Canada: You'll Know It When You See It: Money Laundering In Luxury Cars In British Columbia

On Tuesday May 7, 2019, the Government of British Columbia published its second report (the "Report") on money laundering in the province of British Columbia ("BC"), this time focused on the luxury car sector and its role in laundering of proceeds of crime. The Report, authored by former senior RCMP officer Peter German, is the first detailed examination of money laundering in luxury car sales in Canada.

How it Works

The mechanics of the money laundering activities are described generally as the purchase of vehicles in cash with the proceeds of crime, thereby converting the illicit cash into an asset, which will serve to disguise the origin of the money, following which the asset can be sold.

Criminal and terrorist organizations frequently exploit global trade systems to move value around the world by employing complex and sometimes confusing schemes associated with legitimate trade transactions.

The report is organized into five chapters. Each chapter relates to a specific category of how organized crime is promoted in the luxury vehicle sector in BC, and Canada broadly:

  • Domestic and International Laundering Through Vehicles. Vehicles are used both domestically and internationally as conduits for money laundering. The Report makes a connection between the disproportionate number of luxury vehicles not recovered by law enforcement, and organized vehicle theft rings who steal the vehicles for export. The pathways of theft and laundering often overlap, taking advantage of legislative regimes or lax enforcement that allow vehicles to be exported from ports with little scrutiny.
  • Crime Vehicles. Luxury cars are a prime target for laundering due to the proclivity of criminals to be attracted to a lifestyle of consumptive wealth, provide a tool with which to invest their profits, and a means to perpetrate crime. These individuals often have no legitimate source of income and wish to avoid the oversight regime which regulates most financial institutions. They will either purchase vehicles using cash with the intention of laundering criminal proceeds, or rent vehicles in order to make it more difficult for the vehicles to be seized by law enforcement.
  • Money Laundering. Some dealers have historically accepted large sums of cash from suspicious individuals to pay for the vehicles. This allows buyers to clean their money since the dealers deposit the cash proceeds into mainstream financial institutions removing any footprint of the transaction at point of sale and removes the ability to determine the source of wealth at purchase. The Report notes several contributing factors including; (a) provincial regulators who are focused on consumer protection and not money laundering, (b) the increased use of foreign financing means instead of cash and of intermediary leasing companies acting as agents for buyers, (c) dealers not wanting to be put in a dangerous position by not accepting the forms of payment, and (d) vehicle industry associations who do not view cash-based sales as a significant concern.
  • Grey Market of Export Vehicles. They grey market is unregulated from a financial crime perspective, making it difficult to track the source of purchasers, companies involved, and methods of payment. Dealerships can engage in arbitrage by charging much higher prices in global marketplaces. Due to select tax provisions, an estimated $55 million in provincial sales tax ("PST") was refunded to criminal exporters.1 The dealers also co-opt civil servants to assist 'straw buyers' and exporters.
  • Independent Luxury Car Resellers. Select resellers of luxury vehicles are often noted for their willingness to deal with individuals involved in organized crime, many of whom are known to the police for serious criminal histories, typically for drug trafficking.

Red Flags

In response to many of these concerns, the BC Ministry of Finance raised several red flags that may indicate money laundering, including:

  • Seemingly altered vehicle registration documents;
  • The types of cars being high-value, high-end luxury cars;
  • Generic-looking export documents with suspicious inconsistencies;
  • Straw buyers struggling to explain anomalies in document;
  • Same straw buyers showing up for multiple transactions;
  • PST refunds that are going directly to vehicle exporters; or
  • Straw buyers who often do not speak English and act simply as signatories.

Report Recommendations

The Report makes several recommendations that could assist in reducing criminal activity at several points of the supply chain, including manufacturers, dealers, regulatory bodies and government:

  • Designate car dealerships as reporting entities to the Financial Transactions and Reports Analysis Centre ("FINTRAC") under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act ("PCMLTFA")2. Should they be so designated, car dealerships would be required to have in place an anti-money laundering compliance program, including appointing a compliance officer, having in place policies and procedures, training their staff and engaging in effectiveness reviews. In addition, they would become subject to certain identification, record-keeping and reporting requirements. 
  • Universal cash reporting of all sales over a certain threshold including;
    1. Prohibiting cash leases of vehicles where the yearly accumulated lease payments equal or exceed $10,000.
    2. Amending the Motor Vehicle Act3to prevent the acceptance of over $10,000 as a deposit on, or payment for a vehicle.
  • Institute Geographic Tracking Orders as a supplement to cash reporting.
  • Provide more permanent enforcement and legislative solutions targeting the specific commodity related to exporting and port activity.
  • Empower the Vehicle Sales Authority of BC to superintend luxury car resellers and require principals to obtain criminal record and background checks.
  • Include "not for export" clauses in purchase agreement from manufacturers.
  • Require 'straw buyers' to show, proof of payment via their bank account, proof of ownership for one year prior to refunding PST, have the refund cheque be mailed to their address as opposed to the exporter or third party agent, and provide evidence that taxes were paid on the vehicle in the jurisdiction to which it was exported.
  • Provide Ministry of Finance staff with the ability to track vehicles within Canada via VIN search.
  • Require all vehicles exported to be subject to cursory review by the Canada Border Services Agency ("CBSA") to confirm ownership.
  • Imposed transaction fees including export fees for grey market vehicles equivalent to a percentage of the PST refund and administrative fees for PST refunds.

The Bigger Picture

Money laundering in the luxury car market is one of several components of German's full report that also includes his recent findings on B.C.'s real estate sector. The report is intended to provide a window into money laundering in the province and inform the public of its dominance and economic impact. While the Report was focused on BC, there is a risk that similar issues could be at play in other Canadian provinces. Accordingly, auto dealers operating in Canada should be mindful of the risk of money laundering in this sector and of the fact that there may be future regulation addressing money laundering in this sector going forward.

Footnotes

1 PST is not payable if the vehicle is purchased with the intent to resell. The exporters are legally entitled to have the PST refunded costing BC tens of millions dollars, and is said to act a strong indication of the size of the grey market for exported vehicles.

2 In 2000, when POCMLTFA was enacted, vehicles were not considered to be of sufficient value to be used as tools for laundering proceeds of crime.

3 In Ontario, please refer to the Motor Vehicle Dealers Act, 2002 (Ontario).

To view the original article click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions