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    How To Detect Money Laundering in Vehicle Sales

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    Ahsan Zafar
    This document discusses how to detect money laundering in high-end vehicle sales. It begins by providing an example of a vice president who laundered stolen government funds through luxury vehicles. It then outlines red flags for money laundering like customers making large cash payments, using front companies, or trading vehicles without deliveries. The document advises building an anti-money laundering compliance program with steps like customer due diligence, employee training, and reporting suspicious activity. Dealers must verify customer identities and check for sanctions or adverse media to avoid participating in money laundering schemes.

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    How To Detect Money Laundering in Vehicle Sales

    Uploaded by

    Ahsan Zafar
    70 views13 pages
    This document discusses how to detect money laundering in high-end vehicle sales. It begins by providing an example of a vice president who laundered stolen government funds through luxury vehicles. It then outlines red flags for money laundering like customers making large cash payments, using front companies, or trading vehicles without deliveries. The document advises building an anti-money laundering compliance program with steps like customer due diligence, employee training, and reporting suspicious activity. Dealers must verify customer identities and check for sanctions or adverse media to avoid participating in money laundering schemes.

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    How to Detect Money Laundering in Vehicle Sales

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    This document discusses how to detect money laundering in high-end vehicle sales. It begins by providing an example of a vice president who laundered stolen government funds through luxury vehicles. It then outlines red flags for money laundering like customers making large cash payments, using front companies, or trading vehicles without deliveries. The document advises building an anti-money laundering compliance program with steps like customer due diligence, employee training, and reporting suspicious activity. Dealers must verify customer identities and check for sanctions or adverse media to avoid participating in money laundering schemes.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    70 views13 pages

    How To Detect Money Laundering in Vehicle Sales

    Uploaded by

    Ahsan Zafar
    This document discusses how to detect money laundering in high-end vehicle sales. It begins by providing an example of a vice president who laundered stolen government funds through luxury vehicles. It then outlines red flags for money laundering like customers making large cash payments, using front companies, or trading vehicles without deliveries. The document advises building an anti-money laundering compliance program with steps like customer due diligence, employee training, and reporting suspicious activity. Dealers must verify customer identities and check for sanctions or adverse media to avoid participating in money laundering schemes.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 13

    How to Detect Money

    Laundering in Vehicle Sales


     November 3, 2021
    It’s no secret that expensive cars, yachts, and planes can be used to disguise
    illegal funds. In this article, we dig into how you can detect money
    laundering and achieve full AML compliance in high-end vehicle sales.

    In July 2021, the UK imposed anti-corruption sanctions on Teodoro Nguema


    Obiang Mangue, vice president of Equatorial Guinea. He was accused of
    stealing government funds and laundering them through luxury goods and
    vehicles.

    It wasn’t the first time that the vice president faced sanctions. In 2016 and
    2017, European prosecutors confiscated his assets, including 26 supercars—
    Ferraris, Bentleys, and Lamborghinis—worth $27m.
    But why did Mr. Obiang Mangue choose cars to conceal his funds? We try to
    answer this question in this article, diving deep into money laundering in
    vehicle sales.

    The highlights
    1. Why should I read this?
    2. Why luxury transport attracts criminals

    3. How money is laundered

    4. How to avoid participating in a laundering scheme


    5. Money laundering red flags to look out for

    6. Wrapping it up: detecting money laundering in vehicle sales

    Why should I read this?


    Under AML regulations, anyone involved in vehicle sales can face significant
    fines and even criminal prosecution if they fail to detect money laundering.
    This includes law firms, banks as well as vehicle dealers—who can be any
    individual or business that trades vehicles or acts as an intermediary in their
    purchase or sale.

    Dealers can fall under various categories in terms of AML compliance. They
    can be classified as financial institutions, non-financial businesses, and high-
    value dealers, depending on their size and location.
    High-value dealers. A high-value dealer is any business or sole trader that
    accepts or makes cash payments above a certain threshold. Among countries
    that adopt this categorization of vehicle dealers are the UK and Australia.

    Non-bank financial institutions (US). Any business engaged in the sale of


    cars, planes, or boats is classified as non-bank financial institutions. This
    means they must follow AML compliance requirements on par with banks.

    Non-financial businesses (Europe). Individuals trading in goods belong to


    “non-financial businesses” and must comply with European Anti-Money
    Laundering Directives when they receive payments in cash over €10,000.

    All these categories must follow AML requirements, including customer due
    diligence, suspicious activity reporting, and record-keeping. However, the
    extent of their AML compliance may differ. To find the exact requirements,
    dealers can refer to the AML guidance on the website of their regulator.

    Why luxury transport attracts


    criminals
    Several years ago, Malaysian businessman Jho Low spent $250 million on a
    superyacht. However, it turned out that this money was stolen from the
    Malaysian Welfare Fund. Low went into hiding, and now that same yacht
    is on sale for 100 million dollars less than he paid for it.

    But why choose yachts to launder money? We break down the factors that
    make vehicle purchases attractive for criminals:

    Ability to launder large sums. As prices for luxury vehicles are high,
    criminals can legitimize significant amounts in a single transaction.
    Weak regulatory oversight. Dealerships are less regulated than banks and
    investment firms. For instance, Canada’s AML requirements don’t even
    mention vehicle dealers.

    Low awareness of AML requirements among dealers. According to


    Transparency International, high-value dealers have a poor record when it
    comes to following AML requirements. For instance, they rarely contact law
    enforcement even if they suspect money laundering.

    How money is laundered


    The process of laundering money through vehicle sales can sometimes be
    quite straightforward: criminals simply buy a yacht with illegal funds in a
    jurisdiction with weak AML controls and sell it as a legitimate asset in
    another country.
    In the picture is the simplest money-laundering scheme using vehicles

    The scheme above is simple, but criminal organizations employ a number of


    methods to add complexity and stay under the radar of law enforcement. For
    instance, they can use front companies to conceal the real buyer of a vehicle
    or try to avoid well-regulated banking systems by paying through cash,
    mobile apps, and prepaid cards.

    Criminals can also trade vehicles to launder money. Here’s how it works:
    imagine two dealerships, A and B. Dealership A pretends to purchase
    vehicles from dealership B. In reality, both dealerships collude to fake sales
    documents and may not even deliver cars. Meanwhile, illegal funds,
    disguised as payment for the cars, are made to appear legitimate.

    Another money laundering method is when criminals pretend to buy a vehicle


    and put down a deposit on it. Then, they pull out of the deal and ask to have
    their deposit back. This way they turn illegal money into a legitimate refund,
    which is explained in the case below.

    A drug dealer comes to a Ferrari dealer to buy a Portofino for $215,000. He


    puts $9,900 down in cash and promises to come back with a check to
    complete the sale. Later, he says that he’s changed his mind. Meanwhile, the
    dealership has already deposited the cash into its bank account, and must give
    the buyer a company check instead. The drug dealer plays the same trick with
    other sellers and turns illegal proceeds into legitimate company checks.

    How to avoid participation in a


    laundering scheme
    A dealer can face fines and imprisonment if they don’t follow proper AML
    procedures. Here’s how to build an AML system that will detect and deal
    with money laundering.
    Building an AML compliance program. To mitigate money laundering
    risks, businesses must institute an AML compliance program, which is a
    combination of internal compliance policies supplemented by the following
    safeguards:

     Customer identification and verification;


     Customer Due Diligence;
     Ongoing monitoring;
     A compliance team;
     AML training;
     Audits.
    The costs of developing an AML compliance program are nothing compared
    to the financial and reputational losses of failing to prevent money
    laundering.

    In 2015, US law enforcement arrested Bryan Barbarawi, the owner of several


    car dealerships in Ohio, for money laundering—a crime punishable by up to
    20 years in prison and $250,000 in fines.

    Barbarawi got caught when he sold a car to an undercover agent who made
    clear that his money came from “drug trafficking.” To make matters worse,
    Barbarawi made his employee fabricate a Form 8300—a Report of Cash
    Payments Over $10,000—to conceal the undercover buyer’s source of funds.

    Verifying a customer’s identity. Dealers must verify the identities of the


    individuals and companies they transact with.

    When dealing with customers, businesses must follow a risk-based approach.


    This means defining the money laundering risk that a customer poses. When
    doing so, vehicle dealers should consider a range of factors, including the
    customer’s identity, activity profile, as well as the complexity and volume of
    the transaction.

    If a customer poses a high money laundering risk, dealers must employ a


    more serious verification procedure known as Enhanced Due Diligence. This
    includes requesting that the customers submit their proof of source of
    funds or source of wealth to ensure that the funds come from a legal source.

    To check if a customer is sanctioned or involved in illegal activity, dealers


    should screen buyers against lists of known terrorists, sanctioned persons,
    and wanted criminals. These include OFAC, UN, and EU Sanctions lists as
    well as Interpol lists. Also, businesses must perform adverse media checks to
    see if a customer is mentioned in any negative news.

    If the buyer is a company, dealers should determine its Ultimate Beneficial


    Ownership (UBO), as many criminals use shell firms to keep their names
    secret. To identify beneficiaries, agents can request that the company submits
    its UBO information to check it against beneficial ownership registers.

    A Chinese businessman wants to buy a yacht from a Dutch shipyard. He


    sends scanned ID documents and proofs of sources of funds to the seller. The
    documents are in Chinese. They seem legitimate, but the Dutch seller can’t
    say for sure. Can the seller proceed with the deal?

    In reality, this businessman could have sent fake documents. To avoid selling
    the yacht to a fraudster, the shipyard needs to check the submitted documents
    for signs of tampering. This can’t be done just by looking at the documents—
    advanced forgery is invisible to the human eye.

    The solution is to reach out to a remote verification provider, who screens the
    documents using AI-based technology. These providers use systems that
    recognize documents by country and type, defining the security features
    (holograms, stamps, fonts). They then verify the document against the
    determined security features to detect fakes.
    Building an AML team. Dealers must hire specialists responsible for
    executing the company’s AML policies and procedures. This includes
    appointing a Money Laundering Reporting Officer (MLRO) to oversee the
    dealer’s AML procedures and report suspicious activity.

    Conducting AML training. All employees should receive training on AML


    regulation and the company’s AML policies.

    Performing an audit. Dealers should schedule annual internal and external


    reviews to ensure that AML policies are being followed.

    Reporting cash. Dealers must report large payments in cash. For instance, in
    the US, the reporting threshold is $10,000. The term ‘cash’ means notes,
    coins, or travellers’ cheques, in any currency.

    Suspicious Activity Reporting. Dealers must report instances of buyers


    acting suspiciously (see the red flags below). The buyer shouldn’t be made
    aware that a report was filed as this may hinder the investigation.

    Record-keeping. Dealers must gather, record, and maintain information


    obtained during customer verification.

    Money laundering red flags to look


    out for
    Dealership employees should be able to detect the signs of money laundering.
    Here are the main red flags:
     Third-party payments (shell companies, family members, straw
    buyers);
     Large amounts of cash;
     Documents with inconsistencies;
     Unwillingness to provide information or unexplained changes to
    previously submitted information;
     Zero negotiation on price;
     Paying just under $10,000 in cash to avoid reporting;
     Discrepancy between the buyer’s official income and the vehicle price;
     Buyers or funds located in a country with a weak AML regime, high
    corruption, or known support for terrorism.
    This is a checklist with the red flags; feel free to save it to your device

    The presence of a single red flag may not be a sufficient basis for suspecting
    criminal activity. In cases like this, dealers should continue to keep an eye on
    the buyer to put this red flag into context. If a combination of red flags is
    detected, the company must freeze the deal and file a Suspicious Activity
    Report with a regulator.

    Wrapping it up: detecting money


    laundering in vehicle sales
    Criminals use a number of methods to launder money through vehicles.
    These include buying a vehicle with cash or running a dealership to conceal
    the true sources of funds.

    To detect money launderers, vehicle dealers should verify the identities and
    sources of income of the individuals and companies they enter transactions
    with. Also, dealers must detect and report suspicious activity, build an AML
    team and follow other AML procedures to avoid regulatory fines and
    imprisonment.

    To become an expert in detecting criminals, read more from our series on


    money laundering:

    Close the Sale: How to Run a Real Estate Business in a Compliant Way

    Subscribe to Sumsub’s newsletter so you don’t miss future articles. The form
    is down below.

    Are AML requirements for vehicle dealers making you feel lost? Check
    out Sumsub’s AML/KYC solution.

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