September 2, 2021
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 Large amounts of money are constantly being deposited and withdrawn by customers due to Life insurance firms’ relaxed policies and products that allow customers to do so without reducing almost any of the money’s value.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.
There are various life insurance products and mechanisms that are susceptible to money laundering including:
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:
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 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.
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.