Transactional AML Compliance
In-depth due diligence for transfers of shares in companies holding commercial real estate.
Transactional AML compliance in the transfer of a company holding commercial real estate requires vetting the client, the ultimate beneficial owner, the source of funds, and any risk connections before signing. For opaque structures or high-risk countries, enhanced due diligence and robust documentation are necessary. The article explains how to set up the due diligence process and how to prevent the transaction from being blocked or facing sanctions.
Key takeaways
Why is the transfer of a company with real estate under the scrutiny of the authorities?
As attorneys, under Act No. 253/2008 Coll., on Certain Measures against the Legalisation of Proceeds from Crime and the Financing of Terrorism (the “AML Act”), we are a so-called "obliged person". This means that we not only have the right, but also a legal duty to vet our clients, the origin of their assets, and to report any suspicious transactions to the Financial Analytical Unit (FAÚ). Failure to comply with these obligations can have fatal consequences for all parties involved.
Imagine a situation we encounter in practice: a seller has a potential buyer who is offering an attractive price and pushing for a quick closing. However, the buyer's ownership structure is non-transparent and leads abroad.
Without a thorough check, the seller could unwittingly become involved in a transaction that could subsequently be blocked by the FAÚ, leading to a lengthy investigation and the threat of multi-million-crown penalties. The lawyers at ARROWS provide daily transactional advice and protect clients from these risks because they understand not only the law, but also business reality.
The Basic Pillar of Protection: Client Identification and Control (CDD)
The first and absolutely essential step of any transaction is client identification and control. This is not a mere formality, but the cornerstone of the entire AML process. In international practice, this process is known by the technical term Customer Due Diligence (CDD).
What exactly do client identification and control mean?
Identification means establishing and verifying the client's basic details. For a natural person, we verify the data from a valid identity document. For a legal entity, we verify its existence from a public register and also identify the natural person acting on its behalf. Client control, however, goes much further. As part of this, we ascertain the purpose and intended nature of the transaction, the ownership and management structure, and the identity of the beneficial owner.
When must you undergo these steps?
For transactions such as the transfer of a business share in a company that owns real estate, identification and control are carried out in virtually all cases. The law requires identification for transactions over EUR 1,000 and full control for transactions over EUR 15,000 or when establishing a business relationship.
A thorough check at the very beginning is the best protection against complications in the later stages of the transaction. The following table shows common risks associated with basic due diligence and how we at ARROWS help you address them.
Risk to be addressed and potential problems and penalties | How ARROWS helps |
The submitted documents are invalid or forged. Risk of invalid identification and immediate reporting to the FAÚ. | Legal consultation and document verification: We conduct a thorough check of the validity and authenticity of all submitted documents. |
Discrepancies between data in documents and public registers. Causes delays in the transaction, raises suspicion. | Preparation of legally required documents: We ensure all documents are consistent and proactively resolve discrepancies with the authorities. |
The client refuses to provide the necessary cooperation. According to Section 15 of the AML Act, there is an obligation not to carry out such a transaction and to report it. | Legal opinions: We clearly explain to the client their legal obligations and the consequences of non-compliance, thereby protecting all parties. |
The acting person does not have valid authorisation to represent the company. Risk of the entire transaction being void and subsequent litigation. | Review of contracts and powers of attorney: We thoroughly check all authorisations and powers of attorney to ensure the legal certainty of the transaction. |
Discovery that the counterparty is on an international sanctions list. Immediate freezing of assets and inability to proceed with the transaction. | Representation before administrative authorities: We screen against national and international sanctions lists and handle any findings. |
Identification is performed remotely but does not meet legal requirements. Invalid identification, fine from the FAÚ of up to CZK 10,000,000. | Preparation of documentation to protect against fines: We ensure that all forms of identification (including remote ones) comply with Section 11 of the AML Act. |
Who is really behind the transaction? Uncovering the Ultimate Beneficial Owner (UBO)
One of the most important and often most complex tasks is identifying the Ultimate Beneficial Owner (UBO). According to the Act on the Registration of Beneficial Owners, the beneficial owner is always a specific natural person who ultimately benefits from the transaction or exercises ultimate control, even if hidden behind a complex chain of companies.
How is the beneficial owner identified?
It is not enough to rely on an extract from the Register of Beneficial Owners. This register is only a starting point. It is our duty to actively verify whether the entry corresponds to reality, especially if the share of benefits or voting rights exceeds 25%. If we find a discrepancy, we must ask the client to rectify it and, if necessary, inform the relevant court; otherwise, we face heavy fines.
What if the structure leads abroad?
This is where the strength of our international presence truly shows. Many ownership structures deliberately end in jurisdictions with low levels of transparency. Thanks to the ARROWS International network, built over ten years, we have trusted partners all over the world and can effectively vet even complex international structures, which is a key competitive advantage for our clients.
Our specialists will help you
When is standard control not enough? Enhanced Due Diligence (EDD)
In some cases, the law requires so-called "enhanced client control", or Enhanced Due Diligence (EDD). This means we must go much deeper and conduct a more detailed investigation than the standard procedure requires.
What triggers the obligation for enhanced due diligence?
Enhanced due diligence is mandatory, in particular, in cases where the transaction involves:
Politically Exposed Persons (PEPs): Individuals in prominent public functions, their family members, or close associates.
High-risk third countries: Business partners from countries listed as high-risk by the European Commission or the international Financial Action Task Force (FATF).
Other risk factors: For example, an unusually complex and non-transparent ownership structure, an unclear source of funds, or an non-standard course of the transaction.
While standard due diligence answers the question "Who is the client?", enhanced due diligence asks "What is the full story of the client and their assets?". This requires deeper analysis and access to international databases. ARROWS provides clients with comprehensive legal consultations and prepares documentation that demonstrates compliance with all enhanced due diligence requirements, protecting them from penalties.
Where does the money come from? Verification of the Source of Wealth and Source of Funds
A key part of due diligence is verifying the origin of the money. Here, it is necessary to distinguish between two technical terms:
Source of Funds (SoF): The origin of the funds used in a specific transaction. This is documented, for example, by a current bank statement, a loan agreement, or a contract for the sale of another asset.
Source of Wealth (SoW): The origin of the client's total assets. This is examined particularly for higher-risk clients and is documented, for example, by tax returns, inheritance decisions, or documents from a past company sale.
The client has a legal obligation to provide us with this information and supporting documents. A mere sworn declaration about the origin of the money is completely insufficient. If the client refuses to cooperate, the law requires us not to proceed with the transaction and to file a suspicious transaction report.
Risk to be addressed and potential problems and penalties | How ARROWS helps |
The source of funds is unclear or cannot be documented. Obligation to report a suspicious transaction to the FAÚ, risk of funds being frozen. | Legal consultation and document preparation: We help clients gather and correctly structure documents proving the source of wealth. |
Financing occurs through a complex chain of companies with no apparent economic logic. A strong indicator of money laundering, high risk of investigation. | Representation before administrative authorities: We analyse transaction flows and prepare arguments that explain their business logic. |
The company has no established system of internal AML policies. A fine of up to CZK 1,000,000 is at risk during an FAÚ inspection. | Drafting of internal policies: We will create a tailored system of internal policies, risk assessment, and client control procedures for your company. |
Employees are not trained in AML. Increases the risk of error and personal and corporate liability. Fine of up to CZK 5,000,000. | Professional training for employees or management: We provide certified training to ensure your team understands the risks and their obligations. |
A functional whistleblowing system for reporting suspicions is missing. Failure to comply with the obligation under Act No. 171/2023 Coll., fine of up to CZK 1,000,000. | Obtaining necessary permits and setting up processes: We help implement a secure and legally compliant internal reporting system. |
Threat of inspection and heavy fines from the FAÚ. Penalties can reach tens of millions of crowns and lead to a ban on activities. | Preparation of documentation to protect against fines and penalties: We build robust documentation for clients that demonstrates all due care has been taken. |
Criminal liability of statutory bodies. In serious cases, the conduct may be classified as a criminal offence. | Comprehensive legal advice: We protect not only the company but also its management from the risk of criminal liability. |
Your Comprehensive Protection with ARROWS: From Prevention to a Successful Closing
Our extensive experience is a guarantee of quality. Long-term cooperation with more than 150 joint-stock companies and 250 limited liability companies gives us a unique insight into the practical problems that companies face. We are not just lawyers; we are business partners. That is why we also actively connect our clients when we see interesting business or investment opportunities, and we are always happy to listen to their business ideas.
AML compliance is not a one-off task, but a complex process that requires a strategic approach. ARROWS provides clients with a complete legal service that covers the entire transaction lifecycle and builds a sustainable risk management system within the company. Our services include drafting and reviewing contracts, preparing internal AML policies and implementing whistleblowing channels, professional training for management and employees, and, if necessary, effective representation before the FAÚ.
Don't let AML risks jeopardise your transaction. Consult with us.
A failed transaction, multi-million-crown fines, reputational damage, and in extreme cases, criminal prosecution – these are the real threats that arise from underestimating AML legislation. With expert help, however, these risks are fully manageable. Timely legal consultation at the beginning of a transaction saves time and money and prevents major problems that are much more difficult and expensive to resolve in later stages.
We are here to ensure that your transaction proceeds smoothly, securely, and in compliance with the law. At ARROWS, we specialise in comprehensive transactional advice with an international reach and have extensive experience in this area.
About the author
Disclaimer:
The information contained in this article is for general informational purposes only and serves as a basic guide to the issue as of 2026. Although we strive for maximum accuracy, laws and their interpretation evolve over time. We are ARROWS Law Firm, a member of the Czech Bar Association (our supervisory authority), and for the maximum security of our clients, we are insured for professional liability with a limit of CZK 350,000,000. To verify the current wording of the regulations and their application to your specific situation, it is necessary to contact ARROWS Law Firm directly (consultation@arws.cz). We are not liable for any damages arising from the independent use of the information in this article without prior individual legal consultation.