To launder big sums of money while not coming under the radar of AML compliance checks, criminals are targeting expensive vehicles such as cars, boats, yachts, and others. The vice president of Equatorial Guinea, Teodoro Nguema Obiang Mangue, was placed under anti-corruption sanctions due to his involvement in disguising illicit funds through vehicle purchases and was discussed on ubersear.ch too. Moreover, automotive companies failing to identify fraudulent schemes are also more likely to undergo hefty non-compliance fines.
The market size of the global automobile industry is somewhere around $2.9 trillion and is forecasted to experience more growth. Simultaneously, the regulatory watchdogs are placing stringent anti-money laundering regulations in place regarding sales/purchases of luxury cars and other vehicles. This blog entails ways criminals launder money in the automobile industry and how AML verification solutions restrict them.
AML Screening Solutions – Identifying Different Categories of Dealers
As per regulatory standards put forth by global authorities, any dealer, middlemen, manufacturer, or other service provider is subject to identifying suspicious activities. In case of failure to detect traces of money laundering, they can undergo hefty non-compliance fines. Worst of all inadequate AML solutions further pushes automobile dealers to unwillingly become a part of financial crimes.
Depending on their approach and the part they play in the trading of vehicles, dealers are further categorized into three types. These groups are so far made under the guidance of anti-money laundering regulations.
- Non-Bank Financial Institutions (NBFIs)
NBFIs do not hold a full banking license and are unable to accept deposits from individuals. However, they can facilitate alternative services, such as vehicle trading, investments, brokering, check encashment, and financial consulting. NBFIs include insurance firms, microloan organizations, venture capitalists, and others.
As NBFIs are a part of automobile sales/purchases they also fall under AML screening requirements. As per anti-money laundering guidelines, these financial institutions need to ensure they are not facilitating the transfer of illicit funds.
- High-Net-Worth Dealers
These refer to high-value individual investors that make payments exceeding the threshold. Some vehicles such as Tesla are more expensive. High net worth dealers target them to launder big sums of money. This requires automotive companies to build AML compliance programs not only to validate sources of income but also to ensure safe vehicle trading.
- Non-Financial Firms
Non-financial firms play a prominent part in economic growth by producing high-value services and goods. Similarly, they invest as well as provide trading opportunities to their customers. These companies also fall under the scrutiny of AML monitoring.
Non-financial corporations also help automobile companies to secure their sale/purchase process by providing them with backup. They also serve as intermediaries for connecting vehicle owners with buyers. However, in all of this, non-financial firms can not leave AML compliance behind.
Reasons Luxury Vehicles are Becoming an Attraction for Criminals
Regulatory bodies oblige dealers despite whatever their groups are, to stay put with anti-money laundering measures. They should perform Customer Due Diligence (CDD), detect suspicious activities, and keep records up to date. As criminals are becoming more sophisticated they deploy a few easy techniques to launder money.
In the first step, they obtain illegal funds through corruption, fraud, or other activities. Secondly, they purchase luxury and costly vehicles with the proceeds of crimes. Lastly, fraudsters sell them in the market to turn illicit funds into legitimate income.
In order to safely perform illicit activities and avail seamless digital onboarding, criminals target regions or countries with lax AML compliance checks. This helps them steer clear of the identification process. As many regions have inadequate preventive measures for money laundering, it becomes easier for risk-possessed dealers to escape regulatory checks.
AML Systems – Preventive Measures Against Criminal Intentions
Due to weak regulatory oversight, criminals are easily laundering their illicit funds through vehicle trading. For instance, Canada’s AML compliance in Canada does not even mention automobile dealers. Furthermore, as transports have high prices, money launderers can legitimize big amounts in a single transaction.
Considering the backlashes, automotive companies require robust AML systems to detect criminal activities and prevent them in time. For this, they need to implement the following measures within their operations;
- Customer Due Diligence (CDD)
Effective CDD is among the first requisites for building an effective AML compliance program to combat money laundering. This involves screening customers against global watchlists to ensure they do not possess any fraud risk. CDD also involves validation of Ultimate Beneficial Owners (UBOs) to ensure the shareholders do not possess risks of money laundering.
- Transaction Monitoring and Suspeciousness Reporting
This involves track keeping of customers, their transactions, and post-onboarding activities. In case any payment exceeds the threshold, is coming from a sanctioned region, or buyers hold a risky status, automobile companies need to detect and report it in time.
Criminals are employing several strategies to launder money through automobiles. By targeting high-risk countries, expensive vehicles, or running a dealership, they easily conceal their sources of funds. Therefore, to detect and deter fraud attempts, automotive companies require robust AML compliance solutions. This way, dealers can ensure secure trading while staying put with regulatory guidelines.