Motor Vehicle Dealers Defraud Govt of P62m

Botswana lost more than P62 million in less than five years due to finance-related offences by motor dealerships that ranged from evading customs duty to smuggling goods into the country. This is according to the latest money laundering threat assessment report by the Financial Intelligence Agency (FIA). [ihc-hide-content ihc_mb_type="show" ihc_mb_who="1,2,3,4" ihc_mb_template="3" ] The report is based on the analysis of predicate offences relating to the car dealership sector from 2017 to 2021. Commenting on the report, the Director General of FIA, Bopelokgale Soko, said the agency conducted the car dealership sector risk assessment in terms of Section 49 (1) (g) of the Financial Intelligence Act, 2022. “The aim is to ensure that criminals do not use the financial system to clean dirty money and finance terrorism activities,” she said. According to the report, the number of predicate offences reported by law enforcement agencies (LEAs) during the review period were 150, translating to P64 million. These offences included false declaration (undervaluation and Fiscal fraud), smuggling, tax evasion, and unlawful possession of dagga. “Out of all the predicate offences assessed, motor dealers were directly involved in false declaration, tax evasion and smuggling, with false declaration being the most prevalent predicate offence in the sector,” says the report. There were three reported cases of tax evasion during the review period, with revenue lost amounting to P12 million. The report says during the period 2019-2020, the Botswana Unified Revenue Services (BURS) reported cases of fiscal fraud where clearing agents aided taxpayers to reduce their tax liability by using forged invoices to declare motor vehicles. “Out of the 78 car dealerships reported above, a sample of five car dealerships which undervalued 820 vehicles was drawn to demonstrate the tax revenue that could have been lost had BURS not intervened,” the report says. During the period under review (2019-2020), BURS reported 120 cases of false declaration involving 4 074 vehicles imported by 78 motor dealers. The total amount of tax revenue recovered from the cases was P28, 214,822.55. These included cases of both undervaluation and fiscal fraud. The report states that motor dealerships were not complying with the Anti-Money Laundering (AML), Counter-Financing of Terrorism (CFT) and Financial Crimes Prevention (CFT) laws. It says the money laundering “threats resulting from tax evasion was rated high considering the significant amount of revenue lost”. One case reported indicated that one of the motor dealers smuggled goods (batteries and other car accessories) by hiding them in the imported vehicles. “Entry controls were assessed to be ineffective, mainly because the licensing authorities did not have a ‘fit and proper’ test designed to prevent criminals or their associates from being granted a business registration certificate or being the beneficial owner of a significant controlling interest in the business or holding a significant management position,” the report explains. Licensing authorities were not adequately resourced to ensure quality implementation of entry controls and supervision. “The licencing authorities did not require licensees to have adequate AML/CFT/CFP compliance controls in place, including compliance manuals and designation of anti-money laundering and counter financing of terrorism compliance officer since they did not implement the FI Act,” the report says. It notes that despite the existence of administrative fines in the FI Act, none were sanctioned against a dealership or member of a motor dealership’s senior management in case of non-compliance with AML/CFT/CFP obligations during the period under review. “Licensing authorities were not adequately resourced to ensure quality implementation of entry controls and supervision,” the report says. FIA found that 91 percent of the 22 local authorities which responded to the questionnaire were found to be not aware of the FI Act and the obligations relating to motor dealers. The report says the assessed predicate offences were committed in Botswana and the proceeds were mainly laundered domestically. “The total amount of proceeds used to purchase vehicles in Botswana and South Africa amounted to P20 365 414.57,” it says. The report found that implementation of targeted financial sanctions by motor dealers during the period under review was assessed to be unsatisfactory. FIA also found that the lack of Terrorism Financing (TF) information posed a challenge in assessing the TF risks related to motor dealers. “Dealerships did not comprehensively ascertain information on their customers, especially legal persons, legal arrangements, NGOs and foundations, in line with the Financial Intelligence (FI) Regulations,” the reports notes. “During the period under review, 50 percent of the filed Suspicious Transaction Report (STRs) from motor dealers were rejected. “This could be attributed to lack of understanding which affects the quality of STRs.” The FIA assessment established that there was lack of capacity at ports of entry, including lack of specialised training to conduct effective searches of vehicles for illicit items such as smuggled cash and drugs, as well as lack of equipment and devices to conduct body search. “This was evidenced in one of the assessed case studies where a motor dealer imported pre-owned motor vehicles which were used to conceal and smuggle motor vehicle accessories into the country,” says the report. The dealership only declared vehicles. According to the report, law enforcement agencies reported five cases of offences related to obtaining by false pretense during the period under review with associated total proceeds of crime amounting to P11.9 million. “An amount of P2,723,000.00 was used to purchase vehicles locally, and the vehicles were recovered and seized by Botswana Police,” it says. In view of this, the report concluded that obtaining by false pretense poses medium-high money laundering threat as indicated by large proceeds of crime involved. “Based on the foregoing, it was established that theft is a significant predicate offence considering its diverse nature, the number of cases reported and the total amount of proceeds of crime involved,” says the report. [/ihc-hide-content]

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