Guidelines on Anti-Money Laundering in Insurance Sector

Guidelines on Anti-Money Laundering in Insurance Sector

Executive Summary:

• • • This Article includes the general overview about the background and need of guidelines on anti-money laundering in insurance sector.
    • This article also highlights the existing Anti Money laundering program in insurance sector and its features.

Introduction:

Money laundering in the insurance industry is a rising global concern, with about 62 percent of businesses having exposure to financial crime. Because of the large flows of funds into and out of their businesses, life insurance companies are particularly vulnerable to money laundering. Most life insurance companies offer highly flexible policies and investment products that allow customers to deposit and then withdraw large sums of money with only a minor loss in value.

Criminals, for example, utilize their unlawful cash to purchase life insurance annuity contracts. Alternatively, they may take funds from life insurance contracts to support other illegal operations. The majority of insurance company agents/brokers are ignorant of such bogus circumstances and so fall victim to money laundering scams.

Insurance firms are classified as “companies/financial institutions” under the Bank Secrecy Act (BSA) of 1970. This implies they must create and enforce compliance standards in the same way as other companies/financial institutions. The insurance industry’s compliance programme includes annuity contracts, life insurance, and other products. The statute compels insurance companies to keep essential documents and produce reports to assist law enforcement in investigating criminal behavior and other financial crimes such as tax fraud.

Background:

The Prevention of Money Laundering Act of 2002, which became effective on July 1, 2005, covers all financial institutions, including insurance companies. Non-depository institutions are subject to anti-money laundering procedures. In general, financial organizations, and insurance firms in particular, have International regulatory authorities have likewise stressed this as a critical component in preventing money laundering. The establishment of anti-money laundering procedures by financial institutions is one of the Financial Action Task Force’s key recommendations, and it is also part of the International Insurance Core Principles. Insurance Supervisors Association (IAIS). As a result, the Authority has made a decision. To implement the regulatory guidelines/instructions to insurers listed below, Agents and corporate agents as part of a money-laundering prevention programme (AML) for the insurance industry.

An insurance company’s requirement to develop an anti-money laundering policy does not apply to its agents or other intermediaries. As a result, the insurance firm, which creates and bears the risks of its products, carries the duty for preventing insurance products from being used to launder illegally obtained cash or to support terrorist actions.

What is Money laundering?

Money laundering is the illicit practice of making significant sums of money obtained through a criminal activity, such as drug trafficking or terrorist funding, appear to have originated from a legitimate source. The money obtained through illegal conduct is deemed unclean, and the procedure “launders” it to make it appear clean. Money launderers and insurance companies that may unintentionally get exposed to possible criminal activities while doing routine business use three typical stages of money laundering, which are outlined below.

• a) Placement-Placement is the physical disposal of illegally obtained monetary profits
• b) Layering- Layering is the process of isolating criminal proceeds from their source by constructing complicated levels of financial transactions meant to conceal the source of money, undermine the audit trail, and offer anonymity; and
• c) Integration-Integration is the process of giving the appearance of respectability to illegally obtained riches.

Financial institutions, such as insurers, are thus required by law to notify the authorized officer when they know or believe that any property, in whole or in part, has been tampered with. Directly or indirectly reflecting the revenues of drug trafficking or a related crime, or was or is meant to be used in that context, is making its way through institution.

Insurance Companies’ Anti-Money Laundering (AML) Compliance Program:

The insurance firm must follow the following rules in order to establish a complete, risk-based compliance programme with effective processes and procedures that meet AML regulatory requirements:

• a) In order to comply with BSA standards for recordkeeping and reporting, the insurance business should create risk-based policies and processes, as well as internal controls.
• b) They should appoint a compliance/BSA officer who verifies daily compliance, monitors the efficacy of the BSA policy, provides continuous training to workers, and modifies the programme as needed.
• c) The company’s agents, associates, and relevant personnel are all trained on their various responsibilities as part of the continuous training.
• d) The officer conducts independent testing of the BSA programme on a regular basis.
• e) Obtaining the customer’s essential data for the BSA/AML compliance programme
• f) Conducting frequent risk evaluations on the insurance company’s insured goods.

Features of AML Compliance Program:

Insurance firms are required to have a documented, risk-based BSA/AML programme that addresses the covered insurance products. The programme must include at the very least the following features:

• a) An appointed compliance officer is in charge of ensuring that the programme is successfully implemented.
• b) Ongoing training for suitable individuals, such as insurance agents and brokers Policies, procedures, and internal controls suited to the institution’s AML risks.
• c) Independent testing to check continuing compliance, including testing for insurance agents and brokers’ compliance.

Insurance firms are required to report suspicious activity (SAR) in addition to maintaining an appropriate BSA/AML policy. Companies must file a SAR with the Department of Treasury’s Financial Crimes Enforcement Network. To record such transactions, insurance firms must acquire relevant client information from agents, brokers, and any other sources.

The Insurance Company’s Role in Anti-Money Laundering (AML) Regulations:

The insurance company’s role and duties in maintaining AML/BSA compliance inside the organization are as follows:

a) Board Members-
The senior manager will be overseen by the company’s board of directors, who will advise them on how to comply with BSA regulatory standards and develop policies. The BSA officer will share the compliance reports with the board members, who will evaluate them on a regular basis based on the findings of independent testing and risk assessments. It is the board’s obligation to allocate the required resources and funds for the company’s BSA compliance function.

b) Senior Manager-
The senior manager’s job is to ensure that the compliance programme, as well as the relevant rules and processes, are carried out properly. The senior manager supervises the BSA officer and oversees the proper implementation of the relevant processes and internal controls. The company’s tone will be set by the manager, who will ensure that the rules are followed. These are required for compliance and the ongoing maintenance of a compliance culture throughout the organization.

c) BSA Compliance Officers-
It is the role of the BSA officer to create and administer the company’s compliance programme:

• They must create the BSA effort and, as necessary, revise the compliance programme before presenting it to the board for approval.
• They must go through the risk assessment as well as the internal controls that will be implemented.
• They will evaluate the new compliance requirements, as well as standards and processes, and make the required modifications in accordance with the existing programme.
• They will guarantee that cash transactions, cross-border shipping, and transferring currency or other financial assets/instruments are all reported in accordance with BSA/AML regulatory standards.
• They must examine any questionable behavior and, if required, submit SARs. They must guarantee that all relevant workers, board members, and senior management get compliance training.
• They must propose the resources and technology required to keep the business compliant. Under BSA compliance, they must guarantee that CDD procedures contain all essential data from the customer, as well as the requisite paperwork.

Conclusion:

For decades, insurance has been one of the pillars of a healthy economy, shielding individuals from disasters that might devastate their financial well-being in an instant. Unfortunately, insurance has become a popular target for money launderers over the years. Because technology has altered the way insurance works, it has opened up new avenues for illicit activities such as money laundering.

Insurance Companies Must Implement Anti-Money Laundering Programs and Record Suspicious Activity Reports. At a bare minimum, insurance firms subject to the law mandating an anti-money laundering programme must implement a programme that consists of four fundamental components:

• A compliance officer who is responsible for ensuring that the programme is executed successfully;
• Written policies, procedures, and internal controls reasonably designed to limit the risks of money laundering, terrorist financing, and other financial crime associated with its company;
• Ongoing training of relevant individuals regarding their duties under the programme; and
• Independent testing to monitor and maintain an adequate programme.

Regards,
Legal Team

Proind Business Solutions Private Limited
306, Tower B, I-thum, Plot No A-40, Sector 62, Noida, UP, India- 201301
No.: +91 120 4224203
Email: info@proind.in, website: www.proind.in