Anti-Money Laundering Guidance for Leasing

Blog / Anti-Money Laundering Guidance for Leasing

Leasing companies are non-bank institutions that provide resources to the financial system like factoring and financing companies do. Since leasing is within the scope of financial services, it is subject to AML provisions. In addition to financial leasing companies, participation banks, development, and investment banks can also perform the leasing method. The financial leasing method is subject to specific regulations.

The increase in digital transactions, especially after COVID-19, showed its effect in this sector as well, and the market share of the leasing method has grown thanks to this considerably. As the number of customers increased, the workload of leasing companies also increased. Performing customer scans manually in customer engagement processes is a time-consuming and high-risk process. In other words, some risks come with this growth. In order to mitigate and control these risks, leasing management and compliance control specialists must act in accordance with the statutory standards of AML regulators and states.

What is Leasing System?

In accordance with the procedures in the leasing (financial leasing) sector, all companies that can take legal action according to the contract can benefit. These can be all-person, joint-stock, and limited companies, as well as in professions with offices, such as self-employed accountants, lawyers, and architects. Leasing is a very preferred method in the new period because you can rent the vehicles that you have to deal with at high prices and have to deal with when they expire and return them to the leasing company when you are finished or when the vehicles are out of service. Compared to the purchasing cost, it is preferable for companies. Leasing is a contract that provides the rental of immovable properties. While the ownership right of the investment property you rent is in the leasing company, the right of use is given to you for a certain period. According to the contract, the right of ownership may also pass to the lessee at the end of the lease agreement. Another advantage of leasing is that it provides long-term capital investment in foreign resources, allowing you not to adapt your short-term resources to long-term fixed capital investments. 

With the leasing method, you can rent all kinds of new or second-hand machinery, equipment, and investment goods, such as real estate, which has increased recently, in return for a determined rent, provided that the ownership right remains with the leasing company throughout the contract period. It is also possible to rent technological tools and vehicles for less than one year.

Financial Crimes are criminal activities carried out to provide economic benefits through illegal methods.

How Does The Leasing System Work?

When the lessee decides to invest, he contacts the businesses that provide financial leasing services. First, alternative payment plans suitable for the tenant's investment and income are prepared, and the process of preparing documents begins. After the delivery of the documents, the contract is concluded together with the leasing loan process. The financial leasing company purchases domestic or imported goods within the framework of the agreement. It gives the right of use to the lessee, keeping the ownership right, as we mentioned above. Upon the expiry of the lease term, the property right is transferred to the lessee. Compliance with the law is important in this process. When the lease agreement expires, the leased property or vehicle is sold to the lessee, who has the right to use it for a very low symbolic price. The lessee is responsible for the insurance and maintenance of the leased property during the rental period.

AML And Leasing

The leasing contract, the provision of loans, and the continuity of the transactions have received a great demand for digitalization. The manual way that companies that carry out these transactions will follow to get to know their customers while making contracts through digital channels and obtaining credit not only increases their workload but also makes them vulnerable to the penalties to be imposed by the regulators within the scope of leasing regulations, and can create a bad impression and damage their reputation in preventing money laundering and terrorist financing. Sanction Scanner solutions help companies in the leasing sector, as well as all other financial sectors, in order to reduce false positives and workloads and establish reliable and fast collaborations.

aml real life case study for leasing

Know Your Customer (KYC) Requirements for Leasing

The customer identification process is done during or before opening an account to verify the customer's identity in the financial leasing industry. FATF's recommendations particularly emphasize the need for a Know Your Customer rule globally. Compliance with KYC requirements is essential for financial institutions that want to prevent financial crimes and avoid legal and financial penalties. The consequences of non-compliance can be severe and can include fines, legal action, and reputational damage. Therefore, it is important that leasing companies take KYC requirements seriously and ensure that they are complying with all relevant regulations.

One of the benefits of KYC requirements for leasing is that they enable financial institutions to detect and prevent financial crimes before they occur. By identifying high-risk lessees, leasing companies can take appropriate measures to mitigate the risks associated with these transactions. This can include setting higher security deposits, requiring additional guarantees, or even refusing to enter into a leasing agreement with a high-risk lessee.

Another benefit of KYC for leasing is that they promote transparency and accountability in the leasing industry. By requiring financial institutions to collect and maintain accurate records of their customers, leasing companies can be held accountable for any fraudulent or illegal activities that may occur. This can help prevent financial crimes and promote a more stable and secure financial system.

Strengthen the AML Compliance Policy

Like every financial sector, the leasing sector also depends on the FATF recommendations, the regulations, and the supervision of the regulators in the country where they are located. Leasing, which is under the financial services sector, has to strengthen its AML compliance processes. Sanction Scanner strengthens the AML compliance processes thanks to the compliance software it offers, supported by artificial intelligence. With the AML Name Screening solution, you can check existing leads on banned PEP lists, wanted lists, and adverse media data. Thanks to ongoing monitoring, they can monitor the risk status of the customers they have listed on a daily, weekly, or monthly basis. Sanction Scanner performs AML queries automatically.

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