While many in the insurance sector assume that money launderers are mainly focused on financial institutions such as banks, the facts tell a very different story.
The problem for the insurance sector is one of perception. As businesses that sell policies, rather than managing a continuous flow of financial transactions, they don’t appear at first sight to be an obvious target for money launderers.
But the reality is that huge sums flow into and out of insurance contracts, which are often complex and can involve significant financial investment.
Not surprisingly, the sector is increasingly being targeted by financial criminals.
In 2021 two-thirds of insurance companies were subject to fraud or financial crime
The fact is that criminals will use any institution as a vehicle to cover the tracks of their dirty money by any means, and through any means. This places all sub-sectors under the financial services umbrella in the firing line, including insurance.
Yet many in the insurance sector still maintain the perception that it is somehow less susceptible to anti money laundering (AML) activities than other areas of the financial world.
In fact, according to PwC’s Global Economic Crime Survey 2022, around two-thirds of insurance companies were subject to fraud or some form of financial crime in the past year.
The regulatory authorities are scrutinising insurers’ AML practices and handing out stiff penalties
Large amounts of money continually flow in and out of insurance contracts, providing money launderers with the opportunity to clean illicit funds.
High-value items purchased with fraudulent money can be wrongfully claimed and reimbursed by insurance companies to clean the funds. Cooling periods, enforced by regulators, dictate insurers must refund paid premiums when cancellations are committed in a set time, providing another clean source. While policy loans do not need the same due diligence as traditional lending processes.
These are just some ways in which money launderers exploit insurance offerings for nefarious means.
The regulatory authorities understand this all too well. As a result, they are increasingly examining insurers’ AML processes and practices and handing out stiff penalties where they find failings.
“In 2021, Cardif, the life and casual insurance subsidiary of French bank BNP Paribas, was hit with a €2.5m fine over AML failings. In the UK, the global insurance services firm Crawford & Company, also faced enforcement action last year for AML compliance missteps.”
Regulatory bodies across the world are beginning to clamp down
While in most cases, UK insurers aren’t subject to the Money Laundering Regulations regime, the sector still has responsibilities under the Proceeds of Crime Act to report suspicious activities.
Insurers and intermediaries lacking the controls to prevent financial crime are at risk of committing money-laundering offences. Since 2009, the UK’s Financial Conduct Authority has taken enforcement action against four insurance intermediaries for failing to manage corruption risk.
On a worldwide scale, the Financial Action Task Force (FATF) has outlined risk-based approaches for the insurance industry for at least four years.
The European Union’s 6th Anti Money Laundering Directive (6AMLD) came into effect across the bloc on 6 December 2020 and explicitly sets out who is covered by the regulation with insurance companies and insurance intermediaries expressly included.
In the US, the Bank Secrecy Act sets out a range of in-scope products where there are strict transaction monitoring requirements. For insurers, these include most permanent life insurance policies, annuity contracts and any insurance product that has a cash value of investment features.
While in the Asia Pacific region some regulators are taking a similar stance, with the Monetary Authority of Singapore also setting out specific regulations for AML compliance across the insurance sector.
In order to spot money laundering, the first step is to recognise your vulnerabilities
Clearly insurers are increasingly coming under pressure to demonstrate they are taking all the steps necessary to ensure they don’t provide criminals with the means to launder their illicit money.
To help you in your endeavours we have compiled an in-depth report on AML Vulnerabilities in the Insurance Sector.
In this spotlight report, we cover:
• Where insurers may be vulnerable to AML risk
• The regulatory environment
• How to ensure compliance with AML regulation
• How automation can help
For your free copy click here.
Once you know your AML vulnerabilities, you need the latest processes to monitor all your transactions
Identifying all AML vulnerabilities is an important element of your overall risk screening strategy, but it should all centre around the implementation of the very latest automated AML & KYC screening solution.
“It all starts by identifying vulnerabilities through informed due diligence, and ends with advanced transaction monitoring through the implementation of automated technology.”
The compliance landscape is constantly shifting as sectors such as insurance find themselves increasingly under regulatory scrutiny.
Failure to ensure that you have the capability to screen comprehensively at scale could have major implications, not just in terms of regulatory fines but also in long-term damage to the reputation of your business.