Floorplan lenders should pay close attention to how their dealership partners receive payments from customers, according to fraud analyst Josh Wortman, data scientist and chief executive of General Forensics.
In an analysis of Department of Justice documents that mention “dealership,” Wortman found 56 unique fraud cases between 2013 and 2019, 75% of which involved dealerships defrauding lenders, consumers or the government. Upon closer inspection, a third of those involved tax evasion or money laundering, including a common trend of failure to properly file IRS Form 8300, the required document for cash deposits of more than $10,000.
Instead, these dealerships use a method called “structured deposits” to hide cash payments, Wortman said. For example, instead of depositing the entire $10,000, the dealership makes two deposits — one for $8,000 and one for $2,000, for example — with false invoices in an attempt to hide the cash sum.
“A floorplan finance company should care about not only did they get paid back for their flooring items, but where does that payment come from,” Wortman said. “Is it cash, or is it electronic?”
Oftentimes, engaging in tax evasion is a sign dealerships are also involved in other criminal enterprises, Wortman explained. “If you have a tax-evasion scheme, it is often the case that [the dealership] is working with criminals [trying to launder money that they don’t want to properly report]. Dealers don’t have normal customers and they are not filling out a retail installment contract,” he said.
For floorplan lenders, this practice is worrisome because they are at higher risk of these dealership partners selling vehicles out of trust, Wortman said. “It’s useful to know that your dealership [partner] isn’t on the up-and-up.”
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