AML for Asset Managers: Proving Clients’ Source of Funds Under KYC/CDD/EDD

JUDr. Jakub Dohnal, Ph.D., LL.M.
JUDr. Jakub Dohnal, Ph.D., LL.M.
3.6.2026 | ARROWS law firm

Asset managers acting for third parties are facing increasing pressure due to stringent AML obligations and international regulation. Demonstrating the origin of a client’s funds is now crucial to prevent transaction blocks, fines, and reputational damage. 

In the image, we see a lawyer addressing the issue of AML obligations of asset managers.

Key takeaways for wealth managers in practice

Most wealth managers fall within the category of so-called obliged entities under Act No. 253/2008 Coll., on certain measures against the legalization of proceeds of crime and the financing of terrorism (the “AML Act”), and must therefore systematically identify and assess the source of clients’ funds and assets. 

The Act as well as the methodologies of the Czech National Bank and the Financial Analytical Office place emphasis on conclusive, retrospectively verifiable evidence – typically tax returns, income confirmations, purchase agreements, extracts from the Real Estate Cadastre, loan agreements, inheritance decisions, gift agreements, and bank statements capturing the flow of funds.

A formal client declaration is not sufficient; especially for larger amounts, politically exposed persons (PEPs), clients from high-risk jurisdictions, or complex structures, so-called enhanced due diligence (EDD) is expected, i.e., deeper verification of the source of wealth, the beneficial owner, and any links to sanctioned persons or international risks.

Wealth managers who underestimate these processes risk not only fines, which may reach tens or hundreds of millions of Czech crowns, but also the blocking of the client’s funds, the obligation to report a suspicious transaction to the Financial Analytical Office (FAÚ), tax audits following AML findings, and, in extreme cases, criminal liability for aiding the legalization of proceeds of crime.

The attorneys at ARROWS, a Prague-based law firm, have long specialized in setting up AML and KYC processes for wealth managers, trust funds, investment platforms, and real estate structures, and in practice they address not only regulatory requirements but also their impact on the business model, relationships with banks, tax planning, and cross-border aspects.

If you need to set up or review processes for proving clients’ source of funds so that they withstand scrutiny by a bank, the FAÚ, the Czech National Bank, and the tax authorities, it is safer to handle everything with specialists rather than improvising based on general recommendations.

Who is a “wealth manager” and why the client’s source of funds is key

The concept of a wealth manager has a broader meaning under Czech law and international standards than it may seem at first glance. The Civil Code (Act No. 89/2012 Coll., as amended) regulates the administration of another person’s property as a legal institute in Sections 1400 to 1446, including the distinction between simple and full administration and the administrator’s duties to act with due managerial care, personally, impartially, and in the interests of the beneficiaries.

The administrator is also obliged to keep their own assets separate from the entrusted assets, maintain clear records, and prevent commingling, so that it is always possible to distinguish what belongs to them and what belongs to clients; this obligation is expressly emphasized both in Czech legislation on the administration of another person’s property and in international recommendations for fiduciaries. 

In practice, however, the label “wealth manager” also covers a wide range of entities that special regulations classify as so-called obliged entities under the AML Act – banks, securities traders, investment companies, real estate agencies, attorneys holding client funds or administering trust funds, providers of services for legal entities and trust funds, and other entrepreneurs who handle clients’ assets.

It is precisely for these entities that two dimensions overlap: private-law liability for proper asset administration (including liability for damages towards beneficiaries and clients) and public-law obligations in the area of preventing the legalization of proceeds of crime and the financing of terrorism (AML/CFT), tax cooperation, and international sanctions. 

A wealth manager therefore can no longer view “source of funds” merely as an internal risk factor, but must actively meet statutory requirements for identifying and documenting the source of the money and assets they handle. This includes not only the obligation to identify and verify the client (KYC), but also the ability to demonstrate to regulators that the measures adopted were proportionate to the risk and that the wealth manager did not enable money laundering or the circumvention of sanctions.

Risk profile of wealth management from an AML and tax perspective

Wealth management is typically associated with a higher risk of misuse for money laundering or terrorist financing, because it often involves larger volumes of assets, more complex ownership structures, and transfers across multiple jurisdictions. The FATF and European authorities have long emphasized that the anonymity of the beneficial owner and an opaque source of funds are the main risk factors on which national legislation and supervisory authorities should focus. 

This is also reflected in Czech regulation: the AML Act requires obliged entities, in relation to clients – legal entities and legal arrangements – to identify the beneficial owner under the Act on the Register of Beneficial Owners (Act No. 37/2021 Coll., as amended, the “ZESM”) and to use both the Register of Beneficial Owners and other sources.

From a tax perspective, it also applies that a more significant mismatch between declared income and an increase in assets may lead to proceedings to prove the origin of assets and to an additional tax assessment based on estimates if the taxpayer cannot document a lawful source of funds. Information from banks, the financial market, and the FAÚ is an important trigger for the tax authorities – for example, a report from the FAÚ or a bank report under the international CRS or FATCA standards may be a direct impetus to initiate tax proceedings. Wealth managers therefore face dual pressure in practice: on the side of banks and supervised institutions, a requirement for complete AML documentation, and on the side of clients, an expectation that structures and transactions will not trigger tax disputes or criminal suspicion.

In precisely this situation, it makes sense for wealth managers to set up processes so that information on the client’s source of funds is obtained in a timely manner, in sufficient scope, and in a form that will stand up both to a bank and to the tax authorities or the FAÚ. The attorneys at ARROWS, a Prague-based law firm, therefore typically recommend to wealth manager clients that they do not treat AML processes as a “separate compliance world”, but integrate them into the business model, contractual documentation, and internal risk management – including tax impacts, reputational risks, and cross-border aspects.

Legal and regulatory framework for proving source of funds in the Czech Republic

The key piece of legislation is Act No. 253/2008 Coll., on certain measures against the legalization of proceeds of crime and the financing of terrorism, which implements European AML directives and FATF international standards. This Act defines the group of so-called obliged entities (Section 2(1)), which includes a wide range of subjects: banks, other financial institutions, real estate agencies, attorneys, notaries, court bailiffs, accountants and tax advisers, providers of services for legal entities and trust funds, and others. 

Recent amendments have additionally expanded the scope of obliged entities to include precisely those providing services for legal entities and trust funds, which in practice also affects family office structures, nominee service providers, and similar asset managers.

Obliged entities must adopt a set of so-called AML obligations, which include in particular client identification and verification, identification of the beneficial owner, ongoing monitoring of the business relationship, risk assessment, reporting of suspicious transactions, keeping and archiving records, and an internal system of policies, procedures, and control measures. 

The Act emphasizes that these obligations cannot be “completed retroactively”; they must be fulfilled for every transaction carried out by an obliged entity, otherwise it risks not only sanctions but also an obligation not to execute the transaction or to postpone fulfilling the client’s instruction. For asset managers, this means that without fulfilling AML obligations they should not take a client’s assets into management, make an investment, or, for example, broker a real estate transfer.

Client identification and verification obligations (KYC/CDD)

The AML Act distinguishes two basic levels: client identification (Section 5) and client verification (Section 7). Identification is the first step—an obliged entity must obtain and verify the client’s basic identification details (for natural persons in particular name, date of birth, address, nationality; for legal entities name, company ID number, registered office, statutory bodies) based on an identity document or other reliable documents. Financial institutions often make a copy or scan of the identity document in this process.

Client verification (KYC, Customer Due Diligence) is the second step and consists in obtaining additional information about the client, the purpose and nature of the business relationship, the ownership and management structure of legal entities, the beneficial owner, and the source of funds and other assets to which the transaction relates (Section 7(2)(g)). The Act requires client verification in particular before establishing a business relationship and for one-off transactions above a specified financial threshold, but also in other situations, for example if the client is from a high-risk country or is a politically exposed person. 

Financial institutions are required to continuously monitor transactions and verify that they are consistent with what they know about the client—if discrepancies arise, they must carry out enhanced due diligence, potentially refuse the transaction, and consider reporting a suspicious transaction to the FAÚ (the Czech Financial Analytical Office).

Client verification therefore inevitably raises the question of the source of funds. The AML Act does not directly list specific types of documents, but it requires the obliged entity to obtain information on the source of funds and other assets to which the transaction relates, and for this information to be proportionate to the risk and to allow a conclusion to be drawn as to the lawfulness of the transaction. In practice, we therefore rely on methodologies issued by supervisory and sectoral authorities (the Czech National Bank, the FAÚ, professional chambers), which specify what is considered sufficient evidence of the source of funds.

Identifying the beneficial owner and the register of beneficial owners

For legal entities and legal arrangements (including trust funds, foundations, institutes), a key element of client identification and verification is identifying the beneficial owner. The concept of the beneficial owner (BO) is defined in the AML Act by reference to the Act on the Register of Beneficial Owners (Act No. 37/2021 Coll., as amended, hereinafter the “ZESM”), which defines the beneficial owner as a natural person who ultimately owns or controls a legal entity or legal arrangement. 

The ZESM distinguishes between a material, formal, and substitute beneficial owner depending on whether the status is based on actual ownership or merely on the performance of a certain function; for legal arrangements such as trust funds, the BO is typically derived from the position of the settlor, the trustee, and the beneficiaries.

The register of beneficial owners is maintained by the Ministry of Justice and serves as a basic tool for transparency of ownership structures. As of December 2025, public access to the register for the general public was restricted; access remains available to so-called registering persons and privileged entities, in particular obliged entities under the AML Act and public authorities—for example, attorneys acting as obliged entities or financial institutions. 

Obliged entities now also have a duty to report discrepancies between the information provided by the client and the entry in the register of beneficial owners—if the client does not remedy the discrepancy within a reasonable period, the obliged entity must inform the court maintaining the register, otherwise it faces a fine of up to CZK 500,000.

Identifying the beneficial owner is also essential for asset managers from the perspective of proving the source of funds: not only is it necessary to know who is actually the beneficiary of the assets, but it is often necessary to document the origin of the entire assets in the hands of the ultimate owner, not merely the funds used in a particular transaction. This is particularly important for trust funds, trust structures, or complex holdings, where the tax authorities or banks may examine the economic rationale of the structure, the presence of PEPs, or links to sanctioned persons.

Sanctions, fines, and the risk of a ban on activity

Breaches of AML obligations are associated with severe sanctions. The AML Act (Section 52) and the related amendment to the sanctions regime provide for the possibility of fines in the tens to hundreds of millions of Czech crowns, particularly in cases where an obliged entity fails to establish an internal system of policies, fails to properly identify and verify the client, fails to assess or report a suspicious transaction, fails to keep records, or fails to provide cooperation to the FAÚ. 

For financial institutions, the fine for failure to comply with group AML strategies and procedures may reach up to CZK 130 million (Section 52(2)(a)); a similar amount also applies if a member of the statutory body responsible for fulfilling AML obligations is not designated (Section 52(2)(b)). The most severe administrative penalty may also be a ban on activity (Section 52(2)(d)), which is essentially fatal for asset managers.

In addition to administrative sanctions, there is also a criminal-law dimension: breaches of international sanctions (a criminal offence under Section 261a of the Criminal Code) or aiding the legalization of proceeds of crime (a criminal offence under Section 218 of the Criminal Code) may lead to criminal liability of both legal and natural persons, including a ban on activity and forfeiture of assets under Act No. 418/20011 Coll., on the criminal liability of legal entities and proceedings against them. 

For assets subject to international sanctions, there is also a specific obligation not to dispose of such assets other than for the purpose of their protection, and anyone who discovers that they hold assets subject to sanctions is obliged to report this to the competent authority. An asset manager who would handle such assets in breach of sanctions exposes themselves not only to regulatory sanctions but also to the risk of criminal prosecution.

ARROWS advokátní kancelář therefore recommends to clients acting as asset managers that they do not treat the question of the source of funds as a “soft” reputational factor, but as a hard regulatory and criminal-law parameter that determines the very sustainability of their business. In practice, this means having not only formally drafted internal policies, but also a truly functional system that identifies risky clients and transactions in time, performs enhanced checks, and ensures documentation capable of withstanding scrutiny by a supervisory authority or a court.

Which documents and information prove the source of funds in practice

The Czech National Bank (ČNB) has taken a clear position on proving the source of funds, which serves as an important reference point for banks and the wider financial sector in the Czech Republic, including asset managers and investors entering regulated entities. As the basic method of credibly documenting the source of funds, the ČNB considers a tax return or, in the case of individuals who are employees, an income confirmation certified by the employer.

The content of tax returns and income documents, together with other submitted documents, should demonstrate a sufficient amount of duly acquired funds that are adequate for the specific investment, capital contribution, or acquisition of a share in a company.

In addition to tax returns, the ČNB lists as typical supporting documents financial statements for legal entities (ideally audited where an audit is mandatory), real estate sale agreements supported by an extract from the Real Estate Cadastre, loan agreements, terms and conditions of securities issues, agreements for the sale of securities or shares in companies, court decisions in inheritance proceedings, gift agreements together with proof of gift taxation, and agreements for the sale of movable assets or documents evidencing winnings. The aim is to prove the “initial historical origin” of the funds—i.e., not only the last transaction, but also how the transferor originally acquired the asset, and whether the gift or loan was lawful and taxed.

This methodology is not legally binding for all situations, but banks and other financial institutions follow it extensively in practice, and it thus de facto becomes a standard for a broader range of asset managers. Real estate agencies, for example, commonly require, when selling real estate, proof of the buyer’s source of funds, which may consist of a loan agreement, a decision on the payment of a profit share, tax returns, or income confirmations; without these documents, they must not carry out the transaction. 

Trust fund trustees and investment advisers always risk that the bank through which the funds flow will block the transaction if the source of funds is not proven to the standard expected under banks’ methodologies and the ČNB’s positions.

Typical sources of funds and corresponding documentation

In practice, we most often encounter several typical scenarios in which a client contributes funds to a trust fund, an investment portfolio, a real estate project, or other asset management. For each of these, the asset manager should know which documents to request so that the source of funds can be considered credibly documented.

If the funds come from employment income or business income, the basic documents are usually tax returns for the relevant period, income confirmations from the employer, and bank statements showing regular income. For entrepreneurs and legal entities, the key document is the financial statements, or an audited set of financial statements, demonstrating profit and the creation of available funds; in some cases, a decision on profit distribution or another corporate document explaining how the funds were released may also be relevant. 

In the case of a real estate sale, the standard is a purchase agreement supported by an extract from the Real Estate Cadastre, supplemented by bank statements proving receipt of the purchase price and, where applicable, the prior acquisition of the property (for example, a previous purchase agreement or gift agreement).

For inheritance, the key document is typically the court decision on inheritance and, where applicable, the subsequent settlement among heirs; for gifts, it is the gift agreement and documents proving that the gift was duly taxed at the time it arose, or that it was tax-exempt income under specific tax rules. 

If the transaction was financed by a loan from a bank or another regulated institution, the loan agreement together with confirmation of drawdown and subsequent repayment may serve as a legitimate source of funds; however, it is necessary to prove the origin of the funds used for repayment, especially where unusual amounts are involved. In cases of winnings, insurance payouts, or other extraordinary income, it is necessary to provide a document from the lottery organizer or insurer, including information on when and in what amount the payout was made.

The asset manager should also always monitor whether the documentation truly proves the entire path of the funds—i.e., whether not only the type and legal title of the income are clear, but also the flow of money through accounts and, where applicable, the economic rationale of the operations. Especially in cases where the client claims that the assets were financed from long-term savings, a mere affidavit is not sufficient; the tax authorities and banks typically require historical bank statements and other evidence that the savings were legally acquired and taxed in the past.

Documentation of the source of wealth for higher amounts and for high-risk clients

For larger volumes of funds, politically exposed persons (PEPs), clients from high-risk third countries, or clients with a complex ownership structure, so-called enhanced due diligence (EDD) applies—i.e., enhanced checks that go beyond standard KYC. 

EDD typically requires deeper verification of the source of wealth and the source of funds for the specific transaction, analysis of adverse media information, sanctions list screening, and thorough documentation of all findings.  For PEPs, there is additionally an obligation to ascertain the origin of all assets, not only the funds used in a specific transaction (§ 9(2)(b) of the Czech AML Act), and the decision to establish a business relationship should be approved at a higher management level.

In these cases, standard tax returns or a single agreement are no longer sufficient; the asset manager should collect a broader portfolio of documents and information, including historical data on the client’s career, business activities, company ownership, investments, and significant transactions. 

A key role is also played by identifying the beneficial owner of the legal entities through which the client acts, and verifying whether any person in the management or ownership structure is on a sanctions list or is a PEP. In practice, EDD uses specialized databases, screening tools, and international registers, as well as access to the beneficial owners register available to obliged entities.

For asset managers, this means they must have clear internal rules for when a case is no longer a standard client check, but one where it is necessary to escalate to the EDD regime, involve compliance, lawyers, and, where appropriate, external advisers. 

Lawyers from ARROWS advokátní kancelář in these situations often combine an AML legal analysis with a tax perspective and an assessment of international sanctions risks, so that the client—an asset manager—knows whether the transaction can be carried out safely, which records must be retained, and how to argue, if necessary, during an inspection by the FAÚ (Financial Analytical Office), the ČNB, or the tax authorities.

Most common questions about documents proving the source of funds

1. Is a client’s affidavit that the funds come from lawful sources sufficient?
The answer is essentially no – the AML Act and supervisory methodologies require conclusive, verifiable evidence; an affidavit may serve as a supplementary document, but it cannot replace tax returns, contracts, bank statements, and other documents proving the actual historical origin of the funds.

2. What if the client claims the funds come from savings from previous years but no longer has all historical documents available?
In such a case, it is appropriate to combine the available evidence – for example older tax returns, income confirmations, account statements, and other records – and at the same time realistically assess whether the claimed amount of savings corresponds to the documented income and the client’s lifestyle; the Financial Administration of the Czech Republic and banks also confirm in case law that a mere assertion without adequate documentation will not stand.

3. Is it necessary to document the origin of funds even for smaller transactions and lower amounts?
The AML regime is based on the risk-based approach – for small, standard transactions with a low-risk client profile, basic identification and checks are sufficient; however, if the obliged entity perceives the transaction as suspicious (for example due to inconsistency with the client’s profile, their past transactions, or information from the media), it is required to verify the origin of funds more thoroughly regardless of the nominal amount.

Specific asset management issues: trust funds, fiduciaries, sanctions

Trust funds and similar legal arrangements are particularly sensitive from the perspective of AML and proving the origin of funds. FATF expressly recommends that states increase the transparency of trust structures, including the identification of settlors, trustees, beneficiaries, and the ultimate beneficial owners of the assets in the fund. 

The Czech regulation of trust funds, which is based on the Civil Code (Section 1447 et seq.), emphasizes that the assets in the fund constitute a separate pool that is not part of the trustee’s assets; the trustee is obliged to manage the assets with due managerial care (Section 1410), separately from their own assets and the assets of other managed structures.

From an AML perspective, trust funds are among the legal arrangements for which it is necessary to identify the ultimate beneficial owner under the Act on the Register of Beneficial Owners (ZESM); typically, this will be the settlor, the trustee, and the beneficiaries in the material sense, or other persons with decisive influence (Section 5(1)(f) ZESM). 

The latest amendment to the AML Act has also expressly included among obliged entities those providing services to legal entities and trust funds. When contributing assets to a trust fund, it is therefore essential to document the origin of the contributed funds very carefully, including their historical source and taxation, because the Financial Administration of the Czech Republic and banks in practice often challenge the economic rationale of the fund and require conclusive documentation.

If a trust fund is not duly registered in the register of trust funds, it does not come into existence and the assets are not separated from the settlor’s assets (Section 1475(2) of the Civil Code), which may lead to additional tax assessments, penalties, and a total absence of the asset protection the settlor originally intended. 

The trustee is also responsible for proper management of the fund’s assets and may be sued personally for damages, for example if they participate in transactions with an obviously inflated price or fail to carry out the necessary due diligence of the counterparty; in extreme cases, a court may require compensation for damages even from the trustee’s personal assets. In AML terms, this means that the trustee must combine fiduciary duties with the duties of an obliged entity – i.e., protect the beneficiaries while also fulfilling the state’s and regulators’ anti-money laundering prevention tasks.

Attorneys and other professional asset managers

Attorneys may, in certain situations, act as administrators of third-party assets, for example in attorney escrow, the administration of a trust fund, the structuring of asset-holding arrangements, or the provision of comprehensive services for HNWI clients. The AML Act classifies attorneys as obliged entities for a certain range of activities (Section 2(1)(f) and (g)), in particular if they undertake to provide material assistance, support, or advice in tax matters as the main subject of their activity, or if they perform activities expressly listed in the AML Act (for example the formation of legal entities, the management of client funds, participation in financial transactions). 

The Czech Bar Association has issued methodological guidelines emphasizing that an attorney must have a system of internal rules and AML risk management, based on a risk-oriented approach, and that the purpose of client identification is to exclude anonymity, false identity, or misuse of legal services.

An attorney also has a specific position in relation to international sanctions. Under Act No. 69/2006 Coll., on the Implementation of International Sanctions, anyone who credibly learns that they hold assets subject to international sanctions is obliged to notify the competent authority and, at the same time, is obliged not to dispose of such assets other than for the purpose of protecting them from loss, depreciation, or destruction. In addition, as part of AML checks, attorneys are required to determine whether the client or a person in its ownership or management structure is subject to sanctions, and if so, to report this to the FAÚ (the Czech Financial Analytical Office), even if no contractual relationship has yet been established.

A person who holds sanctioned assets is also entitled to reimbursement of necessary costs associated with the administration and protection of such assets, which may be claimed against the state; this is significant for attorneys and other administrators who may be forced to “hold” such assets under a restricted regime. 

ARROWS advokátní kancelář, which is itself an obliged entity and also provides advice to other asset managers, therefore pays special attention to attorney training and the internal setup of AML processes so that attorney-client confidentiality is preserved while statutory obligations to report sanctioned assets and suspicious transactions are also met. In practice, it is often necessary to address how to balance the client’s interest in discretion with the attorney’s duty not to participate in transactions that could be classified as money laundering or sanctions circumvention.

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International sanctions and the management of assets of sanctioned persons

In practice, an asset manager may be confronted with a situation where they discover that part of the assets they manage is subject to EU or UN international sanctions – typically in connection with Russian sanctions after 2014 and their expansion after 2022. EU Council Regulations restrict, for example, the acceptance of deposits from Russian nationals exceeding a specified limit and prohibit making funds or economic resources available to persons listed on sanctions lists, directly or indirectly, including returning their own resources. A branch of a Russian company in the EU is considered an entity established in Russia, so the restrictions also apply to such structures.

European and Czech legislation imposes on entities in the EU an obligation to “freeze” the assets of sanctioned persons and prevent them from being made available, while knowing and intentional participation in a breach of sanctions constitutes a criminal offence (Section 261a of the Criminal Code) or an administrative offence.

 For asset managers, this means that if they identify that a client or beneficial owner is on a sanctions list, they must immediately reassess the business relationship, suspend transactions, notify the competent authority (in the Czech Republic typically the FAÚ – the Financial Analytical Office, or the Ministry of Finance, or the authority designated under the Act on the Implementation of International Sanctions), and put in place a regime under which the assets are only protected against depreciation, rather than being actively managed or liquidated. The law (Section 4c of the Act on the Implementation of International Sanctions) also establishes the manager’s entitlement to reimbursement of necessary costs related to the administration of sanctioned assets, which may be claimed against the state so that the manager is not financially penalized for fulfilling statutory obligations.

The greatest practical risk for asset managers is that it may not be obvious at first glance that the client or beneficial owner is a sanctioned person – it may be a person in the ownership chain, a controlling person, or a person acting jointly with other entities. 

Therefore, it is essential to use high-quality sanctions screening, work with beneficial ownership, and have processes in place for an immediate response in the event of a positive match. ARROWS, a Prague-based law firm, assists clients in this area both with legal analysis of specific sanctions regimes and with setting up internal procedures so that they can respond quickly and in a legally secure manner to identified sanctions risk.

Internal setup for asset managers: processes, records, risks

The AML Act imposes on obliged entities the duty to prepare a system of internal policies, procedures and control measures (Section 21) and a separate risk assessment (Section 21a), which must be tailored to the nature of their business. An asset manager should therefore not rely on generic “template” rules, but should have documentation that reflects the specific types of clients, asset structures, products and jurisdictions they work with. The system should also include a clear allocation of responsibilities – who performs client identification and verification, who decides on assignment to risk categories, who approves EDD cases, and who serves as the contact person for the FAÚ.

An asset manager must also appoint a member of the statutory body who will be responsible for fulfilling AML obligations (Section 21(4)); if they fail to do so, they expose themselves to the risk of high fines, which may reach up to CZK 130 million, especially if they are part of a group that should have a unified AML strategy. 

Obliged entities are also required to provide regular employee training (Section 22) and keep records of such training so they can demonstrate that employees understand AML obligations and can apply them in practice. This is particularly important for asset managers, where the KYC/CDD process often involves multiple people – front office, relationship managers, investment analysts and compliance.

Records, archiving and inventorying of assets

In addition to AML records, asset managers must also pay attention to general records of managed assets. Methodologies of the Ministry of Finance emphasize that proper asset administration presupposes unified and rationalized record-keeping that makes it possible at any time to obtain an overview of the volume, structure and condition of assets. Records should be complete – capturing all owned and managed assets – and regularly checked through inventorying, which verifies whether the records correspond to the actual state, whether there are any shortages or surpluses, and whether asset values, their location and any impairment are correctly recorded.

For asset managers who handle assets of multiple clients, it is crucial to prevent commingling of assets and ensure that it is always possible to unambiguously determine which asset belongs to which client or fund (Section 1405 of the Civil Code). This requires clear internal rules, access-right settings for records, cross-check mechanisms, and limiting the possibility of unauthorized changes or deletion of data. From an AML perspective, such records are the basis for demonstrating how the manager handled the client’s funds, what transactions were carried out, and how the manager ensured that no unauthorized transfer or misuse occurred.

Asset managers’ archiving obligations arise not only from the AML Act (typically retention of records for at least five years), but also from accounting and tax regulations, which set different retention periods for accounting documents, accounting books, inventory lists, financial statements, VAT tax documents and other documents. 

Under the Accounting Act (Act No. 563/1991 Coll.), entrepreneurs and companies keeping accounts must, for example, retain accounting documents, accounting books and other accounting records for at least five years, financial statements and annual reports for ten years, and in the case of employees also payroll records for a very long period (typically 45 years due to pension insurance under Act No. 582/1991 Coll., on the organization and implementation of social security). Asset managers must therefore align AML archiving with general business documentation and ensure that, in the event of an inspection, they can present a comprehensive picture of transactions and the origin of funds.

Possible issues

How ARROWS helps (office@arws.cz)

Insufficient documentation of the origin of a larger client deposit: the bank or regulator challenges the transaction, there is a risk of funds being frozen and a report to the FAÚ

Comprehensive setup of processes for evidencing the origin of funds: we will prepare template documentation requests, help assess the specific case, and represent the asset manager in dealings with the bank, the FAÚ or the Czech National Bank (ČNB), including preparing a legal opinion on the acceptability of the documents.

High-risk client (PEP, offshore structure, links to high-risk jurisdictions): missing EDD and subsequent discovery of links to corrupt or sanctioned assets

Implementation of an EDD regime: we will set internal policies for working with high-risk clients, assist with specific due diligence checks, sanctions and PEP screening, prepare a decision-making framework for accepting or rejecting a client, and address the contractual documentation.

Formal AML policy without real practical application: risk of a high fine and a ban on activity during an inspection

Review and implementation of the AML system: we will assess existing documents and processes, propose internal policies that are practically applicable, provide training for management and employees, and set up reporting to the FAÚ as well as internal control mechanisms.

Unclear status of a trust fund and its trustee: risk that the fund is not established, additional tax assessments, and the trustee’s personal liability

Comprehensive service for trust funds: we will prepare or review the fund deed, ensure proper registration in the register of trust funds, set procedures for contributing assets including evidencing the origin of funds, and assist with communication with banks and the financial administration.

International sanctions risk in asset management: unintended handling of the assets of a sanctioned person and risk of criminal prosecution

Sanctions compliance and defense: we will analyze sanctions regimes, set up screening and internal processes for handling sanctioned assets, represent the asset manager in communications with the competent authorities, and prepare a defense in administrative or criminal proceedings.

Final summary

Asset managers acting for third parties now operate in an environment where the question “How do we evidence the origin of a client’s funds?” is no longer a technical detail, but a strategic issue that affects the very ability to do business. The Czech AML Act, European FATF and CRS standards, the establishment of the new AMLA authority, the tightening of sanctions regimes, and the strengthening of the Financial Administration’s powers in proving the origin of assets together create a framework in which asset managers are expected to demonstrate a high level of professionalism, transparency and documentation discipline. Formal KYC is not enough; it is necessary to have a system that can identify high-risk clients and transactions in time, request adequate documentation on the origin of funds, assess it, and—if there are doubts—refuse the transaction or report it as suspicious to the FAÚ (the Czech Financial Analytical Office).

For entrepreneurs, investors, family offices, trustees, real estate companies and attorneys, this means they should pay close attention to setting internal policies, risk assessment, employee training, asset records and archiving policies. A well-designed system for evidencing the origin of funds protects not only against regulatory fines and criminal liability, but also against additional tax assessments, reputational damage and blocked transactions that can derail entire projects or investments. At the same time, it can be a strong argument in negotiations with banks and other partners, who increasingly assess counterparties based on their compliance culture as well.

If you do not want to risk your organisation paying the price for underestimating AML and evidencing the origin of clients’ funds, it is sensible to entrust the setup and review of these processes to experts. The lawyers at ARROWS advokátní kancelář combine experience in designing systems for banks, investment companies, trust funds and non-financial businesses, understand the tax, sanctions and international context, and can help clients both with complex projects and with resolving specific disputed transactions or inspections. If you are considering a review of your processes or are dealing with a specific transaction that raises questions about the origin of funds, you can contact ARROWS advokátní kancelář at any time via office@arws.cz.

FAQ: the most common questions on evidencing the origin of a client’s funds by an asset manager

1. As an asset manager, do I always have to request the client’s tax return, or are other documents sufficient?
A tax return is considered, according to the Czech National Bank’s position, to be a basic document evidencing the origin of funds, especially where it concerns income from employment or business, and in combination with other documents (contracts, bank statements, financial statements) it can provide a sufficient picture of the lawful source of assets. In some cases, other documents may be more relevant, such as a probate decision, a deed of gift, a real estate purchase agreement or a loan agreement, but it is always necessary to assess whether the set of submitted documents truly proves the historical origin of the funds to the required extent. If you are unsure which documents to request in a specific case, it is advisable to consult the approach with the lawyers at ARROWS advokátní kancelář via office@arws.cz.

2. What should I do if the client refuses to provide documents on the origin of funds, claiming they no longer have them or do not want to “expose their privacy”?The Czech AML Act and sector methodologies are clear in this respect: if an obliged entity cannot perform client identification and due diligence to an extent corresponding to the client’s risk profile, it must not establish a business relationship or carry out the transaction, and in some cases it must assess the situation as a suspicious transaction and report it to the FAÚ. The argument that the client does not want to share private information cannot override the asset manager’s statutory obligation; in practice, it is important to explain to the client in an understandable way that this is a legal requirement intended to protect both the manager and the client from suspicion of money laundering. If you are considering terminating the relationship or reporting a suspicious transaction, it is advisable to consult the procedure with ARROWS advokátní kancelář, which will help you set a legally safe approach—you can contact them at office@arws.cz.

3. Is it enough that the client has passed KYC at a bank, so I no longer have to do my own KYC/CDD?
No. An obliged entity is always responsible for its own client identification and due diligence under the Czech AML Act and cannot be relieved of this responsibility by referring to KYC performed by another entity, such as a bank. The bank’s KYC results may be a useful source of information if you have them available, but they cannot replace your own process, which must be tailored to your business, the client’s risk profile and the specific transaction. If you are unsure how to set up a KYC process so that it is effective while not discouraging clients, you can use a consultation with the lawyers at ARROWS advokátní kancelář via office@arws.cz.

4. How long do I have to retain documentation on the origin of funds and KYC materials?
AML regulations typically require retaining data obtained during client identification and due diligence for at least five years from the termination of the business relationship or the execution of the transaction, while in practice financial institutions often retain such data for ten years to align AML obligations with other regulatory and tax time limits. Accounting and tax regulations then set specific retention periods for accounting documents, accounting books, financial statements and tax documents, which usually range between five and ten years, and in some cases even longer (for example, payroll records for up to 45 years due to pension insurance under Act No. 582/1991 Coll., on the organisation and implementation of social security). If you need to set an archiving policy that meets all legal requirements while remaining practically manageable, we recommend contacting ARROWS advokátní kancelář via office@arws.cz.

5. How should I proceed if I find that the client or the beneficial owner is on a sanctions list or has links to a sanctioned person?
In such a case, it is essential to immediately stop any handling of assets that would result in making funds or economic resources available to a sanctioned person, “freeze” the assets, and inform the competent authorities—in the Czech Republic typically the FAÚ or the authority competent under the Act on the Implementation of International Sanctions. The law prohibits knowing and intentional breaches of sanctions and such conduct may constitute a criminal offence; at the same time, it grants the person holding the assets a right to reimbursement from the state for necessary costs associated with administering and protecting those assets. Given the high sensitivity of sanctions matters and the potential criminal-law implications, we recommend consulting the specific procedure without delay with ARROWS advokátní kancelář, which has practical experience with sanctions regimes—you can contact us at office@arws.cz.

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 400,000,000. To verify the current wording of the regulations and their application to your specific situation, it is necessary to contact ARROWS Law Firm directly (office@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.

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