Used cars at a yard in the Port of Mombasa. FILE PHOTO | NMG
Second-hand car dealers will be required to reveal the identity of buyers and their sources of income in the latest drive to combat money laundering and flow of illicit money.
The Financial Reporting Centre (FRC) says it is looking at a legal or a policy framework that will compel car dealers to report all transactions above Sh1 million and smaller payments that are deemed suspicious.
The move, if approved by the Cabinet and Parliament, will see second-hand motor vehicle dealers designated as non-financial reporting institutions, alongside entities andprofessionals such as casinos, accountants and real estate agents.
FRC director-general Saitoti ole Maika said findings of a risk assessment study, conducted by a high-powered anti-money laundering task force, 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.
“We are talking from experience (in regard to rampant cash transactions amongst car dealers). We are not building theories. The risk assessment included people from that sector being part and parcel of that exercise. And so, we were able to interact with motor vehicle dealers,” Mr Maika said.
“Our intention is to mine data on people buying cars from the dealers.”
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 — 109,751 in 2019 — and gobble up precious foreign exchange estimated at about Sh70 billion a year.
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’s 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,” Mr Maika said.
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 unusual deals, the regulations require designated firms to submit to the FRC an annual compliance report by January 31 of the following year.
Auto dealers said they would have no option but abide by the stringent anti-money laundering rules, noting that Kenya was “part of a family of nations”.
“Since we are trading internationally, sources of income or how you do your business must follow the international laws. They are very strict and we have not been following,” Kenya Auto Bazaar Association (KABA) chairman John Kipchumba said.
“Our members will have to start following (the rules) because if you go to banks you cannot deposit Sh1 million without saying where you got it from. So it’s one of those things, when it comes, we have to follow because all other nations are abiding.”
The push for car dealers to report suspect transactions comes in a period when the State is looking to add more businesses and professions to the list of entities with reporting obligations.
Lawyers, employees of accounting firms and trusts holding assets for wealthy people will be required to report suspicious trades and transactions to the FRC once fresh changes to the law are brought to Parliament.
Trustees have been included in the list amid suspicion that Trusts are becoming the choice vehicles for laundering proceeds of crime and corruption.
Owners of accounting firms are covered in the current law, but the amendments will see their employees now expected to report to the FRC.
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.