Team VADA eViews
The Digital Newsletter of Your Virginia Automobile Dealers Association
May - June 2008
Last month we continued our “Keys to F&I Compliance” series with an article on investigating retail used vehicles and deal completion deadlines. This month we address cash reporting and money laundering prevention.
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Vehicle history reports are essential on all used vehicles retailed
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You cannot rely solely on the vehicle history report; carefully inspect each vehicle
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Dealers need to have a deadline to complete or rescind deals
Have a Cash Reporting and Money Laundering Prevention Policy.
Failing to comply with cash reporting laws can lead to serious civil penalties. Those sanctions pale in comparison to the potential loss of the dealership and jail time involved in money laundering.
Failure to report cash received in excess of $10,000 can have a serious impact on a dealership. The penalty for intentional disregard of the reporting obligation is $25,000.00 per violation, rather than $50 for a negligent failure. And, the IRS is regularly contending that dealers have so many sources of information about the need to report cash that any failure is an intentional disregard.
These penalties pale in comparison to the consequences of a money laundering conviction, however. A dealership employee who is convicted of money laundering can do years in jail, the dealership itself can be found guilty of money laundering, and any conviction of the dealership or the dealer for money laundering can mean the loss of the franchise.
Too often, we hear dealership employees say that the transaction they’re involved in can’t be money laundering because it does not involve more than $10,000 in cash. This is a dangerous misconception.
Employers must train about the differences between cash reporting requirements and money laundering. Cash reporting is an administrative process to help the government identify those spending large sums of cash. A dealer must report cash (whether greenbacks, money orders, travelers checks, or cashiers checks in the face amount of $10,000 or less that are not the proceeds of a loan, or a combination) received in a transaction or a series of related transactions. Money laundering, in contrast, is a felony punishable by years in jail regardless of the amount of money or the form of money received if the recipient knows or should know that the funds are the proceeds of a designated illegal activity.
Adopt a Program
A dealer who wishes to avoid cash reporting or money laundering problems should put a program in place.
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The program should be in writing.
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The program should contain training in cash reporting and prevention of money laundering, and the differences between them.
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A coordinator should be appointed to be in charge of implementation of the program, training, and compliance.
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Employees should be trained in the elements of the program. The employee training should be ongoing, and it should be mandatory for new employees.
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Compliance with the dealership system should be regularly reviewed by the coordinator.
Don’t Leave Compliance Solely to the General Office.
Do not make the general office solely responsible for compliance. In cash reporting situations, there is information that may not be available if the compliance process does not start on the sales floor. Identification of a person in addition to the vehicle buyer who provides cash and itemization of the number of $100 bills are examples of information required by an IRS Form 8300 that will generally be unavailable if the cash reporting process starts in the general office.
Moreover, if money laundering prevention is the sole responsibility of the general office, a vehicle can be down the road before anyone in the dealership is even aware of the danger of delivering it.
Use a Backup System to Identify Reportable Transactions.
When the cash reporting responsibilities were originally created twenty years ago, $10,000 bought many cars. Today, $10,000 is just a nice down payment, and alarm bells sometimes don’t ring in the sales department when a cash downpayment in excess of $10,000 is received in a deal to be financed. That’s why back up is critical. Dealerships should use the electronic back up available in most computer systems used in dealerships today. Most DMS vendors provide the capability to run an IRS Form 8300 report to identify transactions that should be reported. These reports, however, are only as good as the information entered. Cashiers must be trained to code receipts accurately about the form of funds received in a deal.
Salespeople Must Understand The Signals of a Suspicious Transaction.
Money laundering seldom involves a buyer claiming to be a South American drug dealer who wants to spend his ill gotten gains. More often, it involves an attempt to hide the true buyer of a vehicle who may be seeking to conceal the source of his or her illegal funds. Sales and F&I personnel should be trained in the signals of a money laundering transaction:
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Any attempt to misstate the identity of a person trying to buy a vehicle.
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Any attempt to persuade the dealership to hide the fact that another person is going to be the true owner of the vehicle.
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Any offer of a bribe to facilitate misstating or hiding the owner of the vehicle.
The Dealership Should Stop a Suspicious Transaction.
Don’t listen to those who tell you that if a deal looks suspicious, just deliver it and check the suspicious transaction box on the IRS Form 8300. Dealership employees involved in money laundering in the past have been indicted even though an IRS Form 8300 with the suspicious transaction box checked was filed. In fact, filing this form helped the government indict the employees because it showed knowledge of illegality.
If the dealership is suspicious of a deal, the transaction should be halted. Dealership personnel should ask questions to resolve any concerns. If the concerns cannot be resolved, the vehicle should not be delivered, and the dealership should report the purchase attempt to the authorities.