AML Law: When and Why a Lawyer Must Verify Your Identity

Quick Overview

Are you buying or selling real estate, or setting up an escrow account? Contact us. We’ll explain in advance what information and documents we’ll need to comply with AML requirements, and we’ll guide you through the entire transaction safely and without unnecessary complications.

What is the AML law, and why does it exist?

The acronym AML stands for “Anti-Money Laundering,” meaning measures against money laundering. The AML law is therefore sometimes simply referred to as the anti-money laundering law. Czech legislation in this area is enshrined in Act No. 253/2008 Coll., the Act on Certain Measures Against the Legalization of Proceeds from Criminal Activity and the Financing of Terrorism. This law was adopted based on European directives and international agreements that share a common goal—to prevent the financial system from being abused to launder money derived from criminal activity or to finance terrorism.

In layman’s terms: The AML Act seeks to prevent “dirty” money from entering the general circulation. And because criminals often use the services of professionals such as attorneys, banks, or real estate agencies, the law stipulates that these professions in particular must thoroughly screen their clients.

When Does AML Apply to Legal Services?

The AML law applies to so-called “obligated entities”—such as lawyers, notaries, banks, accountants, real estate agencies, and even some online stores. Does thatsound like a broad spectrum? And that’s exactly right—the laundering of proceeds from criminal activity can take place in various settings.

For attorneys, the AML law does not automatically apply to every legal service. A lawyer is considered an obligated entity primarily when holding money, securities, or other client assets in trust, as well as when acting on behalf of or for a client in activities specified by law—such as facilitating the purchase or sale of real estate, managing money or other assets, establishing or managing a business corporation, or in certain transactions involving the movement of funds. The specific nature of the service is therefore decisive; it cannot be automatically assumed that every legal consultation or every review of a purchase agreement is automatically subject to the AML regime.

A lawyer’s obligations under the AML Act thus depend primarily on the specific legal service the client requests and whether it falls within the scope of activities defined by law.

Client identification and verification under AML are not the same thing

Client identification by a lawyer primarily involves determining and verifying the client’s identity. Client due diligence under AML goes further: depending on the specific situation and level of risk, it may include, for example, determining the purpose of the transaction, identifying the beneficial owner, examining the ownership structure, or verifying the source of funds or other assets. The scope of due diligence therefore does not have to be the same for every client.

Client Identification by a Lawyer: What Documents Might They Request?

Imagine you go to a law firm to have a contract drawn up for the purchase of an apartment. The lawyer will not only ask you for basic information but will also ask to see your ID card, determine your place of birth and citizenship, verify that the photo on the ID card actually matches your appearance, and, depending on the circumstances, may also make a copy of the document. However , there is a clear reason for this “bureaucracy”— to verify that the client is indeed who they claim to be.

In addition to basic information, services subject to AML regulations may also require a client verification process in accordance with the AML Act. A lawyer may then ask, for example, about the purpose of the transaction, the source of funds, the beneficial owner, or whether you are a politically exposed person. The scope of the required information depends on the specific service and its risk; for example, income information may not be automatically required for every client. The law establishes a stricter verification regime for politically exposed persons; however, the mere status of being a politically exposed person does not mean that the individual is suspected of illegal activity.

If a specific legal service is subject to AML obligations and the client refuses to undergo mandatory identification or fails to provide the necessary cooperation during the verification process, the attorney must refuse the transaction or business relationship.

How Identification Works in Practice

Ideally, the client meets with the attorney in person and presents an ID card or passport. The attorney verifies the client’s identity, records all information required by law, and the client signs a questionnaire. However, if a face-to-face meeting is not possible—for example, if the client lives abroad or does not have the time—the law allows for other methods of initial identification.

For example, clients can use mediated identification at a notary’s office or at a Czech POINT location, or electronic identification that meets the legal requirements. The law also recognizes other methods of remote identification; however, these require compliance with precisely defined conditions—depending on the procedure used, such as sending copies of the relevant documents, verifying a payment account, or making an initial payment from the client’s account. Simply sending a copy of an ID card and an officially certified signature cannot therefore be considered a universal method of AML identification.

From practice: Clients are sometimes surprised that for one legal service, it is sufficient to verify their identity, while for another, the attorney also asks about the source of the funds or the purpose of the transaction. This is not a matter of taking a “stricter approach” toward a specific client— the scope of the review depends on the type of service and the risks the attorney is required to assess under the AML Act.

What Is a Suspicious Transaction and When Must It Be Reported

The AML Act defines so-called suspicious transactions in the context of money laundering. This can refer to any situation where a transaction—and it need not be limited to a commercial contract—raises doubts as to whether proceeds from criminal activity are being laundered or terrorism is being financed.

Imagine that someone deposits one million crowns in cash into their account and withdraws it again on the very same day. Or that a small business owner, who normally handles cash up to one hundred thousand crowns a year, suddenly opens ten bank accounts and begins moving millions through them. Such behavior may—according to the law—be a sign of a so-called “suspicious transaction.”

Section 6 of the AML Act lists various typical examples of situations where caution is warranted. These include, for example, cases where a client conducts unusually large transactions, makes transfers without an economic rationale, or where the funds clearly do not correspond to the client’s financial circumstances. The law requires increased vigilance, for example, in transactions involving high-risk third countries. If a client, their beneficial owner, or another person defined by law is subject to international sanctions, this may directly constitute a suspicious transaction as defined by law.

A special regime applies to lawyers regarding the reporting of suspicious transactions. If a lawyer, in the course of activities falling under AML regulations, identifies a suspicious transaction and is subject to a reporting obligation, the lawyer does not file the report directly with the Financial Analytical Office (FAÚ), but rather with the Czech Bar Association. The Bar Association reviews these reports and, if the statutory conditions are met, forwards them to the FAÚ. The AML Act also protects certain information obtained while providing legal advice, defending a client, or representing a client in court; therefore, a lawyer’s reporting obligation is not absolute.

When the AML Act Does Not Apply to Legal Services

AML obligations do not apply to attorneys for all legal services without distinction. The decisive factor is whether the service provided falls within the activities listed in the AML Act. A routine legal consultation that is not related to the transfer of assets, involves no financial consideration, and does not fall under the services defined by the law therefore generally does not, in and of itself, require the attorney to identify the client under the AML Act. Consider, for example, a dispute between an employee and an employer. AML therefore does not apply to all legal services without distinction, but only to those explicitly mentioned in the law —and it is precisely in these cases that identification is required.

Why a Lawyer Must Identify You and What Happens If You Refuse

If identification or verification is mandatory for a specific service and the client refuses to identify themselves or fails to provide the necessary cooperation, the attorney must, pursuant to Section 15 of the AML Act, refuse the transaction or business relationship.

Think of it as boarding a plane without a passport —even if the flight were only twenty minutes long, security rules apply to everyone, every time. If a lawyer violates the law, they may face not only fines but also disciplinary proceedings, which pose an existential risk to their practice.

Are you planning a legal transaction involving the transfer of assets or funds? Contact our attorneys. We’ll help you prepare the contractual documentation and ensure the transaction proceeds safely, and we’ll explain in advance what AML information and documents will be required in your specific case.

What Happens to Your Data

Lawyers must protect client confidentiality and privacy—and AML obligations do not change this. The law stipulates that collected data must be retained for 10 years, either in paper or electronic form. Only authorized persons have access to this data, and it may not be used for any purposes other than those required by law.

However, this does not mean that a lawyer must automatically make a copy of an ID card every time a client is identified. The AML Act allows them to make copies of documents and, for certain methods of identification, explicitly requires them, but the specific scope depends on the method of identification and the circumstances of the case.

At the same time, this information is protected by attorney-client privilege and the GDPR. This means that no one else—neither the government nor private entities—has access to it without a lawful basis.

Summary

The AML Act imposes obligations on attorneys only in connection with specific legal services, such as holding assets in trust or certain activities related to the purchase and sale of real estate, asset management, or the transfer of funds. Client identification by a lawyer serves to verify the client’s identity, while client verification under AML may also include determining the purpose of the transaction, the beneficial owner, or the source of funds. The initial identification may take place in person or through certain remote methods, provided that the statutory conditions are met. If identification or verification is mandatory and the client refuses to cooperate as required, the attorney must refuse the transaction or business relationship. In the case of a suspicious transaction, attorneys follow a special procedure and submit any reports through the Czech Bar Association. Data obtained under the AML Act is generally retained for ten years.