AML Compliance Guide for Precious Metal and Stone Traders Frequent mistakes explained

Do you trade in precious metals and stones? If so, you are highly likely subject to strict anti-money laundering (AML) legislation in the Czech Republic, which mandates transaction record-keeping and "Know Your Customer" (KYC) procedures. Failure to comply with these obligations can result in fines amounting to millions of Czech koruna. In this article, our Prague-based legal team explains how to correctly maintain records and assess risks to avoid legal complications under Czech law.

Quick Summary

• AML obligations are primarily triggered by cash transactions exceeding EUR 10,000, which is the main threshold for "obligated person" status in the Czech Republic. The EUR 10,000 cash limit is the primary trigger for traders in goods. However, be mindful of the overlap with the Czech Act on Limitation of Cash Payments.
• For every transaction meeting the legal limits or in case of suspicion of illegal activity, you must verify the client's identity. You must determine the purpose of the transaction, the source of funds, and check whether the client is on a sanctions list. Learn more in our article How to prepare for administrative proceedings at the Czech National Bank, which details the minimum documentation for regulated entities. Without properly maintained documentation, you cannot defend yourself during an inspection.
• If you identify a suspicious transaction, you must report it to the Czech Financial Analytical Office (FAÚ) without undue delay. Violation of the tipping-off prohibition can result in fines amounting to millions of Czech koruna.
• You must have a written system defining your procedures for client identification, risk assessment, and detection of suspicious transactions. A generic template from the internet will not save you during an audit; the document must reflect your actual operations.

What does AML legislation mean for jewelry businesses?

Act No. 253/2008 Coll. on Certain Measures against Money Laundering and Financing of Terrorism applies directly to you if you meet the definition of an obligated person. You typically become one the moment you, as a trader in precious metals or stones, accept a cash payment of EUR 10,000 or more. Precious metals and stones monitored under Czech law include gold, silver, platinum, as well as diamonds, rubies, sapphires, and emeralds.

Jewelry businesses are considered a high-risk sector by regulators. Our Prague-based attorneys at ARROWS law firm handle these issues daily and know that precious metals are easily transported and hold high value in small volumes. Both the European Union and the Czech Financial Analytical Office (FAÚ) therefore strictly monitor traders in precious metals.

What can you expect? If you enter into a transaction with a client exceeding the legal limit, you are not merely authorized to sell the goods. You must know the client, determine where the money came from, check if they are a politically exposed person, and in certain situations, report suspicious transactions to the Czech authorities. Non-compliance with these rules is not a minor matter – you face administrative fines of up to CZK 5 million and potential criminal prosecution.

When do AML obligations apply to you?

The key moment that activates your AML obligations as a trader in goods under Czech legislation is a transaction reaching or exceeding EUR 10,000, provided the payment is made in cash. This limit is the trigger that transforms a standard sale into a regulated transaction.

Beware of the legislative trap in the form of the Act on Limitation of Cash Payments, which prohibits cash payments exceeding CZK 270,000. You may find yourself in a situation where accepting cash over EUR 10,000 subjects you to the AML Act, but simultaneously violates the Czech ban on high cash payments. Details can be found in our section dedicated to tax law in the Czech Republic, where we also cover limits for financial operations. Many traders therefore prefer to apply AML procedures even for lower amounts or non-cash transactions as part of their risk management.

The law also accounts for the aggregation of multiple transactions if they are carried out within a short period and are interconnected. If a client splits a gold purchase into partial payments "to avoid the limit," it is still viewed as a single transaction and you have a duty to act.

microFAQ – When do my obligations begin?

1. If the sale is under EUR 10,000, do I have to do anything?
If it is not a suspicious transaction and you are not entering into a permanent business relationship, the legal obligation for identification in a one-off transaction below this limit generally does not arise. However, beware: if you have any suspicion regarding the illegal origin of the funds, you must perform identification and potentially report the transaction regardless of the amount.

2. How do I account for multiple purchases from one client in a short time?
You monitor the totals. If a client gradually buys gold from you for EUR 3,000, EUR 4,000, and EUR 4,000 over a short period, you must treat them as a single transaction over the limit – meaning you must perform identification and due diligence.

3. What if the client is determined to buy only a small amount of gold?
If the transaction is below the limit and is not suspicious, you do not need to perform formal identification. However, caution and the retention of basic sales records are recommended for potential future evidence.

Client identification: the first and indispensable step

Client identification (referred to as "Know Your Client" or KYC) is your first and essential step. According to Section 7 of the Czech AML Act, you must perform it for every transaction exceeding EUR 10,000 or whenever you suspect money laundering, regardless of the limit. What does this mean in practice? When a client wants to buy investment gold above the set limit, you must verify who they truly are. You must ascertain their name, personal identification number (or date of birth), permanent address, and the type and number of their identity document. In the case of legal entities, you must identify the entity itself and the natural person acting on its behalf.

Identification is most commonly performed in person – the client introduces themselves and presents an identification document. For remote transactions, electronic identification (e.g., via Bank Identity) can be used if your processes allow for it. Once you have performed the identification and established a so-called business relationship with the client, you do not need to repeat the full process during every visit – verifying their identity is sufficient. However, the initial identification must be perfectly recorded under Czech law.

Crucial rule: Identification must be performed before the transaction is completed. If the client refuses to present a document, the law prohibits you from carrying out the transaction (Section 11 of the Czech AML Act).

microFAQ – Identification in practice

1. Do I need to make photocopies of documents?
The law allows you to do so even without the client's explicit consent (Section 8a of the Czech AML Act) for the purposes of fulfilling AML obligations. An alternative is an accurate transcription of the data from the document, but a copy provides better evidence.

2. What if the client does not have a national ID card, only a passport?
A passport is a full-fledged identity document and is sufficient for identification in the Czech Republic.

3. What data must I record?
For a natural person: all first names and surnames, personal identification number (if not assigned, then date of birth), place of birth, gender, permanent or other residence, and citizenship. Furthermore, the type and number of the identity document, the state or authority that issued it, and its validity period.

Client due diligence in practice: what must you ascertain?

Identification alone is not enough. For transactions representing a higher risk (typically over EUR 15,000, for cash traders over EUR 10,000, in the case of a suspicious transaction, or when establishing a business relationship), you must perform client due diligence. According to Section 9 of the Czech AML Act, this review includes several key areas.

Purpose and intended nature of the business relationship

Why is the client purchasing investment gold of this value? Is it for long-term savings or a gift? You must obtain this information from the client. If the explanation is illogical (e.g., purchasing precious stones for the purpose of immediate resale at a loss), it is a warning sign.

Source of funds

Where does the money for the purchase come from? Czech legislation requires determining the origin of the assets. For lower amounts, a client declaration may suffice; for high amounts, you should request documentation. If the client refuses to document the origin or the explanation is untrustworthy, you must not carry out the transaction.

Beneficial owner

If a company is making the purchase, you must determine who actually controls it – the so-called beneficial owner. You must not settle for just the managing director. You must trace the natural person who has influence or a share in the company, for which the Czech Register of Beneficial Owners is used.

Politically Exposed Persons (PEP) and sanction lists

You must verify whether the client is a politically exposed person (politician, high-ranking official, judge, etc.) or a person on an international sanction list. Transactions with PEPs require stricter control and often the consent of your company's statutory body.

Ongoing monitoring

If you have an ongoing business relationship with a client, you must monitor transactions continuously. If the client's behavior suddenly changes (they start purchasing significantly larger volumes), you must be alert and perform a new check.

microFAQ – Client due diligence: practical questions

1. How exactly should I note the "purpose of the transaction"?
A brief record is sufficient. For example: "Client states investment of savings. Corresponds to age and declared occupation."

2. Is it enough to just note down what the client tells me?
For lower risk, yes. For high risk or suspicion, you must verify the information from independent sources or documents.

3. How do I recognize a suspicious client?
Watch for anomalies – the client does not know the price of the goods, is in a hurry, offers a bribe, splits payments, or their financial circumstances clearly do not correspond to the purchase.

Risk assessment – how to recognize a suspicious transaction?

A suspicious transaction is one that raises suspicion of an attempt at money laundering or terrorist financing. Your task is not to investigate a crime, but to report the suspicion. Typical red flags in the jewelry and gold trade include structuring or unusual behavior.

Furthermore, an immediate purchase and sale, where a client buys precious metals and immediately sells them back, is suspicious. You should also be alert if the funds do not match the client's profile, for example, if a student purchases diamonds worth millions of Czech korunas without a credible explanation. Transactions associated with countries with high levels of corruption are also risky.

Record-keeping and documentation retention: how long and in what form?

The law requires you to keep records of identification, client due diligence, and transaction data for a period of 10 years from the execution of the transaction or the termination of the business relationship. You must archive copies of IDs, due diligence records, transaction documents, and any correspondence.

The format can be paper or electronic; the key is that the data is secure and immediately available in the event of an inspection. If you do not present a complete client file during an FAÚ inspection, it is viewed as if you failed to fulfill your obligation.

Our attorneys in Prague recommend setting up systematic archiving. Data must not be lost even after years. Unplanned archiving is a frequent stumbling block during Czech regulatory inspections.

System of Internal Principles: your essential internal manual

As an obliged entity, you must have a written System of Internal Principles (SIP) if required by law. The SIP must be approved by the statutory body, as mandated by Section 21 of the Czech AML Act. It must include a risk assessment, identification procedures, a list of suspicious transaction indicators, reporting procedures, and archiving rules.

Downloading a generic template from the internet is risky because the SIP must correspond to your actual business practice. If the document does not reflect reality, it serves as a signal to the Czech regulatory authorities of a dysfunctional system.

What will change in legislation by 2027?

The European Union is finalizing new rules within the so-called AML Package, which will directly impact the precious metals sector in the Czech Republic.

Stricter limits for cash

New EU legislation is moving towards a Europe-wide cap on cash payments. However, a fundamental change will be the expansion of Due Diligence obligations for goods traders even at lower cash amounts.

Uniform rules and supervision

A new European Anti-Money Laundering Authority (AMLA) will be established to unify supervision. This means that the interpretation of rules will be less fragmented and inspections by Czech authorities may become more rigorous.

The end of anonymity

The trend is the total elimination of anonymous high-value transactions. Traders must prepare for the fact that identification will be required for a wider spectrum of deals under Czech law.

We recommend not waiting until 2027 and starting with robust AML processes now.

Conclusion

Anti-money laundering legislation is complex and represents a significant administrative burden for gold traders. However, it is the price for the security of the financial system. You must know your clients, verify the source of their funds, archive documents, and not hesitate to report suspicions.

Our Prague-based attorneys at ARROWS law firm have been dedicated to AML issues for a long time. We know how to set up processes so that they comply with Czech law while placing the minimum possible burden on your business. It is much more efficient to have your system set up by professionals than to deal with the consequences of a regulatory audit.

If you want to ensure that your business is secure and legal in the Czech Republic, contact ARROWS law firm. We will help you with SIP preparation, training, and resolving specific cases. Contact our Czech legal team at office@arws.cz.

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FAQ – Frequently asked legal questions regarding jewelry and AML in the Czech Republic

1. Do I really need to keep detailed records of every client?
For transactions above the legal limit (or suspicious transactions), yes. Czech law requires the retention of information for potential retrospective audits. Without these records, you cannot prove that you have fulfilled your obligations.

2. What if a client refuses to present an ID card?
In such a case, you must not carry out the transaction. The law is clear (Section 11 of the Czech AML Act). If you perform the transaction without identification (where mandatory), you are committing an administrative offense.

3. What fine can the FAU (Financial Analytical Office) impose on me?
For common breaches of duty (missing identification, failure to retain data), a fine of up to CZK 5,000,000 may be imposed. For serious or repeated offenses, sanctions can be higher, or a ban on activity may be issued by Czech authorities.

4. What happens if I report a client and they find out?
If you report a client to the FAU, you have a statutory duty of confidentiality towards third parties (including the client themselves). Breaking this confidentiality (tipping-off) is in itself an offense with a high fine under the Czech legal system. The client must not learn about your report from you.

5. Can I accept cash over EUR 10,000?
According to Act No. 254/2004 Coll., on the Limitation of Cash Payments, it is prohibited in the Czech Republic to accept cash payments exceeding CZK 270,000 (approx. EUR 10,500). Such a payment must be executed via non-cash transfer.

6. Can I seek advice from an external lawyer?
Yes, this is the recommended procedure. ARROWS law firm in Prague provides comprehensive AML services – from auditing your current processes to creating documentation and representation during inspections. Write to our Prague-based attorneys at office@arws.cz.

Read also:

• How to prepare for administrative proceedings at the CNB: Legal and documentation minimum
• Compliance audits: How to conduct an internal audit before the authorities arrive
• Holding Structures and Beneficial Ownership in the Czech Republic: Compliance Checklist
• GDPR inspections in practice: how investigations by the Office for Personal Data Protection are conducted
• Operating Without a Licence in the Czech Republic: Legal Consequences Explained