It’s no secret that criminals have long bought cars (often used cars) with cash as a way to launder money. With demand for used cars on the rise, now is the time for dealership professionals to refresh their memories on warning signs that a customer may be attempting to launder money.
Here are seven:
1. Zero Negotiating on Price
When a buyer doesn’t negotiate at all on a car’s price, it’s a red flag.
Money laundering happens when a criminal conceals the origins of money obtained from criminal practices. While a legitimate buyer likely wants to explore all possible avenues for reducing sticker price, the money launderer is more concerned with their ability to funnel their money into a legitimate purchase, like a car.
2. Frequent Purchases and Trade-ins
A money laundering transaction is complete when the criminal sells the asset they purchased with dirty money for clean money they can then deposit into a bank.
If a buyer comes in every six months to trade in their car and buy a new one, pay attention. This isn’t a financially savvy move because of how cars depreciate, which means the buyer may have nefarious motivations.
3. Asking about “The Form”
Dealerships have to file a Form 8300 with the IRS when someone pays more than $10,000 in cash (or cash equivalent) for a vehicle or for services provided by the dealer. This form was created to help the government identify and track people who spend large amounts of cash to deter, among other things, money laundering.
Many people engaging in money laundering know about this form and want to do everything in their power to stay off the IRS’s radar. If someone asks you whether you’ll have to fill out “the form” for the purchase they’re planning — and, yes, this happens — that’s a major red flag and can lead to an attempt for the customer to “structure” the deal to avoid the Form 8300 filing requirement.
4. Paying Just Under $10,000 in Cash
Of course, those who know how Form 8300 works may simply opt for transactions where they pay less than the $10,001 threshold in cash. If a buyer insists on paying something like $9,999 in cash, that’s a red flag.
F&I professionals know, of course, that they can file Form 8300 even if a buyer pays less than $10,000 in cash if a transaction seems suspicious. Although perhaps the better course of action would be to not go forward with that suspicious deal in the first place.
5. Third-Party Payments
Payments from third parties are sometimes overlooked regarding filling out the Form 8300, simply for the fact that the name of the third party is not on the purchase contract.
The fact that a third party is providing a large cash payment also limits the paper trail of that third party’s activities.
When someone returns to your dealership over and over acting as a third-party “piggy bank” for different customers, it can be a sign that the person is looking for a way to clean a lot of dirty money.
6. Straw Purchases
A “straw purchase” is a transaction where financing is obtained, but the person primarily driving the vehicle is not named on the contract, title, and/or insurance. Where we can see a straw purchase and money laundering overlap is where the straw buyer is provided money for the purchase of the vehicle by a third party, the money launderer. The straw buyer may then sell the vehicle within a certain time frame and return the “cleaned” proceeds to the third-party launderer.
Typically, this scheme involves the primary buyer of the vehicle to sell it within a certain time frame and return the proceeds to the third-party buyer.
7. Generic-Looking Documents or Paperwork
As you’re reviewing a customer’s paperwork, be on the lookout for documents that may be forged. Foreign IDs that you can’t validate or an “international driver’s license” (not a real thing), for example, should put you on alert.
While there are perfectly legitimate reasons that a buyer might have a non-U.S. identification, trust your instinct if something about the document you're viewing feels off.
Play Defense and Consider the Full Context
At a car dealership, everyone should be trained to recognize the signs of money laundering — and to understand the full context of a transaction. It’s important to note that, while the behaviors in this article can be red flags, it’s also possible that they have a perfectly benign explanation.
Still, actively managing risk is essential. If you suspect money laundering, your dealership personnel should stop the car deal immediately. If you are negligent and/or if your behavior otherwise contributes to a criminal’s ability to launder money, you could face fines and jail time.
The good news here is that a little education goes a long way. Make team training and awareness priorities at your dealership, and you’ll be in good shape.
Aaron Hartshorn is a district manager, F&I and compliance, at KPA, an environment, health and safety (EHS) and workforce compliance software and services provider for mid-sized businesses.
