AML Law: when and why a lawyer must identify you

What is the AML law and why does it exist?

The acronym AML stands for “Anti Money Laundering”. Czech legislation in this area is enshrined in Act No. 253/2008 Coll., the Act on Certain Measures against the Legalization of Proceeds of Crime and Terrorist Financing. It was adopted on the basis of European directives and international agreements, which have a common objective – to prevent the financial system from being used to launder the proceeds of crime or to finance terrorism.

In layman’s terms: the AML law seeks to prevent “dirty” money from entering into regular circulation. And because criminals often use the services of professionals such as lawyers, banks or real estate agents, it is these professions that are required by law to thoroughly vet clients.

Who is affected and when does the law come into play

The AML law applies to so-called obliged persons – for example, lawyers, notaries, banks, accountants, real estate agencies or even some e-shops. Does that sound like a broad spectrum? And rightly so – the laundering of the proceeds of crime can take place in a variety of environments.

For example, lawyers have a duty to carry out client identification and verification when they prepare contracts for the transfer of real estate or arrange attorney custody of money. It does not matter whether they actually receive the money – often it is sufficient that they prepare the transaction. A typical example is when a client asks a lawyer to review or prepare a purchase agreement. Again, this is an activity that falls under the AML Act.

What does client identification entail?

Imagine that you come to a law firm to prepare a contract for the purchase of a home. The lawyer does not just ask you for basic information, but asks for your ID card, ascertains your place of birth, citizenship, verifies that the photo on the ID card actually matches your likeness, and makes a copy of the document. But there is a clear reason for this “bureaucracy” – to verify that the client is who he claims to be.

In addition to basic information, some services also require you to fill in an AML questionnaire. This includes questions about the purpose of the transaction, the source of the funds, the average monthly income and even whether you are a politically exposed person. Yes, this is also important – the law imposes a stricter control regime on public office holders, as by the nature of their position they have more opportunities for money laundering and at the same time are held to a high ethical standard.

Without identifying the client, the lawyer cannot provide the service – the law requires him to do so.

How identification works in practice

Ideally, the client meets the lawyer in person and presents his/her ID card or passport. The lawyer verifies the likeness, records all the information required by law and the client signs the questionnaire. However, if a personal meeting is not possible – for example, the client lives abroad or there is no time – there are other options.

One of them is mediated identification at Czech POINT. The client presents documents there, the Czech POINT employee fills in the form and then sends the output to the lawyer. Another alternative is to use a bank identity if the lawyer works with it. The last option is to verify the client’s signature on the questionnaire and send it, including a copy of the ID card, by post.

What is a suspicious transaction and when to report it

The AML Act defines “suspicious transactions” in relation to money laundering. This can be any situation where a transaction – and it does not have to be a commercial contract – raises doubts as to whether the proceeds of crime are being laundered or whether terrorism is being financed.

Imagine someone deposits one million crowns in cash into their account and withdraws it again the same day. Or that a small businessman who normally works with cash of up to CZK 100 000 a year suddenly opens ten bank accounts and starts to funnel millions through them. Such behaviour can – according to the law – be a signal for so-called “suspicious business”.

The AML Act, in Section 6, lists various typical examples of when to be cautious. These include cases where the client makes unusually large transactions, transfers without economic reason or where the funds are clearly not in line with the client’s means. Particularly rigorous assessment is required for transactions with persons from countries that do not apply anti-money laundering standards or persons on sanctions lists.

In such cases, obliged persons, such as a lawyer, have not only the right but also the duty to enquire, verify and, in case of ambiguity – if the suspicion cannot be reasonably refuted – to report the transaction to the Financial Analysis Authority (FAA). Importantly, notification does not automatically mean suspicion of a crime – it is a preventive measure to avoid the misuse of legitimate services for illegal purposes.

When a lawyer may not require identification

Although AML identification is mandatory in most cases, there are situations where a lawyer does not have to make it. Typically, these are cases where the client uses legal services that are not listed in Section 2 of the AML Act – i.e. services that do not pose a risk of laundering the proceeds of crime.

For example, if a client orders a routine legal consultation that is not related to the transfer of assets, does not have any financial benefit, or does not fall under the services defined by the Act, the lawyer does not need to make the identification. For example, imagine a dispute between an employee and an employer. Thus, AML does not apply to all legal services indiscriminately, but only to those specifically mentioned in the law – and it is in these cases that identification is necessary.

Why a lawyer generally cannot provide a service without identification

There is no room for compromise here – if the client refuses to cooperate and fails to provide the requested information, the lawyer cannot provide the service under Section 9 of the AML Act. This is not an abundance of caution or company policy, but a legal obligation.

Think of it like getting on a plane without a passport – even if the flight is only twenty minutes long, the security rules apply to everyone, all the time. If a lawyer breaks the law, he or she could face not only fines but disciplinary action, which is an existential risk.

What happens to your data

Lawyers must protect client confidentiality and privacy – and AML obligations don’t change that. The law states that the data collected is retained for 10 years, either in paper or electronic form. It can only be accessed by authorised persons and may not be used for any purpose other than those required by law.

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