The automobile industry is one of the world’s biggest (if not the biggest) revenue-generating sectors. There are many modern factors contributing to the industry’s continued growth, including the sharing economy, the increasing use of artificial intelligence and automation in production lines and so, it only stands to reason that it would also be one of the most at risk from financial crimes and attempts to exploit it. Automotive companies face numerous challenges, not least of which is the threat of money laundering, in a national and international setting, in countries that are essential to the industry. Criminals will often use expensive assets, including cars, boats and luxury planes to disguise illegal funds and convert them into cash.
Anyone who is involved in vehicle sales, from dealerships to banks and law firms, must be able to identify and report a money-laundering scheme and could risk considerable penalties under AML regulations, putting themselves and their business at risk.
Why Criminals use Luxury Vehicles
The automotive industry has been used as a pathway for money laundering for quite some time. In 2019 a report on money laundering and the luxury vehicle industry claimed that, because criminals are attracted to a lifestyle of consumptive wealth, it makes luxury items such as cars, boats and planes a particularly appealing method of investing their profits. Vehicles are either purchased with cash to conceal the origin of the money or rented to make seizures more difficult for law enforcement agencies.
The cost involved in the luxury vehicle industry also allows criminals to legitimise significant amounts of their wealth at one time, with very little effort. If dealers accept cash payments for vehicles, the funds then become part of the mainstream financial system making the footprint of the cash flow very complicated and lowering the ability to trace the source of wealth at the time of purchase.
In the US grey market” export vehicles also provide another entry point for money launderers. Grey market vehicles are vehicles that are imported from one country to another, a market that is largely unregulated, making purchasers and methods of payment difficult to track.
The most significant factor contributing to the rise of money laundering schemes in the automotive industry may lie with dealerships themselves. Dealerships are subject to less financial oversight than financial firms, and dealers are not as well trained in, or completely ignorant of, AML requirements compared to other institutions.
Classification & Compliance
According to AML guidelines, dealers and intermediaries may fall under several different categories of classification depending on their size and location. These categories can include high-value dealers, financial institutions and non-financial businesses (categories can vary according to different jurisdictions). Regardless, each category is required to follow AML requirements, which include customer due diligence, record-keeping and suspicious activity reporting. The extent of AML requirements may vary from entity to entity so it is vitally important for all businesses within the industry to be familiar with specific guidance.
The Different Methods
There isn’t one single way that criminals will use vehicles to launder money, here are a few examples of ways in which they do, that should be looked out for:
International & Domestic Movement
Automobiles are used as money laundering conduits both locally and to cross borders. Money launderers will often take advantage of slack legislative regimes that allow automobiles to be exported from ports with minimal examination, much in the same way it happens in the art world.
While some criminals like the appearance of wealth and opulence that luxury vehicles can afford them, many use them exclusively as a means of laundering their income from illegal activities. They may buy vehicles with cash, meaning the money then finds its way into legitimate financial channels, and hides where it originated from. Unfortunately, at present, it is said the industry has very little appetite to regulate these types of sales.
As mentioned, the grey market is unregulated, making it harder to trace buyers, companies and financial transactions once a vehicle has left a country. Additionally, luxury vehicles can fetch higher prices in foreign markets and there are not stringent enough regulations over reselling in different jurisdictions.
Many independent resellers frequently deal with individuals involved in organised crime, whether wittingly or unwittingly, many of whom may be high profile criminals known to law enforcement.
How to Avoid It
A robust AML compliance program is a company’s best defence against becoming an unwitting participant in a money-laundering scheme. Let’s take a look at what this may comprise of:
Verifying Customer Identity
Dealerships and other parties should adopt a risk-based approach to KYC and verify a customer’s identity, to determine the risk they pose. This includes their identity, their activity profile and the complexity of their transaction.
Enhance Due Diligence
If a customer does pose a high risk of money laundering, the business should then follow up with a verification procedure known as Enhanced Due Diligence (EDD), including requesting proof of source of funds.
Define & Report Suspicious Activities
It is important to have a clear definition of what constitutes suspicious activity, and if the criteria are met then a Suspicious Activity Report (SAR) should be filed. This can include large payments in cash, suspicious behaviour from the buyer or red flags such as a lack of negotiation on prices (everyone tries to negotiate!).
Information obtained during customer verification should be collected, recorded and continuously maintained by dealerships, especially if the customer becomes part of an investigation or the subject of an SAR at a later point in time.
The time and expense of creating a robust AML compliance program pale in significance when compared to the financial and reputational cost that could be the consequence of failing to prevent money laundering.
If you want to avoid that downfall and comply with AML regulations, then why not get in contact with us here at Sekuritance? Our RegTech platform will handle the compliance load, with an automated verification platform, that includes KYC, KYT and AML procedures. We also have a team of highly trained compliance managers checking any failures on the part of customers with a service level agreement of 99.4% verification.
Visit www.sekuritance.com and get in contact through the site and see how we can help you.
The Sekuritance RegTech platform provides a single platform for every eGRC need, including end-to-end AML/CTF, CECL, FCPA, vendor management, beneficiary onboarding, investor check, card processing MFA checks, blockchain wallet checks, cyber-risk assessments, and other RegTech or Business Process Management requirements.
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