High-end vehicle sales are often a target of money laundering schemes. Expensive vehicle transactions may disguise the handling of illicit funds. Anti Money Laundering (AML) is a term used to detect and deter fraudulent activity. AML regulations dictate that any party involved in vehicle transactions may be subject to heavy penalties, if money laundering occurs — including law firms, banks and third party intermediaries. Thus, high value dealers, non-bank financial institutions (any business engaged in the sale of cars, planes, or boats), as well as non-financial businesses must comply with AML regulations and due diligence.
Auto Dealer Fraud
Auto dealer fraud is becoming more significant. In our everyday lives, car rentals have seen a general uptick, pushed by the pandemic. As a result, customers are left vulnerable to bogus offers that appear to provide vehicles for a cheaper price, and the money paid ends up going to the criminals’ wallet directly.
Auto dealer fraud has become more prevalent due to several reasons: High prices of vehicle sales, as well as an overall lack of awareness of AML requirements.
High prices
- Luxury or larger capacity vehicles which command higher price points make it easier for fraudsters to justify large amounts of money in the transaction. Especially when funds can be hidden, the lack of transparency to break down the funds into its individual segments causes the risk of hiding a lump sum of fraudulent transactions to pass off as a legitimate one.
Lack of awareness
- There is a lower level of regulation on vehicle dealerships compared to other institutions, which leads to a poor record of high value dealers following AML regulations. Oftentimes, the law is not brought in even when money laundering is suspected.
Digital Environment
Even with better regulation and awareness, auto dealer fraud cases are becoming increasingly harder to detect due to the complexities of the digital era. Fraudulent identification documents (IDs) are a growing concern. On paper, there are many security features to assess for fraud. However, with increasing digitisation, security features may be bypassed, and websites can be hacked.
AML Compliance and KYC
To reduce risks, businesses should seek an AML compliance program, to ensure that firms know their clients (KYC), enabling the firm to track the customers’ identity risk level, through various factors such as name, identification numbers, criminal lists as well as affinity to political positions. Risk profiles would allow firms to know more about the customer, especially since screenings are important to check for potential risks.
Dealers should also determine the risk profile of clients, to ensure that all parties are identified and cleared of any suspicion before proceeding with transactions. Training should also be provided to firms and businesses, as well as consumers. Processes should be stringent to ensure transparency.
AML regulations and KYC measures should be properly established in order to avoid auto dealer fraud in the digital environment, ensuring that customers and businesses stay away from illegal activities.
