Report pinpoints car dealerships as money laundering hotspot
The Financial Intelligence Agency (FIA) says the time for kid-gloves is over, after a damning report by a multisectoral team of authorities released this week found that the car dealership industry, particularly the used imports arena, was the country’s prime sector for money laundering.
The report, the first of its kind, found that about P65 million was pilfered by criminals through various tricks in the car dealership industry between 2017 and 2021 and part of these funds were then cleaned through the same industry. At least P20.4 million of the proceeds were used to directly purchase vehicles in Botswana and South Africa during the five-year period.
Top crimes, known as predicate offences, included false declarations, undervaluation, smuggling, tax evasion, stealing by civil servants and others.
“The predicate offences are where the money was obtained illegally,” FIA director-general, Bopelokgale Soko told Mmegi on Wednesday.
“Obviously if I have a bag of money in my house that I have to use, to do that I would not go to an institution or sector where many questions will be asked.
“So they will look for areas where they know that it will be easier to use that money and pretend that they sold cattle or got the money from legitimate sources.
“The car dealerships are a washing machine used to clean the money so people will think the funds were from promotions at work or other legitimate purposes.”
Previous risk assessments by the Finance Ministry had singled out the non-profit sector, which includes religious societies, burial societies, youth groups, charitable organisations and sporting clubs, as a high risk for money laundering and funding of terrorism.
The latest findings by the FIA and partners such as the Directorate of Intelligence and Security, Directorate on Corruption and Economic Crime, police, BURS, immigration and others, show that the car dealerships, especially those involved in used imports are a prime target for those looking to “clean their money”.
In one case clearing agents used
P1.37 million in proceeds of crime to purchase vehicles, while in another, a public officer made off with P9.12 million which he attempted to clean by buying motor vehicles.
“There was an indication that it is easier to launder money in the car dealership sector because as the report shows, there are so many loopholes in this sector.
“These are clever people, they know this and it is not new information to them.
“They do their research on where can they can launder,” Soko told Mmegi.
Botswana spent three years from 2018 greylisted by global authorities for its structural weaknesses to detect and stamp out money laundering and associated crimes. There are fears that the loopholes in the car dealership sector could attract the “clever people” and their dirty cash from all over the globe.
Some of the loopholes identified by the multisectoral team include ineffective entry controls because licensing authorities do not have a “fit and proper” test designed to prevent criminals from being granted business registration or being beneficial owners. In addition, licensing authorities, which are mainly local authorities, did not require licensees to have adequate anti-money laundering compliance controls in place.
In fact, of the 22 local authorities who bothered to respond to a questionnaire by the multi-sectoral team, 91% were not aware of the Financial Intelligence Act and its obligations towards car dealers.
The report shows that even as troubling as the findings are, they are just the tip of the iceberg.
“The number of operators in the motor dealership industry could not be determined with certainty because only 22 of the 31 local authorities responded to the circulated questionnaire,” the report reads.
The investigators found that most car dealerships’ dealings involved large cash transactions of P10,000 and above and these were not notified, as required by law, to the FIA. Dealerships did not bother to verify whether they were dealing with wanted criminals or people on international sanctions lists.
The report, however, also found that despite the numerous loopholes, crimes and offences, the FIA had not penalised any of the car dealerships or their top personnel between 2017 and 2021. This is despite adequate provisions for such in the Financial Intelligence Act.
“We would monitor and ask for updates to see if the deficiencies were closed under an approach called moral suasion but this has proven to be ineffective because the car dealerships continue to not fully comply with the Act,” the Authority’s Tebogo Thapelo said this week at the multisectoral team’s workshop.
“As the supervising authority we are left with no choice.
“As a mother, when there’s a child you inform them of the rules and regulations of the house and if they don’t put them into place, you have to do something.
“The next thing that the supervisory authority is forced to do is go to the law, which provides for the penalties.”
She added: “If you use the stick on one child, others will see and know that they have to comply.”
Under the law, the FIA can impose fines on errant car dealers or recommend that local authorities revoke or suspend licences.
Analysts say even as it rattles its sabres, the FIA’s effectiveness in reining in rogue car dealers will be impacted by the fact that many are unlicensed, operate unregulated from residential plots and provide ample room for money laundering.
“In Mogoditshane, in one month a certain place was a LPG gas retailer and the next month it was a car dealer, which shows that they don’t have a licence.
“As legitimate dealers, we are also fighting with these tricksters who are not paying tax and yet we also have the FIA on our backs,” Hassan Yoonus, secretary-general of the Botswana Used Motor Dealers Association told the meeting with the multisectoral team
this week.