LARGE PREMIUM ANNUITIES are particularly attractive to money launderers as having invested tainted money they can then get back clean regular payments or a large lump sum when they are ready via cheque from a reputable insurance company. Money launderers have been known to cash in these policies in a short period of time suffering heavy penalties which they regard as a business cost.
To a lesser extent life policies and general insurance have been used to launder money. At the application stage, criminals have used the “free look” grace period during which a contract may be cancelled to obtain a refund of premium(s) paid. The application stage is most important as it is here that the insurance company establishes the information on which it must later rely to establish a suspicion of money laundering. Establishing income/wealth levels will indicate whether future payments based on size, frequency or nature, seem suspicious.
Situations can also arise during the currency of the contract which may trigger suspicion. A change/increase of insured capital and/or of the premium payment, for instance, which appear unusual in the light of the policyholder’s income or where there are several over payments of policy premiums, after which the policyholder requests that reimbursement is paid to a third party. If the money is criminally derived, then this is a way to clean it.
Insurance companies have long been accustomed to fraud at the payout stage of insurance contraccts. Add to this the headache of money laundering. Though most of the creative schemes have not been seen in Barbados and the wider Caribbean, consider this case. A money launderer may arrange with groups of otherwise legitimate people, perhaps owners of businesses, to assign any legitimate claims on their policies to be paid to the money launderer. The launderer promises pay these businesses, perhaps in cash, money orders or travellers cheques, a percentage of any claim payments paid to him above and beyond the face value of the claim payments.
In this case the money laundering strategy involves no traditional fraud against the insurer. Rather, the launderer has an interest in obtaining funds with a direct source from an insurance company, and is willing to pay others for this privilege. The launderer may even be strict in insisting that the person does not receive any fraudulent claims payments, because the person does not want to invite unwanted attention. One well documented method of laundering money through general insurance is to insure goods in transit, arrange for the goods to be damaged or disappear and then file a claim. In most cases if the goods actually existed they were acquired through illicit activity but the money launderer is now able to get a substantial clean payout.
Collusion by agents or employees represents an occupational hazard for insurance companies. In another part of the world, a drug trafficker purchased a life insurance policy with a value of US$80 000. The policy was purchased through an agent of a large life insurance company using a cashier’s cheque. The investigation showed that the client had made it known that the funds used to finance the policy were the proceeds of drug trafficking. In light of this fact, the agent charged significantly higher commission. Three months following this transaction, the investigation showed that the drug dealer cashed in his policy.
These are only a fraction of the numerous typologies documented by the various regulatory bodies but give an indication of how money launderers could find insurance products attractive. Insurance companies therefore are required to have anti-money laundering policies which cover the client experience from beginning to end with risk based reviews on an ongoing basis. Customer due diligence/know your customer is intended to ensure that insurance companies or intermediaries ascertain the true identiy of each customer, beneficial owner and beneficiary of the policy.
Here it is important to note that for an insurance company it is not enough to merely identify the beneficiary but they must pay attention to the relationship of the policyholder to the beneficiary in terms of whether the arrangement could reasonably indicate money laundering. Every effort should be made to obtain appropriate additional information to understand the customer’s circumstances and business, including the purpose and the expected nature of the relationship.
Relevant customer due diligence information should be periodically updated as part of the risk assessment process. It is safe to say that Barbados has done well to ensure that we remain a clean jurisdiction with insurance companies appointing compliance officers and implementing written anti-money laundering policies. Indeed, the Caribbean Financial Action Task Force has so far not documented any insurance related typologies but the threat is ever present. The concerns for insurance here are greater for solvency rather than money laundering.
Louis Parris is a certified compliance professional, consultant and publisher of the Caribbean Banking Intelligence Anti-Money Laundering Compliance Newsletter. Email: louisp@caribsurf.com