A probe into illicit fund flows commissioned by the Canadian province of British Columbia has revealed widespread trade-based money laundering (TBML) through the export of luxury cars purchased from motor dealers in the province and sold to buyers in China.

The report by independent investigator Peter German says so called grey market vehicle exports are a well known and effective trade-based money laundering strategy, but the scale of luxury car TBML operations in British Columbia are surprising.

Grey market operations

The report says these operations involve a grey market where a brand owner’s or manufacturer’s products are purchased and then resold outside of their approved distribution networks.

Due to the tax structure and soaring demand that exists for high-end cars in China, dealerships there charge much higher prices than they do in North America.

This has created an arbitrage opportunity in the form of a grey market for people willing to purchase these vehicles in North American locations and ship them to China for a significant profit.

Straw buyers

The scheme involves straw buyers – people who are legally entitled to buy and claim tax refunds on cars in British Columbia on behalf of people who are not legally entitled to do these things.

The grey market is unregulated from a financial crime perspective, resulting in very little being known about the people and companies involved, the source of funds of purchasers, and their methods of payment.

Growing problem

The grey market export of vehicles from British Columbia is a significant and rapidly growing problem according to the report.

It says there has been an explosion in the number of grey market vehicles exported to China since 2013, growing from less than 100 vehicles in 2013 to over 4,400 vehicles in 2018.

Categories: Trade Based Financial crimes News