Automobile Retail Industry
A search of the SAR database revealed 1,765 SARs containing the terms "used cars," "car dealership," "automobile dealership," "automobile sales," or "car sales" in the narrative portion of the SAR. The top three reported violations were: 1) BSA /Structuring/Money Laundering (864 SARs); 2) Consumer Loan Fraud (257 SARs); and 3) Check Fraud (175 SARs). Forty-one SARs reported no violation.
Approximately 350 (20%) of the SARs were reviewed. The following are summaries of these types of activities.
The most common scenario involved Structuring.
- Individuals working in the automobile retail industry withdrew and/or deposited cash just under the CTR reporting requirements. Some individuals did so with unusual frequency within a short period of time (days) at various bank branches within close proximity. The SARs indicated that these transactions were unusual for that type of business. One SAR reported a used car dealer making numerous cash deposits, twice daily and all under $10,000, at different area bank branches of the same bank. Deposits for one month totaled $750,000. The owner of this car dealership also owns a grocery market. Within one day of each deposit, checks drawn on the car dealership account were written to the grocery market. These checks temporarily depleted the dealership account. Another SAR described a small used car dealer located in a poor neighborhood that typically maintained just 10-12 used cars on the lot on any given day. During a two-month period, the car dealer made deposits of cash and checks totaling over $410,000. The cash deposits were always made under CTR reporting requirements.
- While attempting to conduct a transaction, some customers altered the cash amount transacted to fall below the CTR reporting requirements when informed a CTR would be completed.
- Individuals structured deposits and claimed the funds were derived from profits they made, on their own, buying and selling used cars. However, those individuals were not affiliated with any automobile retail business or formally involved in the automobile industry. The SARs described the suspicious activity but made no mention of similar withdrawals that may have been used to acquire the used cars. Suspects claimed to have acquired the funds by selling used cars but there was no account activity that would suggest how they initially obtained the vehicles.
- Customers purchased cars by submitting structured checks/money orders.
Consumer Loan Fraud was also a frequently reported violation.
- Incidents of consumer loan fraud primarily involved the submission of false or forged statements by loan applicants in their attempt to purchase a car. These applicants were both automobile dealers and retail purchasers. Both dealers and retail consumers submitted loan applications with false financial information, addresses, phone numbers, social security numbers, and forged signatures. Dealers, in applying for a loan, knowingly understated the automobile mileage to the lending institution. This fraudulently inflated the value of the vehicle and resulted in a larger than justified loan.
- SARs also reported out-of-trust sales, by used car dealers, of vehicles in their possession whose acquisition was financed by various financial institutions. Some car dealers altered lien information on duplicate titles in order to obtain a 'clear' certificate of title. These vehicles would then be sold with a loss incurred by the lending institution. The banks advanced payment for the vehicles but failed to receive payment when they were sold.
- Automobile dealers used personal information of their customers, without the knowledge or consent of those individuals, in order to obtain loans.
- SARs also reported the development of relationships between bank employees and car dealerships. Some situations involved the inappropriate manipulation of loan applications by bank employees that enabled applicants for automobile loans to obtain credit in violation of bank guidelines. The bank employees earned commissions on these fraudulent loans and the automobile dealership made money on the sales.
Check Fraud was the third most frequently reported violation.
- SARs reported that checks, later returned for " insufficient funds available," were used to purchase automobiles from various car dealerships.
- Some SARs reported the theft of checks from car dealerships and then fraudulently negotiated by unauthorized individuals, in some cases by former employees.
- Other reports indicated that stolen, forged, and counterfeit checks were used to make payments on vehicles at various dealerships.
- Forged reproductions of a bank's counter-checks were made payable to a used car dealer located in a Gulf State. It is believed that these checks were computer generated.
Identity Theft was also reported.
- Individuals used someone else's social security number and personal data in order to obtain a car loan in that person's name. Fake identification (driver's license) was also used and forged signatures were employed. Some SARs reported that employees of the automobile dealerships were aware of this fraud. One incident involved a car salesman providing customers a "reference number" so they could qualify for the loan. This "reference number" appeared to be someone else's social security number.
- An unknown suspect established fraudulent bank accounts using the identities of numerous individuals. The only connection established between the victims was that each of them purchased automobiles from the same automobile dealership. The suspect deposited counterfeit checks into these accounts. The suspect then withdrew funds from these accounts via debit cards. The cash was then used to purchase postal money orders.
Commercial Loan Fraud also occurred involving automobile dealerships.
- Banks advanced loan funds to car dealers via floor plan lines of credit secured by the automobiles in inventory. This collateral was later sold, out-of-trust, and the proceeds were not applied to the loan, thus creating a loss for the lender.
- SARs reported that multiple suspects applied for used vehicle loans via the internet. After normal screening, the loans were approved and drafts were sent. These funds were intended to purchase used cars. No payments were received on the loan and attempts to repossess the vehicles were futile. Vehicle Identification Numbers (VIN) given were found to be non-existent. Attempts to locate the suspects failed. One SAR reported that the New Jersey State Police are currently investigating approximately 100 cases of this type of fraud.
Check-Kiting schemes were also reported. Owners of car dealerships were utilizing the float by writing checks on various accounts at different banks.
Excerpted from SAR Activity Review Issue 5, page 27
First published on 02/01/2003