Anyone involved in automobile sales who fails to identify money laundering may risk large penalties and perhaps criminal prosecution under AML legislation. This includes legal companies, banks, and car dealers—anyone or any entity that trades automobiles or serves as a middleman in their acquisition or sale.
Dealers in Vehicle Sales
In terms of AML compliance, dealers can be classified into several groups. Depending on their size and location, they can be categorized as financial institutions, non-financial firms, or high-value dealers.
A high-value dealer is any company or sole proprietor who takes or makes cash payments over a specific amount. The United Kingdom and Australia are two nations that use this classification of automobile dealers.
Non-Bank Financial Institutions (US)
Non-bank financial institutions include any company that sells automobiles, aircraft, or boats. This implies they must adhere to the same AML compliance rules as banks.
Non-Financial Enterprises (Europe)
Individuals who trade in commodities are considered “non-financial enterprises” and must follow European Anti-Money Laundering Directives if they accept cash payments above €10,000.
All of these groups are subject to AML regulations, which include customer due diligence, suspicious activity reporting, and record-keeping. However, the level to which they comply with AML regulations may differ. Dealers can learn the specific requirements on their regulator’s website by consulting the AML advice.
Why Do Criminals Want Out Expensive Transportation?
Jho Low, a Malaysian billionaire, spent $250 million on a superyacht a few years ago. However, it was discovered that this money had been stolen from the Malaysian Welfare Fund. Low went into hiding, and the same boat is currently for sale for $100 million less than he paid for it.
But why do people use yachts to launder money? We examine the characteristics that make car purchases appealing to criminals:
The Ability to Launder Significant Sums of Money
Because the costs of luxury automobiles are so high, crooks may legitimate large sums in a single transaction.
Inadequate Regulatory Oversight
Dealerships are subject to fewer regulations than banks and investment businesses. For example, automobile dealers are not even included in Canada’s AML laws.
Dealers’ Low Understanding of AML Regulations
According to Transparency International, high-value dealers have a poor track record of adhering to AML standards. For example, even if they suspect money laundering, they seldom alert law enforcement.
Money laundering through vehicles raises the following red flags:
- Zero negotiation on price;
- Extensive usage of cash;
- Documents that have odd abnormalities;
- Paying a little less than $10,000 in cash to avoid reporting;
- Payments made by third parties (shell corporations, family members, straw purchasers;
- Buyers or funds based in a nation with a lax anti-money laundering system, strong corruption, or known support for terrorism;
- A mismatch between the buyer’s official salary and the price of the vehicle;
- Refusal to disclose information or inexplicable modifications to previously supplied data.
How is Money Laundered?
Laundering money through vehicle sales may be a simple process: thieves can purchase a boat with illegal cash in a nation with lax AML standards and sell it as a legitimate asset in another one. Criminal groups use a variety of techniques to create complexity and avoid detection by law enforcement. They can, for example, utilize front firms to mask the true buyer of a vehicle or evade well-regulated banking institutions by paying with cash, mobile applications, and prepaid cards.
Criminals might also exchange automobiles in order to launder money. This is how it works: Consider the following two dealerships: A and B. Dealership A pretends to buy cars from Dealership B. In actuality, both dealerships conspire to falsify sales documentation and may even fail to deliver automobiles. Meanwhile, illicit monies are camouflaged as auto payments and made to seem genuine.
Another way of money laundering is for thieves to pretend to buy a vehicle and put down a deposit on it. Then they back out of the contract and want a refund of their deposit. In this manner, they convert unlawful money into a valid recompense.
How to Avoid Being Involved in a Money Laundering Scheme
The expenses of creating an AML compliance program are insignificant when compared to the financial and reputational consequences associated with failing to prevent money laundering. Vehicles are used by criminals to launder money in a variety of ways. These include paying cash for a vehicle or operating a dealership to disguise the real source of finances. Vehicle dealers should check the names and sources of income of persons and corporations with whom they do transactions to discover money launderers. Dealers must also identify and report suspicious behavior and install AML software for compliance. If you wish to avoid regulatory fines and incarceration by complying with AML regulations, please contact us and request a demo of Sanction Scanner’s AML software.
December 2021, published on Sanction Scanner