Unlike traditional financial institutions, insurance companies are new to the Anti-Money Laundering (AML) and Counter Financing of Terrorism (CFT) world. Although the sector has been subject to AML regulation for many years, there has been very little regulatory focus on such matters. Often the result of this is less AML and CFT expertise in insurance companies than in other sectors.
Recent adjustments made to Financial Action Task Force (FATF) policies related to enforcement have mandated regulators to enforce strict discipline in the case of regulatory failures, triggering urgency for compliance program resources.
Policies and options that might be used for money laundering[Doc] AML/CFT Core Curriculum for Insurance Supervisors (2018)
Life assurance products can be categorized into different ML/FT categories based on their own individual features which either they are not attractive because they do not provide cash surrender value (to a money launderer / terrorist financier) or they are attractive because they offer cash surrender value and the opportunity to nominate beneficiaries from Day One of the insurance policy.
The latter types of insurance policies it may pose high level of risk and therefore for these policies should be contacted enhanced CDD. Life assurance policies which only offer protection (are only payable on death, disability or serious illness) have a very low money laundering risk.
Policies requiring attention
- Permanent life insurance policies other than group life insurance policies that contain a cash value or investment element;
- Annuity contracts, other than group annuity contracts; and
- Any other insurance products with features of cash value or investment features.
Policies and procedures identifying money laundering
There are a number of ways that launderers can use insur¬ance products. Some of customer actions which may indicate money laundering include:
- A customer purchases a product that appears outside the customer’s normal range of financial means (age, income or employment history) or estate planning needs.
- A customer purchases insurance products using a single, large premium payment, particularly when payment is made through unusual methods.
- Unusual insurance payments methods:
- Payments with currency or currency equivalents.
- Funds are coming from another country (wire transfers), particularly high-risk jurisdictions.
- Payments via offshore banks.
- Payments from a third party, an entity without an obvious legal relationship with the insurance beneficiary.
- Payments from different sources.
- Payments using large amounts of cash, money orders or travelers cheques.
- Payments with combination of multiple currency equivalents, such as cashier’s checks and money orders, from different banks and money service businesses.
- A customer policyholder and the insurance beneficiary do not have a usual or typical or legal relationship.
- A customer designates an apparently unrelated third party as the policy’s or product’s beneficiary.
- A customer purchases a policy that allows the transfer of beneficial ownership interests without the knowledge and consent of the insurance issuer. This usually is applicable to secondhand endowment and bearer insurance policies.
- A customer purchases products with termination features without concern for the product’s investment performance.
- A customer terminates an insurance product early while the termination does not make good economic sense.
- A customer makes a large investment, then asking for a refund after the 14-day free-look or cooling-off period.
- A customer makes an over-payment on a policy, then asking for a refund.
- A customer purchases one or multiple single-premium investment-linked policies, then cashing them in a short time later.
- A customer is performing “structuring” i.e. purchasing several policies just under the transaction reportable limit, instead of purchasing one large policy (contemporary AML regulations dictate that all transaction over r a certain limit, the Currency Transaction Limit – CTL, have to be reported to the regulating authorities).
- A customer borrows against the cash surrender value of a permanent life insurance policy (or policies), when particularly policy payments are made from unrelated third parties.
- A customer is purchasing an annuity by paying a lump sum rather than paying regular installments over a period of time, particu¬larly if the beneficiary is of an age which entitles him to receive the funds soon after.
- A customer is negotiating a large investment policy and he is more interested in learning about cancellation terms than about the benefits of the policy.
The risk of money laundering in the life insurance industry, due to its nature, is different than in other industries and therefore the level and the type of AML and CFT measures should be based on the risks related to life insurance transactions.
The level of an insurer’s AML and CFT measures expected by regulators that are reflected in the relevant regulatory legislation or in any IAIS guidelines should take into consideration:
- The actual number of real life cases of ML/TF, which involved an insurer, reinsurer or insurance intermediary.
- A realistic analysis of the probability of life insurance products to be used for ML/TF purposes.
[Link] EBA, EIOPA and ESMA consult on AML/ CFT: JC/CP/2015/060 Joint Guidelines under Article 48(10) of Directive (EU) 2015/849
[Link] EBA, EIOPA and ESMA consult on AML/ CFT: JC/CP/2015/061 Joint Guidelines under Article 17 and 18(4) of Directive (EU) 2015/849
[Link] Hel lenic FIU [EN]
[Doc] BCBS, IAIS and IOSCO Announcement to Combat ML/FT (2005)
For CubeIQ Anti-Money Laundering, Fraud Management and Compliance Solutions please visit www.amlinfo.eu