Treasury targets car dealers in fight against suspicious transactions

The National Treasury wants car dealers to be legally compelled to report suspicious transactions as part of reforms backed by the International Monetary Fund (IMF) to seal loopholes used by criminals to launder cash.

Treasury Thursday published the Money Laundering and Terrorism Financing (ML/TF) National Risk Assessment Report that reveals the cash-intensive sectors being used by money launderers.

The IMF, which disbursed a Sh28 billion loan to Nairobi last week, has been pushing Kenya to tighten the regulatory and monitoring loopholes that have allowed corrupt government officials to run amok and bleed public coffers dry.

“The anti-corruption preventive framework needs substantial enhancements, and the draft conflict of interest legislation (which has experienced long delays) should be brought in line with international best practices,” said IMF.

Raise risk awareness

The lender added: “AML/CFT (Anti-Money Laundering/Combating the Financing of Terrorism) supervision should be intensified to mitigate corruption-related money laundering risk in banks and other higher risk sectors and make greater use of financial intelligence. The now-completed National Risk Assessment should be published to raise risk awareness.”

Treasury has put car dealers among the biggest threats to curbing illicit transfers of dirty cash. The increase in the number of motor vehicles imported into the country averaged 1.6 million units from December 2004 to December 2018, marking out the sector as among the most lucrative to launder dirty cash.

Official data shows there were 3.2 million motor vehicles registered in the country, a growth of more than 300,000 units within a year.

Money laundering hotbed

Treasury says the high volume of cash being handled by car dealers has seen the sector emerge as a hotbed of money laundering, drug trafficking, tax evasion and theft.

“There are huge volumes of cash involved in this industry, especially the second-hand dealers, some of which could be proceeds from other predicate offenses like drug trafficking. On the other hand, tax-related crimes have been reported in relation to second-hand car dealership,” stated the report.

Treasury further noted that several dealers are offering unregulated credit facilities for car purchases while others offer insurance brokerage services. Some car dealers are giving customers investment options even as others provide Sacco services despite not being licensed to offer those products and services.

“These auxiliary services should be assessed in detail as they may prevent additional ML/TF vulnerabilities. Further studies are recommended to establish the potential ML/TF risks and tax evasion methods used by motor vehicle dealers,” states the report.

Suspicious transactions

Treasury now wants car dealers – like accountants – to report all suspicious transactions. This is amid fears that the fast growth of the sector could leave it even more vulnerable to abuse by money launderers, aided by weak regulation.

“The money laundering threat in second-hand car dealership is rated as medium-high due to the weak regulatory controls. There is likely increase in the level of threat in the future due to the lack of clear regulations of monitoring the sector,” adds the report.