Luxury Goods Imports: Origin Risks Under AML and Sanctions Compliance

JUDr. Jakub Dohnal, Ph.D., LL.M.
JUDr. Jakub Dohnal, Ph.D., LL.M.
6.3.2026 | ARROWS law firm

If you import luxury goods, the origin of the goods is not merely a commercial and customs matter, but becomes a key issue in anti-money laundering compliance and adherence to international sanctions. A false declaration of origin, complex supply chains, and insufficient due diligence of business partners can expose you to sanctions, substantial fines, additional customs assessments, and, in extreme cases, criminal prosecution in the Czech Republic. This article will show you what specific legal risks you may face and how to avoid them effectively.

The photograph shows an expert in the import of luxury goods.

Quick summary

  • The origin of luxury goods is a key compliance issue under Czech law. A misleading declaration of origin is used to circumvent customs duties, anti-dumping measures, and international sanctions. The Czech Customs Administration and the Financial Analytical Office (FAÚ) monitor this closely.
  • Managing supply chains via third countries is risky. Shipping and transshipment through countries such as Malaysia, Vietnam, or Thailand creates room to conceal the true origin and illegal financial flows.
  • You lack sufficient due diligence. Many importers rely on formal information from suppliers without verifying the facts—this is exactly what inspections focus on.
  • Sanctions can be business-ending. In addition to additional customs assessments and penalties, you may face forfeiture of goods, fines in the millions of Czech crowns, and criminal liability of both legal entities and individuals.

What AML and sanctions issues actually are

Money laundering and breaches of international sanctions are not abstract threats. In the luxury goods trade, they are a reality that regulators actively monitor in the Czech Republic and across the EU. Understanding the link between the customs origin of goods, sanctions rules, and AML compliance is now essential for every importer.

Luxury goods such as watches, jewellery, precious metals, art, or antiques have characteristics that make them suitable for laundering proceeds of crime. High value, easy transport, and the existence of a secondary market create an environment where illegal funds can appear to be legitimate assets.

Complications arise at the moment of import, when you purchase goods from a supplier in Thailand and declare that they are of Thai preferential origin. If, however, they actually originate from China or Russia, you are committing a serious breach of regulations.

Regulators view such conduct as a signal of potential sanctions evasion or money laundering. The main supervisory authorities include the Czech Customs Administration and the Financial Analytical Office (FAÚ); at the European level, OLAF.

The origin of goods determines the customs duty rate and the application of trade policy measures. Goods from China may be subject to anti-dumping duty, while goods from Russia may be subject to a complete import ban.

If someone falsely declares the origin, they not only underpay customs duty, but may also breach the Czech Act on the Implementation of International Sanctions. This conflicts not only with customs rules, but also with AML requirements, if funds from illegal activity are used or if sanctioned entities are financing the transaction.

Czech authorities now expect importers not to be merely passive recipients of documents. Under the “Know Your Transaction” principle, you must have reasonable assurance that the declared origin reflects reality.

It is not only about what the supplier states on the invoice, but you must have supporting documentation proving that the goods do not originate from a sanctioned country or were not involved in customs fraud.

How transshipment works and why it is a problem

Transshipment, i.e., transport via third countries, is a legitimate logistics practice. However, in the context of luxury goods it is often misused to obscure the true origin of the goods. To change the non-preferential origin of goods, the last substantial, economically justified processing or working must take place in the relevant country.

This processing must result in a new product or represent an important stage of manufacture under Article 60 of the Union Customs Code. If Chinese components are merely assembled in Malaysia into a finished product and meet the rules for a change in tariff classification, it may be a lawful change of origin.

The problem arises when the goods are only repackaged, relabelled, or falsely declared. In luxury goods, we encounter high-risk schemes such as simple relabelling in bonded warehouses or insufficient processing of semi-finished products.

A common phenomenon is also complex chains with hidden ownership, where the goods pass through several jurisdictions and the ultimate beneficial owner is a person on a sanctions list. Without in-depth checks, the importer often will not discover this.

Practical issues include situations where the supplier refuses to disclose the factory address or the certificate of origin shows signs of forgery. A warning sign is also an illogical shipping route or a suspiciously low price.

ARROWS, a Prague-based law firm, encounters these issues in customs proceedings and FAÚ inspections. This is not merely a matter of checking invoices, but a comprehensive legal assessment of the entire supply chain under Czech and EU rules.

Related questions on transshipment and the origin of goods

1. How can I tell whether a change of origin is lawful?
The rules set out in Regulation (EU) No 952/2013 of the European Parliament and of the Council (the Union Customs Code) must be met. The key question is whether sufficient working or processing has taken place. Mere repackaging, sorting, or simple assembly does not change origin. If in doubt, you can ask the customs authority for Binding Origin Information (BOI).

2. Who is responsible for proving the origin of goods?
In customs proceedings, the burden of proof lies with the declarant—i.e., you as the importer. Even if you have documents from the supplier, if they turn out to be untrue, liability for the customs debt and penalties primarily rests with you.

3. What documents on the origin of goods do I need?
It depends on the import regime. For preferential treatment, proof of origin is required (e.g., EUR.1, an invoice declaration). For non-preferential origin, a Certificate of Origin (COO) is often required. It is also important to have supporting evidence such as delivery notes and manufacturing documentation.

Obligations of luxury goods importers

When importing luxury goods, businesses are subject to obligations arising from several statutes under Czech law, in particular Act No. 253/2008 Coll. (the AML Act) and Act No. 69/2006 Coll., on the Implementation of International Sanctions.

Not every importer is automatically an obliged entity, but you typically become one when trading in cultural heritage items or when accepting high-value cash payments.

Regardless of the AML Act, you must comply with international sanctions applicable in the Czech Republic and the EU. As a matter of best practice, you should carry out customer identification and verification (KYC) and identify the beneficial owner. Screening against sanctions lists is essential, because certain goods may be subject to sectoral sanctions, such as a ban on importing steel or gold from Russia.

You must also monitor transactions and watch for red flags, such as sudden changes in volumes or payments from tax havens. All records of transactions and checks must be retained for the statutory period.

Related questions on obligations for importers

1. I am a small importer – do sanctions apply to me as well?
Yes. The Act on the Implementation of International Sanctions applies to everyone in the Czech Republic, regardless of turnover. Breaching sanctions is a criminal offence or a serious administrative offence.

2. What exactly is a politically exposed person (PEP)?
A PEP is an individual holding a prominent public function, including abroad, as defined by the Czech AML Act. Transactions with PEPs require enhanced scrutiny of the source of funds under Czech legislation.

3. Do I have to report every suspicious transaction?
If you are an obliged entity under the Czech AML Act, then yes. If you are not, you do not have a direct reporting duty under the Czech AML Act, but if you suspect a criminal offence you have a general reporting duty to Czech law enforcement authorities.

Risks and sanctions

Failure to comply with customs, tax and sanctions regulations can have severe consequences.

Risks and sanctions

How ARROWS can help (office@arws.cz)

Additional customs duties and penalties: If an incorrect origin is proven, the Czech customs authority will assess additional customs duty and impose a penalty. In cases of tax evasion, late-payment interest may apply under the Czech Tax Code.

Representation before customs authorities: We will represent you in Czech tax and customs proceedings, challenge additional duty assessments, and protect your legitimate interests to minimise the financial impact.

Criminal prosecution: Intentional tax evasion or breaches of international sanctions are criminal offences under Czech law. You may face imprisonment and forfeiture of assets.

Criminal defence: We provide defence in criminal proceedings in the Czech Republic, specialising in economic crime and white-collar crimes.

Seizure and forfeiture of goods: The Czech customs authority may seize goods for the purposes of proceedings. If a sanctions breach is proven, the goods may be forfeited to the state.

Legal assistance with seizures: We communicate with the authorities regarding the release of goods or the conditions of their administration to prevent damage to your assets.

Fines from FAÚ: Breaches of the Czech AML Act or sanctions regulations may result in fines in the millions of Czech crowns.

Administrative proceedings with FAÚ: We represent clients in proceedings conducted by the Financial Analytical Office (FAÚ) in the Czech Republic.

Reputational risk and bank “de-risking”: If banks suspect compliance breaches, they may terminate accounts or freeze funds.

Negotiations with banks: We help explain transactions to banking institutions and restore access to accounts.

When the origin of goods becomes a problem

These examples illustrate mechanisms that occur in international trade and that supervisory authorities focus on. In cases of circumvention of anti-dumping duties on steel products, the goods are transported to Thailand, where only repackaging takes place.

The importer is then assessed additional duty and fined, because no substantial transformation took place in Thailand and the importer relied only on formal documents.

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Another example is “honey laundering”, where a duty-burdened commodity is smuggled through third countries and mixed with a local product. In the case of luxury watches, an importer may unknowingly purchase goods from a person on a sanctions list who merely routed the goods through the United Arab Emirates.

Our Czech legal team at ARROWS, a Prague-based law firm, can identify supply-chain risks early and implement preventive measures.

Related questions on practical situations and solutions

1. I suspect my supplier is lying about the origin of the goods – what now?
Pause orders and request additional evidence, such as production photos and a detailed description of processing. If the suspicion persists, do not import the goods or inform your customs declarants so the goods are not declared under a preferential regime.

2. How can I tell that a certificate of origin (COO) is suspicious?
Check the issuing institution’s stamp, signatures, and whether the details match the invoice exactly. Verify that the relevant chamber of commerce actually exists and is authorised to issue certificates.

3. Who should I report suspicions to?
In the Czech Republic, suspected breaches of sanctions or money laundering fall under the компетence of the Financial Analytical Office (FAÚ). Customs offences are handled by the Czech Customs Administration.

How to protect your company

Protecting your company requires a systematic approach, because compliance is not a one-off action. The first step is to set internal policies that define rules for supplier approval and goods checks.

For each supplier, carry out basic identification, sanctions screening, and verification of production capacity. Regularly update supplier information and monitor changes in sanctions lists, which evolve very dynamically.

Document all due diligence steps, because in the event of an inspection your audit trail is your primary evidence that you acted with due managerial care under Czech law. Purchasing and logistics staff must know what a “red flag” is. 

The difference between an error and intent

From a legal perspective, there is a fundamental difference between negligence and intent, even if the consequences in the form of additional customs duty may be similar. If you can demonstrate good faith and due care, your position is significantly stronger under the Czech legal system.

If you can demonstrate that you did everything to verify the accuracy of the information, this may be a mitigating factor when determining the sanction. However, if you ignored obvious warning signs or actively participated in the fraud, you may face criminal prosecution for tax evasion under Czech law. Czech law enforcement authorities will examine whether you could and should have known about the fraud.

Sanctions and Export Controls

While this article focuses on imports, export controls and import bans must also be mentioned. The EU prohibits the import of certain goods from Russia under the relevant Council Regulations.

If you import prohibited goods such as steel, timber or gold from Russia, you are breaching sanctions, even if the import is routed through a third country. The EU and the US also restrict exports of luxury goods to Russia and Belarus. If you sell luxury goods and suspect they will end up in Russia, you must not proceed with the transaction.

Our attorneys in Prague at ARROWS, a Prague-based law firm, conduct audits of contracts and transactions from a sanctions-compliance perspective.

Case study

A Czech furniture importer purchases designer armchairs from a supplier in Malaysia. The price is attractive and the documents claim the origin is Malaysia. However, the supplier purchased the armchairs in China and only stored and repackaged them in Malaysia.

The purchase funds were routed through non-transparent accounts in Hong Kong, while the company’s ultimate beneficial owner is linked to a person on a sanctions list.

During a subsequent inspection, the Czech customs authority finds that the declared Malaysian origin is false, assesses additional duty, and initiates administrative offence proceedings. In addition, FAÚ may investigate a breach of international sanctions in the Czech Republic. If the client had consulted us in advance, we would have recommended requesting evidence of manufacturing in Malaysia. If the issue had already arisen, we would represent the client in the customs proceedings.

Conclusion

The origin of luxury goods is a very risky area. Regulators today have advanced analytical tools and international information exchange at their disposal. The good news is that a methodical approach and a compliance program can protect you.

The attorneys at ARROWS, a Prague-based law firm, handle this issue for clients including importers, logistics companies, and e-shops. If you are dealing with the import of luxury goods into the Czech Republic, feel free to contact us at office@arws.cz.

FAQ on importing luxury goods

1. Is an invoice with a statement of origin sufficient for customs clearance?
To claim preferential duty, for smaller consignments a statement on the invoice may be sufficient. For higher values, some agreements require approved exporter status or the REX system. For non-preferential origin, the customs authority may require a certificate of origin (COO).

2. How often do I need to screen suppliers against sanctions lists?
We recommend screening when establishing the relationship and then regularly, for example once a year, or before each major transaction. Sanctions lists change frequently.

3. Am I liable if my supplier lies, but I trust them?
Customs debt is a matter of strict liability, so you must pay it regardless of fault. However, penalties take the degree of fault into account. If you can prove that you could not have detected the fraud even with due professional care, this may lead to a reduction of the penalty.

4. What are the “red flags”?
Warning signs include a low price, unwillingness to disclose the place of manufacture, payments to accounts in countries other than the supplier’s registered seat, or a generic description of the goods on the invoice. Pressure for fast processing without contracts is also suspicious.

5. What should I do during an inspection by the Czech Customs Administration?
Cooperate, but do not give statements without preparation. Have your documentation ready and, as soon as the inspection begins, contact an attorney specializing in customs and administrative law under Czech legislation.

Notice: The information contained in this article is of a general informational nature only and is intended for basic guidance on the topic. Although we strive for maximum accuracy, legal regulations and their interpretation evolve over time. To verify the current wording of the regulations and their application to your specific situation, it is therefore necessary to contact ARROWS advokátní kancelář directly (office@arws.cz). We accept no liability for any damages or complications arising from the independent use of the information from this article without our prior individual legal consultation and expert assessment. Each case requires a tailored solution, so please do not hesitate to contact us.

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