Criminals love luxury goods, but their purchases of high-value items such as jewellery and cars aren’t necessarily about flaunting their wealth. Often, the aim is to facilitate further wrongdoing by laundering the proceeds of the original crime.
And financial criminals aren’t the only ones drawn to the sector. A new book penned by one of France’s leading terrorist experts reveals how extremists exploit luxury goods markets to generate funds to carry out their atrocities.
The hard truth is that luxury goods have always been attractive to opportunistic criminals and the problem is growing by the day.
According to market and consumer data specialists Statista, revenue from the luxury goods market will amount to over US$312 billion in 2022 and is predicted to increase annually by 5.40% over the next 5 years.
As a result, every business associated with the buying or selling of luxury goods must become acutely aware of their anti-money laundering (AML) vulnerabilities.
Failure to do so can result in unwanted attention from financial regulators, lead to punitive fines, and even long-term reputational damage.
Why money launderers and terrorists are so attracted to the luxury goods sector
The luxury goods sector has certain innate characteristics that give rise to increased risk of money laundering.
Items such as jewellery, precious stones, and fine art are easily transportable, making them well-suited to criminal enterprise.
With larger assets such as high-end cars, yachts, and real estate, the use of anonymous shell companies and intermediaries are frequently used to disguise their true ownership.
Another factor is the culture of discretion and confidentiality that is a common feature within luxury goods businesses. The desire to respect the privacy and security of a high-net-worth individual (HNWI) may be entirely reasonable, but by its very nature it gives rise to additional money laundering vulnerabilities.
The breadth of the market is another issue. The UK’s AML guidance from HM Revenue & Customs lists no fewer than 17 sub-sectors of the industry, making it difficult for regulators to monitor suspicious activity.
Regulators are increasingly clamping down on the luxury goods sector
Global regulators are well aware of the extent of money laundering in the sector, with many jurisdictions steadily ramping up their scrutiny.
The global financial watchdog FATF warned of the use of luxury goods for money laundering purposes in its report on trade-based money laundering.
Regulatory pressure is mounting in the EU, with the sector being targeted through each of its Anti Money Laundering Directives, with extended legislation introduced through its Fifth Anti Money Laundering Directive in 2020.
In the US, the Financial Crimes Enforcement Network (FinCEN) increased its focus on the role of luxury goods after several high-profile public corruption cases this year.
Most recently, the invasion of Ukraine has seen the increasing use of sanctions, resulting in the capture of high-end assets, as well as published lists of products that are now banned for export to Russia.
The sector’s responsibilities are clear
High-value dealers must carry out due diligence on all customers and beneficial owners before entering into a business relationship, or when carrying out a one-off transaction of more than €10,000 on their behalf.
There is an ongoing requirement to always “know your customer” (KYC) and carry out thorough identity checks to verify that the customer is who they say they are. In the case of high-risk customers, there is the need for enhanced due diligence that requires even more stringent safeguards.
Checks must be made to screen for politically exposed persons (PEPs), beneficial owners, in addition to sanctioned individuals or entities, all of which add greatly to the work that must be undertaken by compliance departments.
Know your vulnerabilities
As criminals target the luxury goods sector through increasingly sophisticated means, your business must become more vigilant about gaps in its AML compliance processes.
As a result, knowing how to identify, assess, and effectively manage risk is crucial if you are to block any potential threats.
To help you in your quest, we have compiled an in-depth report on the AML vulnerabilities currently faced by luxury goods companies.
In this spotlight report, we cover:
- The increasing opportunities for money launderers
- Where luxury goods companies face AML vulnerabilities
- The global regulations for AML compliance
- How automation can help tackle risk
You can download your free copy of this valuable compliance analysis here.
Employ the latest automated technology
With the digital marketplace blooming, the ways that criminals can exploit your business are steadily evolving and increasing the risk you face by the day.
For this reason, automated technologies are now essential if you are to ensure your business remains aligned with regulations. They provide you with the fast, efficient means to assess potential risk, carry out comprehensive customer due diligence, and report any suspicious activity you encounter with complete confidence.
Your business must also be able to detail the source of funds for any goods bought or sold, so any solution you choose must provide an audit trail that is easily presentable to regulators.
Initial know your customer (KYC) checks aren’t sufficient as any ongoing relationship must be repeatedly checked. An automated technology solution can assist by providing enhanced ongoing monitoring of customers and networks.
RiskScreen delivers a complete end-to-end solution
RiskScreen offers flexible, scalable, and auditable solutions that ensure luxury goods businesses consistently maintain an effective and efficient AML process amidst an ever-changing regulatory environment.
Whether you need to check a few hundred entities a year, or screen millions of names on a daily basis, RiskScreen has a solution that will meet the needs of your businesses.
The RiskScreen AML platform provides a complete end-to-end solution, and our unique 3D risk-based approach means that false positives are minimised, saving you a great deal of time.
To add to its appeal, this intelligent solution offers a range of modules that cover key areas such as screening, onboarding, in-life monitoring, and adverse media. For flexibility, you can choose from individual modules to cover specific areas or the complete package for a fully integrated solution.
Whatever your requirements, you can rest assured that your anti-money laundering (AML) and know your customer (KYC) processes will be immediately transformed, with full scalability in order to future-proof your compliance programme.
Luxury goods companies are increasingly looking to RiskScreen’s advanced automated screening solutions to help them tackle the risk of money laundering more effectively.
For a no-obligation demonstration of how RiskScreen can work for your business, contact us today.