Treasury wants income proof of used car dealers, buyers

Treasury Cabinet Secretary Ukur Yatani. PHOTO | FRANCIS NDERITU | NMG

Car dealers will be required to reveal the identity of buyers and their sources of income if Treasury proposals seeking to seal loopholes for the money laundering and flow of illicit money are adopted.

The Treasury also wants the source of cash for owners of car dealers vetted, warning that that weak regulation of the used car market is making the business attractive to drug dealers and fraudsters.

Treasury Cabinet Secretary Ukur Yatani is seeking a review of the law to allow filing of transactions in the used car market with the Financial Reporting Centre (FRC)—which is mandated to track illicit cash.

The review will see second-hand motor vehicle dealers designated as non-financial reporting institutions, together with entities and professionals such as casinos, accountants and real estate agents.

There will be more scrutiny on the source of cash that car dealers deposit in banks to curb money launderers from using them as front companies that can claim the cash as legitimate business proceeds.

Car dealers will be obligated to disclose the names, addresses, date of birth, ID number and occupation of buyers as well as date of transaction and amount involved, among others.

Imported second-hand vehicles account for 90 percent of Kenyan car purchases — 107, 499 in 2021 — and gobble up precious foreign exchange of nearly Sh100 billion a year.

“Car dealers should be designated as reporting institutions for the purposes of reporting money laundering suspicions to the FRC,” said Mr Yatani in a money laundering risks review report.

“The money laundering threat in second-hand car dealerships is rated as medium high due to the weak regulatory controls.

There is a likely increase in the level of threat in the future due to the lack of clear regulations for monitoring the sector.”

Anti-money laundering rules make it hard to deposit large sums of cash generated by illicit business directly into Kenyan banks.

Owners of illicit money can turn over cash to money launderers who own or control car dealerships.

If the bank receiving the cash does not collect sufficient information from the second-car dealer it becomes harder to determine the origin of the funds.

The findings of a previous risk assessment study under the FRC showed that second-hand car ventures cut deals worth millions of shillings in cash without questioning the buyers’ sources of income.

The anti-money laundering watchdog reckons the suspicious cash transactions in car sales, a majority of which are valued at more than Sh1 million, usually take the form of walk-in buys or deposits, with the balance being cleared in instalments.

The FRC reckons that drug dealers and fraudsters have an appetite for buying cars, land and houses, often in cash.

Owners of illicit cash have been fingered for buying second-hand cars with the aim of selling and cleaning their dirty money.

“For them [car dealers], there is a big challenge because it is an industry that is not regulated. Other than the NTSA issuing permit prescribing them as second-hand dealers, it is more or less unregulated. That is a challenge in itself,” FRC director-general Saitoti ole Maika said earlier.

The Proceeds of Crime and Anti-Money Laundering Act (Procamla) requires financial and designated non-financial institutions and professionals to report any suspicious or unusual transaction to the FRC — the agency established in April 2012 to identify and combat money laundering and financing of terrorism.

Besides reporting suspicious deals, the regulations require designated firms to submit to the FRC an annual compliance report by January 31 of the following year.

The push for car dealers to report suspect transactions comes in a period when the State has added more businesses and professions to the list of entities with reporting obligations.

Lawyers, employees of accounting firms and trusts holding assets for wealthy people are required to report suspicious trades and transactions to the FRC.

Trustees have been included in the list amid suspicion that trusts are becoming the choice vehicles for laundering proceeds of crime and corruption.

Lawyers are targeted in property transactions, bank accounts management, company acquisitions and setting up of start-ups.

They have recently emerged as a weak link in the fight against money laundering by using bank accounts for depositing clients’ cash as a shield to reporting to the FRC.

Kenya has been fingered for illicit money entering the country from crime, drugs, corruption and shady business activities, illustrated by homes in leafy suburbs and luxury cars.

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