On February 24, 2003, the Financial Crimes Enforcement Network (FinCEN) issued “Advanced Notice of Proposed Rulemaking” for the automobile industry to establish Anti-Money Laundering (AML) Programs. These are only proposed regulations and although, as of this date, FinCEN has not issued the final rule (regulations), all auto dealers must conduct adequate training of there employees so that they can detect and avoid any type of illegal activity or transactions. The automobile industry remains susceptible to 8300 Compliance Exams by IRS examiners. With respect to “cash reporting”, the industry must continue to comply with the Form 8300 requirement, which has been in effect since January 1, 1985.
Even with no final regulations issued, all dealerships should have a comprehensive AML Program and have their employees trained in every aspect of detecting and reporting suspicious activity. They must know when something smells funny and to whom they should report such activity. It would also be beneficial to be able to speak with an Anti-Money Laundering Specialist to review these type of situations when necessary. because you do not want to violate the privacy concerns of your customer.
What most auto dealers are likely saying: What does a drug dealer buying a new automobile have to do with laundering money? If we detect it, we will alert the government and they will take it from there. Mission accomplished, right? Not too fast. How do you handle the drug dealer who comes in to buy a $60,000 vehicle, puts $9,500 down in cash and vows to come back the following day with a check to complete the sale? Then two days later he comes back and tells you that he has changed his mind and can no longer afford the vehicle and must look for different one, likely at a different dealership. Now he wants his deposit back. Do you give him back the cash that he gave to you? NO, because you have already deposited the money to your bank account. You give him a company check. No big deal, it’s only $9,500. Really, and that’s what the other 150 dealerships said also. This dealer has just turned $1.425 million in illegal proceeds into 150 company checks. He can now put those 150 company checks into his inside coat pocket and travel outside of the U.S., effectively eliminating the paper trail behind him.
Federal law enforcement agencies, especially IRS-CI, have and continue to conduct undercover operations on auto dealers and other industries. During my 28 years as a special agent with IRS, Criminal Investigation, I was part of many undercover operations involving automobile dealerships. On each and every one of those operations, I never saw a sales person turn down an offer of cash from an undercover agent to look the other way and put the car in a different name than the person conducting the transaction. I know a sales person somewhere must have turned down the bribe money, but not in any cases in which I was involved. Even when the undercover agent mentions that the funds are from drugs or other illegal activity, they still complete the transaction and go for the money. And most times, the supervisor or no one else is aware of what happens, until 100 agents arrive with search and/or seizure warrants.
“You can’t afford to have one of your employees go for the money.” If they’ve been adequately trained, that probably will not happen.
And training from a computer or even management likely won’t do the trick. All employees need to know the consequences of their actions and telling them so in a sales meeting once a month won’t get it done. Trust me, I have had conversations with enough sales people and bank tellers to know that being told something by upper management is good to have, but usually goes in one ear and out the other. They have told me that this information was being given to them only because it was something they were required to do, but those things never really happen. However, when someone who has been working these undercover cases and other criminal cases is standing in front of them and telling them what will happen, they listen. They know I’m not telling them because it’s my job to train them. Not having this information can have a devastating affect on them, their family and everyone around them, not to mention, your dealership. The amount it will cost your dealership to have an AML Program developed and the minimum requirements fulfilled (even if you are not required by law) is miniscule compared to what it could cost your dealership if one of your employees decides to go for the money. The publicity alone will destroy your business.
An adequate AML Program contains the following four minimum requirements:
- Written and implemented AML Policies and Procedures
- A designated compliance officer
- Periodic (annual) training for all designated employees
- Periodic (annual) independent audit/review to assure the policies and procedures are being followed (not required at this time)
The dealership is always responsible for the actions of each employee, but that responsibility can be drastically diminished when an employee is adequately trained and you have all the proper tools in place and available to employees. If the dealership has an adequate AML Program, meaning that they are complying with the four minimum requirements and an employee, on his/her own, violates the law without it being detected by the dealership, the dealership would not be nearly as culpable as if they had taken no preventative measures to keep it from happening.
Why are automobile dealers vulnerable and a huge target for drug dealers and other illegal funds? There are many reasons, the first being a drug dealer or anyone in the business generating illegal funds has a tendency to do is buy nice things and an expensive vehicle is first on the list before anything else. In addition, they use automobiles to transport their drugs and money by hiding it in the door compartments, seats, secretly designed compartments or any other space they can hide it (See Actual Picture Above).
Your AML Policies and Procedures manual should contain a great deal of information, but the major sections included should be:
- Policies and Procedures
- Customer Identification and Know Your Customer
- Compliance Officer
- Independent Audit/Review
- Risk Assessment
Even though not required by law, your dealership should have a top notch AML Program. If your AML Program is operating properly, it can virtually eliminate the potential for illegal funds penetrating your business. And if they do penetrate, they should be detected within a short period of time.
I have prepared hundreds of AML Policies and Procedures manuals (AML Plan) and all of them contain the above sections and much more. Each one of these documents were extensive and tailored to the individual company for which it was prepared. Many problems or questions surfacing at your business on any given day can usually be answered by reviewing your AML Policies and Procedures manual.
When your business is required to file a Form 8300, you can access the form by clicking here. You can still file it in paper form, but you should register to file them electronically through the BSA E-Filing System. Also contained on this web site is a worksheet to use in determining whether or not a Form 8300 is required to be filed.
Protect the Privacy Concerns of your Customers
Even though you have no illegal funds, your employee can still destroy your business. Be absolutely certain that all employees know the “Expanded Definition of Cash”. If they don’t and they file an 8300 when not required by law to do so, it can be financially disastrous to your business. I have been in numerous dealerships where most of the employees (sales person, sales manager or office personnel) had no idea what is or is not cash.
Example: one dealer asked a client of mine for his SSN and other identifying information in order to file a Form 8300 when he was writing a personal check for $20,000. The sales person and sales manager both stated that the check was the same as cash and they have been doing this on all customers. So that dealership has violated the privacy concerns of all these customers and if sued, the dealership loses. This could be worse than not filing a Form 8300 when required to do so. There are many other cash reporting issues that dealers are not familiar with and that could jump up and bite you. If my client has been like many people, he would have given them the information requested (SSN etc.) and after they file the 8300, sued them for violating his privacy rights. And he would have won.
Keep your dealership a successful one. Don’t risk that success by not having an AML Program or one that is inadequate and fails to protect the financial future of you and your business.