The U.S. Money Laundering Threat Assessment Working Group says variations in states’ approach to regulation may affect efforts to detect terrorists’ use of individual annuities, permanent life insurance products and other life products that have a cash value or come with investment features.
The working group has included a chapter on insurance companies in an overall money-laundering threat assessment.
The Financial Crimes Enforcement Network released a regulation requiring insurers to file suspicious activity reports in 2005, but states’ supervision of insurers’ activities varies from state to state, according to the authors of the report.
“As a result, states report they find it difficult to depend on other states’ oversight of companies’ market behavior,” the authors of the report, drawing on a U.S. Government Accountability Office report that appeared in May 2003.
The National Association of Insurance Commissioners, Kansas City, Mo., says 38 states now have money laundering statutes that affect insurers, 21 have currency reporting requirements, and 1 has a suspicious activity reporting requirement, according to the threat assessment working group report authors.
The decentralized nature of the life insurance sales system plays a role in making life insurers vulnerable to money launders, the authors write.
“Insurance products are often sold by independent brokers and agents who do not work directly for the insurance companies,” the authors write. “These intermediaries may have little know-how or incentive to screen clients or question payment methods. In some cases, agents take advantage of their intermediary status to collude with criminals against insurers to perpetrate fraud or facilitate money laundering.”
Moreover, “further complicating AML practices, the policyholder, or purchaser of an insurance contract, may not be the beneficiary or even the subject of the insurance coverage,” the working group authors write. “The potential for multiple parties to be involved in a single contract makes it difficult to perform customer due diligence.”
Money launderers are especially attracted to products that permit holders to cash in the policies or borrow against the policy value, the working group authors write.
In one case, the authors write, federal law enforcement agencies found that Colombian drug cartels were using drug proceeds to buy life insurance policies, which were subsequently cashed in, with the cash value transferred to an offshore jurisdiction.
The working group report is on the Web at Document Link