By Miguel Cassagne 

(Specialist in AML/CFT/CPF and head of CASSAGNE Consultores) 

Introduction

Money laundering, terrorist financing, and more recently, the financing of the proliferation of weapons of mass destruction (ML/TF/PF) are global threats that affect various economic sectors both locally and globally, and the automotive sector is no exception.

Money laundering, in particular, jeopardizes the stability and credibility of a country's financial sector, while terrorist financing and the financing of the proliferation of weapons of mass destruction threaten national security and the safety of the general population. These crimes also impact the normal functioning of a nation's life and business environment.

Therefore, actions to prevent and combat ML/TF/PF are not only a moral imperative but also a matter of security and economic necessity.

In Latin America, car dealerships are in a vulnerable position due to the high value of vehicles and the ease with which they can be used to legitimize illicit funds.

In Argentina, dealerships are classified as Obligated Entities under Law 25.246, which requires them to implement strict preventive policies against money laundering, terrorist financing, and the proliferation of weapons of mass destruction (AML/CFT/CPF).

This article provides a detailed analysis of the inherent risks in the automotive sector, the preventive measures that dealerships must adopt, and the legal and reputational consequences of non-compliance with these obligations.

1. Money Laundering: Conceptualization, Criminal Typification, and Consequences

Money laundering can be defined as the process of giving a legal appearance to funds obtained from illicit activities so that they can circulate in the formal economy.

Article 303 of the Argentine Penal Code, when defining this crime, states that laundering assets is the action of anyone who ?...converts, transfers, administers, sells, burdens, disguises, or in any other way puts into circulation in the market assets derived from a criminal offense with the possible consequence that the origin of the original or substitute assets acquires the appearance of a lawful origin, provided that their value exceeds 150 SMVM (previously $300,000, and today, considering that the SMVM in June 2024 is $234,31512, it would be an amount equal to or greater than $35,147,277), whether in a single act or through the repetition of various interconnected acts.?

In this sense, without delving deeply into the analysis of the criminal typification of Article 303 mentioned above, we can say that money laundering requires an entire "process" that the launderer must go through and carry out to enjoy the proceeds of the crimes without leaving traces of their origin, thus reducing the risk of being discovered.

Like any process, it is divided into stages. Generally, for didactic purposes, when explaining the laundering process, it is considered to consist of the following three stages, which may or may not occur in a particular case:

- The Placement Stage: Considered the initial stage of the process, through which the launderer introduces assets from the crime into the financial system (legal financial circuit).

- The Layering Stage: The second stage, in which the assets already introduced into the financial system are further separated from their illicit origin through multiple transactions to make their traceability more difficult. As in the previous case, layering can take various forms.

- The Integration Stage: The final stage of the process occurs when the now "clean" funds are reintroduced into the economy as legitimate income or investments.

These three stages can also be observed in the schemes of Terrorist Financing and the proliferation of weapons of mass destruction crimes, with the exception that in these crimes, the first placement stage may involve the use of money or assets obtained both lawfully and unlawfully, and in the third integration stage, it will involve the distribution of funds to terrorists and the organizations that support them or the provision of funds for the proliferation of weapons of mass destruction.

Money laundering is a complex crime that initially seems not to be taken very seriously by most people in society because, compared to common crimes, it is relatively new and is often referred to as a victimless crime since it does not harm any specific individual. However, money laundering affects people who do not even realize they are victims of the crime.

Among the most prominent consequences of money laundering are the deterioration of morals, the increase in corruption and organized crime, the concentration of illegal wealth in the hands of criminals, the initiation of inflationary processes, unfair competition, and the country's discredit and poor image, which affect investments and economic expansion.

In this sense, while it may seem like a victimless crime, when it occurs, the victims are far more numerous than in any other crime because it is a crime against society as a whole, against economies, and the rule of law. For this reason, it is considered a global threat that is also being prevented globally and in coordination between states, both nationally and internationally.

When money laundering is successful, it allows criminals to maintain control over their source of resources and provides them with legitimate cover for their source of income. When this happens, criminal activity becomes more attractive, encouraging the growth of organized crime.

In this sense, failing to detect or combat this crime is a way of promoting the criminal's business, which is to commit crimes because nothing affects their profits.

Money laundering differs from other crimes in the variety of ways it can be committed and the quality of the people who commit it. It can involve both prestigious institutions and individuals of impeccable appearance.

In short, the policies for preventing these activities, their typification, and criminalization aim to ensure that, in the long run, criminals pay or return the assets obtained criminally. The goal is to hit them where it hurts the most, depriving them of the resources obtained illegally, with the conviction that without the ability to use the proceeds of the crime, criminal activity will not continue.

2. Money Laundering through the Latin American and Argentine Automotive Sector

In Latin America, the automotive sector is particularly susceptible to this crime, and in fact, it is one of the methods through which this crime is perpetrated, motivated by several reasons.

Firstly, the high value of vehicles makes automobiles, especially high-end ones, attractive instruments for laundering large sums of money.

Additionally, the purchase of vehicles in cash remains a common practice among criminals, who find the relative lack of specific regulation in the automotive sector a fertile ground for their operations.

According to reports from the Financial Action Task Force (FATF), the most common predicate offenses associated with money laundering in the automotive sector include drug trafficking, public corruption, smuggling, illegal mining, and illegal logging.

Countries such as Colombia, Mexico, Brazil, and Argentina, with growing economies and high levels of corruption, are the most affected.

3. Activities of Car Dealerships and Their Associated Risks: Risks and Red Flags

Car dealerships engage in a series of activities that can be used for money laundering if adequate controls are not implemented.

These activities include the promotion and advertising of vehicles, customer service and advice, pricing, negotiation, formalization of operations, invoicing, payment receipt, and delivery of the vehicles.

In all these stages, there is a risk that illicit funds may be funneled unless strict Know Your Customer (KYC) procedures and thorough due diligence are followed.

In this regard, dealerships must be alert to various red flags that may indicate attempts at money laundering.

These include, for example, when a customer pays the full price of a vehicle in cash in a single transaction, refuses to provide personal information, or provides false or incomplete data.

It is also suspicious if the customer's occupation or financial situation does not match the type of vehicle they intend to purchase or if repetitive vehicle purchases are observed within a short period.

Another significant red flag is when the buyer is a politically exposed person (PEP) or has links to PEPs, and when payments are made from different accounts or by different individuals.

The Specific Resolution issued by the Financial Information Unit (FIU) identifies, by way of example, some situations that could be considered unusual or suspicious or as "red flags" to be taken into account by dealerships for closer scrutiny to conduct exhaustive monitoring and enhanced due diligence to determine if they are susceptible to being considered suspicious of money laundering and therefore reported to the agency.

Proper identification and knowledge of the customer, transaction and risk profiling, monitoring of their operations, determination, and treatment of unusual activity for confirmation or rejection, and finally, reporting of these signals are essential to prevent dealerships from being used as vehicles for money laundering.

4. Dealerships as Obligated Entities and Part of Argentina's Mixed AML/CFT/CPF System.

Based on Argentina's compliance with international commitments, our country adopted a National AML/CFT/CPF System. This is based on the regulations that have been issued locally, following the standards of the Financial Action Task Force (FATF) Recommendations but adapted to the idiosyncrasies of this country, as we have already detailed.

This system has the characteristic of being a mixed system in which the state (and its specific agencies) and the public and private obligated entities interact, including within the latter category, car dealerships.

Indeed, in Argentina, car dealerships are categorized as Obligated Entities required to report to the Financial Information Unit (FIU) under section 22 of Article 20 of Law 25.246 (as amended by Law 27.739 ?formerly section 21?).

The new section 22 of Article 20 of Law 25.246 (amended by Law 27.739) indicates that "The following are obligated to report to the FINANCIAL INFORMATION UNIT... 22. Individuals or legal entities or other structures with or without legal personality whose habitual activity is the sale of automobiles, trucks, motorcycles, buses, and minibuses, tractors, agricultural and road machinery, ships, yachts and similar, aircraft and aerodynes."

This means that the state has considered dealerships as one of the economic entities that, given the characteristics of their business, are susceptible to being used by criminals disguised as "customers" to carry out ML/TF/PF crimes that are intended to be prevented.

Therefore, as Obligated Entities, dealerships must actively participate in preventing these crimes, and to this end, they must comply with the AML/CFT/CPF policies required by the Argentine regulatory framework applicable to them, composed of the aforementioned law, regulatory decrees, FIU Resolutions, and other relevant regulations.

Within this regulatory framework, we highlight the FIU Resolutions. Indeed, to fulfill the legally assigned mission, Article 14 of Law 25.246 grants the FIU various powers, including the power to issue directives and instructions that Obligated Entities under this law must comply with and implement (section 10), which can then be monitored for compliance according to the control systems established by the FIU under the power granted in section 7 of the same Article 14.

As a result, the FIU has issued various Resolutions, of which we will mention only those that we consider useful for the purposes of this exposition.

In this regard, and for purely didactic purposes, we can divide the FIU Resolutions that make up the regulatory framework of Argentina's AML/CFT/CPF system applicable to car dealerships into:

- FIU Specific Resolution regulating the minimum AML/CFT/CPF policies applicable to the dealership sector: FIU Resolution No. 489/2013;

- Complementary FIU Resolutions applicable to all obligated entities (including dealerships); and

- More generic FIU Resolutions such as those regulating the supervision process or the Administrative Sanctioning Regime, e.g., FIU Resolutions Nos. 61/2023 (which regulates the risk-based supervision procedure when conducted by the FIU itself for supervisions initiated after April 14, 2023) and 90/2024 (published in the Official Gazette on June 18, 2024, which approves the new "Regulation of the Summary Procedure for the Application of Sanctions provided for in Chapter IV of Law 25.246).

5. AML/CFT/CPF Obligations for Dealerships.

The Financial Information Unit (FIU) plays a central role in supervising and regulating Obligated Entities in Argentina, including car dealerships. The FIU's mission is to prevent and combat money laundering, terrorist financing, and other economic crimes by collecting, analyzing, and transmitting information to the competent authorities.

In this context, the FIU has established a regulatory framework that imposes specific obligations on car dealerships. In line with Law No. 25.246, the regulatory resolutions issued by the FIU require dealerships (as Obligated Entities) to establish and implement certain Preventive Policies, including:

- A.) Preventive Obligations:

These include registering in the FIU's SRO+ system, appointing a primary and alternate Compliance Officer, keeping registration data updated in the SRO+ system, establishing AML/CFT/CPF processes according to the dealership's business characteristics and structure, and in this regard, developing a procedure manual on AML/CFT/CPF that sets out the minimum requirements of the FIU's AML/CFT/CPF Policies. This manual must be kept up-to-date at all times, and dealerships must provide annual training, conduct annual audits, etc.

- B.) Customer Due Diligence Obligations:

These involve establishing policies to identify and know all customers, policies for customer acceptance, policies to determine the transactional and risk profiles of each customer, requesting sworn statements on the origin and legality of funds, requiring supporting documentation, and maintaining the documentation for each customer in a file for the legal retention period.

- C.) Operational Obligations:

These include monitoring transactions carried out by customers and analyzing the transactions or operations they perform to detect possible suspicious transactions of Money Laundering and/or Terrorist Financing or CPF. Such transactions ? as previously mentioned ? will trigger Suspicious Transaction Reports (STRs) to the FIU.

- D.) Information Reporting Obligations:

These not only include reports of suspicious transactions related to ML/TF/CPF but also Registration and Compliance Reports (when an Obligated Entity fails to provide proof of registration with the FIU), reports of transactions involving virtual currencies, and Freeze Order Reports (communications that Obligated Entities must make upon receiving Freeze Orders issued by the FIU, with the aim of immediately immobilizing any assets, money, or other goods suspected of being used to finance terrorist activities).

- E.) Process Systematization Obligations:

Depending on their internal structure, dealerships are required to implement a Database that allows them to consolidate, analyze, and monitor customer transactions to identify potential suspicious transactions. This implies establishing alert systems that enable them to: a.) effectively establish control and prevention systems for Money Laundering and Terrorist Financing; b.) keep records of analysis and risk management of unusual transactions detected and those that, having been considered suspicious, have been reported. To this end, the regulation requires the implementation of a computerized database that allows the Obligated Entity to be aware of all transactions carried out by its customers (Article 3, section f of FIU Resolution No. 489/2013).

6. Supervision and Disciplinary Regime Applicable to Dealerships.

As Obligated Entities, dealerships are subject to the Supervision Procedures provided for in Law No. 25.246 and its amendments, which aim to verify the compliance of these entities with all their obligations in terms of AML/CFT/CPF.

Article 14, section 7, of the cited law establishes that the Financial Information Unit is empowered to: "Implement internal control systems for the persons referred to in Article 20. To implement the internal control system, the Financial Information Unit (FIU) shall establish procedures for supervision, auditing, and on-site inspection to control compliance with the obligations established in Article 21 of the law and the directives and instructions issued under the powers of Article 14, section 10..."

This procedure has been regulated by various FIU Resolutions that have evolved over time, with the current procedure being regulated by Resolution No. 61/2023, which aims to apply the Risk-Based Approach (RBA) to the supervision procedure to seek the greatest effectiveness of the system.

In summary, dealerships are subject to verification procedures (supervision) of their compliance with their obligations, which may be carried out by the FIU. Depending on the findings of these procedures, dealerships may be subject to disciplinary action in the event of non-compliance with AML/CFT/CPF regulations and potentially sanctioned.

Indeed, if the supervision procedure reveals irregularities or alleged non-compliance with the obligations arising from Law No. 25.246 and its amendments and/or the provisions of the resolutions issued by the Financial Information Unit, the summary procedure established by FIU Resolution No. 111/12 (for cases where the summary's opening act was notified before June 18, 2024) or the new summary procedure established by FIU Resolution No. 90/2024 (for all summaries where the opening act is notified to the Obligated Entity after June 18, 2024) will be followed.

This is to assess whether the dealership in question indeed failed to comply with its obligations and, if so, to apply the sanctions established by the current regulations.

7. Sanctions Applicable to Dealerships.

Failure to comply with any of the obligations arising from Law No. 25.246 and its amendments and the resolutions issued by the FIU may result in sanctions. Once the summary has been processed, the Obligated Entity may either be acquitted or sanctioned.

Before describing the specific types of sanctions established by the Administrative Sanctioning Regime under Law No. 25.246 that may be applied to non-compliant dealerships, it is worth noting that:

- The imposed sanction may be appealed before the Federal Administrative Litigation Court through a Direct Appeal (with suspensive effect).

- The imposed sanction will be communicated to the Obligated Entity and the members of its management body, the State Control Agencies, Self-Regulating Entities, and the relevant Professional Colleges or Councils for publication in their bulletins.

- Sanctions consist of a fine for the Obligated Entity and an identical fine for all members of the management body (joint liability), including the Compliance Officer.

Among the sanctions applicable to dealerships, we find:

- a) Fine for Non-Compliance with STR Obligations: Failure to report a suspicious transaction may result in a fine that is graduated in the legal text concerning the amount of the unreported transactions, ranging from 1 to 10 times the value of the operation.

In principle, the applicable sanction for failing to comply with the obligation to report is a fine, although the law leaves open the possibility that if a crime has been committed, the Financial Information Unit may resort to the judiciary for the eventual application of custodial sentences or other sanctions.

- b) Fine for Other Non-Compliance: In addition to unreported STRs, other non-compliances with the provisions of Articles 14, section 10, and 21, section a, of Law No. 25.246 and various resolutions issued by the Unit as a consequence are sanctioned by the FIU with fines that must be graduated between 15 and 2,500 Modules - currently valued at $40,000, as established by Article 24, section 3, of Law No. 25.246, as amended by Law No. 27.739 - currently ranging from $600,000 to $100,000,000 for each non-compliance.

Examples of some of these non-compliances include failure to register with the FIU, failure to appoint a Compliance Officer, lack of a procedure manual, deficiencies in customer due diligence processes, etc.

- c) Other Sanctions: The amendment to Law No. 25.246 by Law No. 27.739 (dated March 15, 2024) introduces new sanctions to the Administrative Sanctioning Regime, which may be applied to dealerships, namely: (i) **WARNING** with or without publication; (ii) **DISQUALIFICATION** of the Compliance Officer and members of the management body of legal entities; and (iii) **REVOCATION OF THE AUTHORIZATION TO OPERATE**, to be suggested by the FIU to the specific control agencies, registries, and/or professional organizations responsible for regulating the respective profession or activity.

In summary, failure to comply with these obligations can result in severe administrative sanctions for dealerships that could affect their finances, business, and reputation. These sanctions include significant fines, disqualification or prohibition from operating, among other penalties and harmful consequences, such as reputational or criminal risks, as association with suspicious transactions can damage the dealership's image and brand, leading to the loss of customers and the trust of financial providers. This is in addition to potentially being involved in criminal cases.

Therefore, it is crucial that dealerships implement and maintain a robust prevention system at all times that complies with all legal requirements. For this, a risk-based approach is vital for dealerships.

### 8. Risk Assessment for ML/TF in the Automotive Sector

A risk-based approach is vital for dealerships to effectively identify and mitigate the risks inherent to their activities. This is true even though the specific FIU Resolution has not yet been adapted to the new AML/CFT/CPF policies to be applied with a Risk-Based Approach (RBA), as has been the case with the updates of the specific resolutions for other obligated entities in recent years.

The risk-based approach includes segmenting customers according to their risk profile, implementing differentiated controls based on the level of risk, and conducting periodic audits to assess the effectiveness of the implemented measures.

Risk assessment is a crucial process for car dealerships to effectively manage the risks of ML/TF/CPF. This process must be continuous and proactive, adapting to the particularities of each dealership and to changes in the regulatory and market environment.

Risk factors include the customer?s profile, the nature of the products or services offered, the geographical location of the dealership, and the distribution channels used. Based on the risk assessment, dealerships should design and implement controls that mitigate the identified risks and continuously monitor the effectiveness of these controls.

9. Benefits of Strict Compliance for Dealerships.

Despite the challenges involved in implementing an AML/CFT/CPF prevention system, dealerships that adopt a proactive and rigorous approach to regulatory compliance can reap several benefits beyond merely avoiding sanctions.

These benefits include mitigating legal and reputational risks, enhancing trust and credibility with customers and business partners, and strengthening relationships with financial institutions.

Additionally, strict compliance can reduce or eliminate significant accounting contingencies and provisions resulting from potential sanctions and fines that may be imposed by the FIU and other state authorities, which could endanger the dealership's finances and business operations.

Moreover, strict compliance can lead to competitive advantages, as dealerships that stand out for their commitment to transparency and business ethics are perceived as more reliable and professional, which can attract high-profile customers and improve market positioning.

10. Collaboration with Authorities and the Role of the Private Sector.

The success of AML/CFT/CPF policies does not depend solely on the individual actions of dealerships but also on close collaboration with authorities and other entities in the private sector.

The FIU and dealerships must work together to exchange information and experiences that can improve systems for detecting and preventing illicit activities.

Furthermore, the automotive sector can benefit from collaboration with other sectors, such as banking and insurance, to develop common practices and high standards that make it difficult for criminals to operate.

This collaboration should be seen as a joint effort to protect the integrity of the market and contribute to the country's economic security.

Final Conclusion.

The fight against money laundering, terrorist financing, and the proliferation of weapons of mass destruction is an ongoing challenge that requires the active commitment of all economic sectors, including the automotive sector.

Car dealerships in Argentina, as Obligated Entities, play a fundamental role in detecting and preventing these illicit activities.

The automotive sector, due to its vulnerability to money laundering activities, must adopt a firm stance in implementing AML/CFT systems.

Indeed, dealerships in Argentina, as Obligated Entities, have the responsibility to comply with existing regulations and apply rigorous measures for due diligence, risk assessment, and transaction monitoring.

Given the complexity and constant changes in crime and AML/CFT/CPF prevention policies that go beyond the common knowledge of business owners in the sector, and considering the large number of obligations that the law imposes on dealerships (under the threat of severe sanctions), it is important (and even crucial) that these entities always have specialized advisors in AML/CFT/CPF who can keep them informed of any changes in the applicable AML/CFT/CPF norms and policies and assist them not only in constantly adjusting their policies but also in ensuring that they comply with their legal obligations in every stage of the compliance process year after year without neglecting the day-to-day operations of their businesses.

By adopting a comprehensive approach that combines staff training, the implementation of advanced technologies, and collaboration with authorities within a management framework with continuous specialized assistance in this field, dealerships will be able to comply with their legal obligations and contribute significantly to protecting the financial system and national security.

Only through a genuine commitment to a culture of compliance and collaboration between the public and private sectors can an effective defense against money laundering, terrorist financing, and the proliferation of weapons of mass destruction be consolidated.

Miguel Cassagne 

Former FIU Agent

(Specialist in AML/CFT/CPF)