Anti Money Laundering for Insurance

Insurance firms are facing money laundering at a growing rate, in fact 62% of insurance firms reported some sort of exposure to money laundering. However, it poses an even greater risk to life insurance firms. Large amounts of money are constantly being deposited and withdrawn by customers due to Life insurance firms’ relaxed policies and products that allow customers to do so without reducing almost any of the money’s value. 

There is a wide variety of anti-money laundering (AML) regulations and sanctions lists for insurance firms, implemented by government and international authorities, that must be implemented as a part of their AML. If they do not follow these obligations, life Insurance firms can face prison terms and fines as well as other compliance penalties. 

AML/CFT Risks with Life Insurance 

There are various life insurance products and mechanisms that are susceptible to money laundering including:

  • Policies allowing money launderers to withdraw a lot of money in one transaction, also known as Single Premium Policies. 
  • Annuity policies or high regular premium savings that allow money laundered to receive income after paying for insurance premiums with fraudulent, criminal funds
  • Cooling-off periods where Money Launderers can request a refund and get it paid with legitimate, clean money, or they can purposefully overpay for insurance premiums to get the money refunded.
  • Policy surrender, where Money Launderers are able to give up their policies at a loss in order to get the money they deposited back.
  • Top-ups, where money laundered can offload more criminal funds after paying a small starting premium.
  • Ownership transfers, where a customer can transfer the ownership of a life insurance policy to an outside criminal organization that can take out all of the money.
  • Policy loans where money launderers can get loaned money, as collateral, from the life insurance policy after having built up its value through premium payments. These loans don’t have to be repaid, because the value of the loan will just be deducted from the death benefit, and also don’t have sufficient AML checks. 
  • Premium policies that could be used as deposits for loans where money laundered could give up their policies to repay the loans. 
  • Secondary life market, where unhealthy customers can sell their policy to an outside criminal organization. 

AML Life Insurance Regulations and How to Comply

As mentioned before, there are a variety of AML insurance regulations involving both sanctions and screening obligations as well as transaction monitoring.

For transaction monitoring, locally and internationally enforced laws and acts such as the Bank Secrecy Act (BSA) in the United States, cover and require monitoring of: 

  • Permanent life insurance policies (excluding group life insurance policies)
  • Annuity contracts (excluding group annuity contracts)
  • Insurance products with investment features or monetary value

The BSA also requires suspicious activity reports (SARS) to be reported to the financial crimes enforcement network (FinCEN) when any suspicious transactions relating to the products above are detected.

Financial Action Task Force: The intergovernmental Financial Action Task Force (FATF) lays out anti-money laundering insurance guidelines that are required for states within the Task Force, for example, the US followed FATF requirements through the BSA. To ensure the relevance and effectiveness of its regulations, the FATF also partners with private sector insurance companies.

Insurance Sanctions

Insurance companies are required to comply with financial sanctions that are imposed by governmental and international authorities. If customers appear on official sanctions lists, insurance firms are restricted if not prohibited from selling life insurance products to them. 

It is necessary that insurance firms, as a part of their AML programs, apply sanction screening measures in order to identify customers that are on that list. Insurance firms must take steps to block transactions or freeze assets if a customer is on the list. They also must report the customer to the relevant authorities.

Complying with AML/CFT Insurance Regulations

Insurance firms should make sure that their Anti-Money Laundering programs have acceptable customer due diligence (CDD) measures to ensure their customers’ identities. 

Due to the large quantity of information involved in sanction screening and transaction monitoring, a lot of insurance firms chose to make their AML/CFT programs automated with smart technology. By automating AML/CFT programs, it increases the speed as well as the accuracy of the screening process as well as reducing errors due to humans, and helps the firms avoid expensive compliance penalties.

If you would like to learn more about how Unit21 helps insurance companies detect money laundering, schedule a meeting today.

Let's schedule a time to learn more

Book a Meeting