a high-risk category for which you must perform enhanced due diligence.

According to Section 4(5) of the AML Act, a PEP is not only a person holding a significant public office (minister, member of parliament, supreme court judge, ambassador, etc.) but also persons connected to them – family members and close business associates. The exact list of functions is defined in Methodological Guideline No. 7 of the FAÚ.

If you find that your client is a PEP, standard due diligence is not enough. You must apply enhanced customer due diligence according to Section 9a of the AML Act, which includes:

• Obtaining approval from a member of your company's statutory body to establish the business relationship.

• Performing in-depth due diligence and ongoing monitoring of the business relationship.

• Taking reasonable measures to ascertain the origin of wealth and the source of funds.

Here is the key difference: for a regular client, you ascertain the "source of funds" for the specific transaction (e.g., money from a bank account). For a PEP, you must examine the "origin of wealth," i.e., how the client acquired their total wealth (e.g., from a minister's salary, business, inheritance). If the origin of the wealth used in the transaction is unknown to you, Section 15(2) of the AML Act explicitly prohibits you from conducting the transaction with the PEP.

Internal Policy System (IPS): Your Essential Internal Manual

Fulfilling AML obligations cannot be haphazard. Section 21 of the AML Act requires you to have a written Internal Policy System (IPS). This is not a formality but a key manual that defines your defence against misuse and will be the first thing the FAÚ requests during an inspection. The mere absence of this document is an offence punishable by a fine of up to CZK 1,000,000.

Your IPS must be approved by the statutory body and must contain at a minimum:

• A written risk assessment (Section 21a) that analyses the specific money laundering risks your company is exposed to.

• Precise procedures for client identification and due diligence.

• A list of typical indicators of suspicious transactions (so-called typologies).

• The procedure for reporting a suspicious transaction to the FAÚ.

• Rules for document retention.

• A plan and records of regular employee training (Section 23).

Using a generic template downloaded from the internet is a trap. Your IPS must be based on your own risk assessment and reflect the reality of your business – the types of clients, the products you sell, and your sales methods. At ARROWS, we will not only prepare a complete, tailor-made Internal Policy System for you but also conduct expert training for your employees with certification. Do not hesitate to contact our Prague-based office at consultation@arws.cz.

Suspicious Transaction: How to Recognise and Correctly Report It to the FAÚ

One of the most challenging obligations is to recognise and report a suspicious transaction. The law does not require certainty that a criminal act is occurring; mere suspicion is enough. Your job is not to investigate but to promptly notify the FAÚ.

What can constitute a suspicious transaction? Besides obvious signals, focus on:

• Client's behaviour: They are nervous, evasive, refuse to provide information, or, conversely, are in an unreasonable hurry to complete the transaction.

• Transaction structure: The client tries to split the transaction into several smaller amounts to avoid the EUR 10,000 limit.

• Discrepancy: The value of the transaction clearly does not correspond to the client's financial situation as you know it.

• Payment: The client wants to pay an unusually large amount in cash or uses complex corporate structures with no apparent economic reason.

If you identify a suspicious transaction, you are obliged to report it to the FAÚ "without undue delay" via an electronic form. At the same time, an absolute duty of confidentiality applies. You must never inform the client or anyone else that you have filed a report. Breaching this duty (so-called tipping-off) is a separate offence punishable by a fine of up to CZK 1,000,000.

Archiving and International Scope: Long-Term Care and a Look to the Future

Your AML obligations do not end with the completion of a transaction. According to Section 16 of the AML Act, you must retain all obtained identification data, documents on performed due diligence, and transaction records for a period of 10 years from the end of the transaction or business relationship. This obligation means that your procedures can be inspected even after a long period. A mistake you make today could catch up with you in nine years in the form of a million-crown fine.

Moreover, Czech legislation is not isolated. It is based on the international standards of the Financial Action Task Force (FATF) and is influenced by European legislation. A new, directly applicable EU regulation (AMLR) is already being prepared, which will further tighten the rules from 2027 – for example, by introducing a pan-European ban on cash payments over EUR 10,000.

A proactive approach and setting up processes according to the best standards will not only protect you today but also prepare you for the future. Thanks to our ARROWS International network, we handle cases with an international element daily and are ready to assist you with cross-border transactions as well.

Act Proactively and Turn AML Obligations into Your Competitive Advantage

As you can see, AML legislation is complex and places high demands on dealers in precious metals. However, it is not an insurmountable obstacle, but a set of rules that can be effectively implemented with expert help. Properly configured AML processes are not just a cost, but also a hallmark of a trustworthy and well-managed company, which your clients will appreciate.

At ARROWS, we have long specialised in this area. Our experience from providing services to more than 150 joint-stock companies and 250 limited liability companies allows us to provide not only legally flawless but also practically functional solutions.

Don't wait for an inspection from the FAÚ. Protect your business before it's too late. For a comprehensive legal audit and tailor-made AML process setup, contact us at consultation@arws.cz.