Leasing and Drug Trafficking
The magnitude of drug trafficking with its concomitant unexplained wealth reveals another story. One of laisser-faire policy
By Prakash Neerohoo
Is leasing the preferred option for drug traffickers and other practitioners of illicit trades to acquire a vehicle for personal or business use?
There are two ways to acquire a vehicle (car, truck, van) from an automobile dealership:
(a) a purchase financed 100% by the purchaser from their own funds or a bank loan.
(b) a lease over a number of years (say 5 years) with an option to buy the vehicle upon termination of the lease at a net residual value (the original price less the total of lease payments made).
It looks like drug traffickers prefer leasing over financing a purchase because the latter involves the outright payment of a huge amount of money that may trigger an enquiry as to the source of funds. Since section 5 of the Financial Intelligence and Anti-Money Laundering Act, 2002 (FIAMLA) does not allow a cash payment exceeding Rs 500,000 at one time, they would not pay millions of rupees in cash. Hence, for a Sports Utility Vehicle or luxury vehicle (Mustang, Raptor Ford, BMW, Mercedes Benz) that costs a few million rupees, they would prefer to lease it by paying a monthly instalment in cash.
Let’s take an example.
A luxury car costing Rs10 million is leased at 5% annual interest for five years (payable in 60 instalments). The total cost of the vehicle, including interest and 15% VAT, is Rs 12,075,000. The monthly lease payment would be Rs 201, 250. The trafficker would prefer to pay Rs 201, 250 monthly in cash to stay below the threshold of Rs 500, 000 under FIAMLA. If he had purchased the vehicle, he would have had to fork out Rs 12 million at one go, which would have raised questions about the source of funds, unless he took a loan from a bank. In the latter case, the bank would have asked for adequate collateral or evidence of stable and regular income.
Therefore, leasing is a means of circumventing the law about minimum cash payment allowable. Ideally, the leasing company would have required lease payments by bank transfer or credit card, which would leave an audit trail of the transaction. However, it looks like all lessors are accepting cash payments. Otherwise, how do we explain that so many luxury vehicles are on the road without any red flag being raised as to the sources of funds of purchasers. Besides, it is reported that one individual has paid Rs 600,000 in cash six times for car servicing. How did he exceed the threshold of Rs 500,000 in cash payment asked without any questions from the service provider?
The public is astounded by the daily news about the seizure of moveable assets belonging to suspected drug traffickers (vehicles, boats, etc.) by the Independent Commission Against Corruption (ICAC) and the arrest of suspects based on money laundering charges set under the FIAMLA. The news reveals one business activity (automobile sale and leasing) that is supposed to be regulated but has obvious malpractices or loopholes in the way the regulations are followed or applied. The ICAC is focusing on money laundering charges, which carry a fine under the FIAMLA, but is neglecting the more crucial aspect of sources of funds (apparently linked to drug trafficking).
Under section 6 of FIAMLA, a person may be convicted of a money laundering offence notwithstanding the absence of a conviction in respect of a crime which generated the proceeds alleged to have been laundered. Therefore, the ICAC may well charge suspects for money laundering without considering the crime (drug trafficking) that generated the funds.
Even if no evidence of drug trafficking is found, there is the question of unexplained wealth. It should not be hard for any investigator to trace the acquisition of assets (both moveable and immoveable) to a source of funds by looking at the person’s assets and liabilities, bank statements, economic activities, legal business entity, if any, and the beneficial ownership of business entities (sole proprietorship, company, or trust).
It is said that the country’s anti-money laundering strategy is high on legal provisions but low on compliance and enforcement. For some time, Mauritius was on the EU/FATF blacklist of jurisdictions for strategic deficiencies in its Anti-Money Laundering/Combatting the Financing of Terrorism (AML/ CFT) legislation. After it was delisted, we thought that things would improve in terms of compliance and enforcement activities by regulatory institutions (FSC, BOM, Financial Intelligence Unit, MRA, Integrity Reporting Services Agency) and in terms of financial governance and accountability in general. The magnitude of drug trafficking with its concomitant unexplained wealth reveals another story. One of laisser-faire policy.
Mauritius Times ePaper Friday 31 March 2023
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