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March 30, 2008 at 04:00 PM
As insurers ramp up their anti-money laundering (AML) efforts to comply with federal regulatory requirements, firms must be aware of important “red flags” that indicate potential money laundering activity–and make sure their agents and brokers learn them as well.
Being able to spot these “red flags” is one of the critical steps in AML compliance, both as a method for insurance companies to strengthen their own AML processes and also to demonstrate to regulators that their AML programs are sound. Under the FinCEN guidelines, an insurance company is responsible for AML compliance for all covered products they sell, whether through their own agents or through non-captive/independent distributors. So it is up to the firm to understand the “red flag” scenarios and integrate these as an ongoing part of AML monitoring for all sales channels.
High-profile money laundering cases
With criminals constantly devising creative new ways to launder money, insurers face a wide range of money laundering behavior from both the “inside” (brokers themselves) and out (the customers). Some examples include these cases reported by the IRS and state authorities:
? A Florida case indicted 5 Colombian nationals on charges of laundering millions of dollars from cocaine sales through single-premium life insurance policies purchased offshore. More than 250 policies were purchased, some for more than $1 million dollars in premium. Many of the policies were cashed out shortly after purchase, with heavy surrender charges.
? A South Dakota agent was imprisoned for promoting a scheme to conceal taxable income from the IRS by transferring clients’ assets into management companies and trusts.
? A life insurance settlements provider purchased more than 9,000 policies with more than $1 billion in combined death benefits before the company was discovered and put out of business by regulators in 2004. According to the U.S. District Attorney and SEC, the company sold unregistered securities to 29,000 investors. One civil court case against the company and its executives alleged that a drug cartel wired large amounts of funds to this company’s account to launder tainted money.
These examples demonstrate the 3 common categories of money laundering risk for insurers, including: 1) when clients misrepresent themselves to agents and insurance companies; 2) when rogue agents victimize their own clients; and 3) when clients and agents conspire together to defraud companies or government entities. These scenarios also indicate the high dollar value of some money laundering schemes, although insurers need to be aware that many criminals pursue much lower amounts to attempt to operate “below the radar.”
“Red flag” behavior
Using existing criminal cases as well as the knowledge of certain patterns in money laundering behavior, firms can compile a library of “red flags” to detect the signs of money laundering–and stop it before it happens.
These “red-flag” scenarios carry an above-average risk for criminal behavior:
o Sales involving unusually large single premiums or a series of large premium payments.
o Sales involving excessive transactions or early surrenders.
o Clients who are keenly interested in how quickly and how much money they can borrow or withdraw from permanent life insurance contracts.
