Compliance Services

Insurance Industry provides different types of products including investment related products, savings schemes, and risk transfer products to various customers across the globe.

The clientele of an insurance company can range from individuals to corporate entities and government organisations.

One of the most important aspects of the Insurance industry that should be considered while assessing ML/CFT risks is that it operates its business and transactions through intermediaries including Insurance agents and brokers.

Money Laundering and Terrorist Financial Red Flags in Insurance Sector:

While there is no exhaustive list of tried-and-true suspicious activity indicators , there are many common pointers that can help us identify Financial Crime, Money laundering and Terrorist Financing in Insurance Sector.

Methods of Money laundering are getting more sophisticated as the complexity of transactions and financial relationships is growing over the period.

Financial institutions, LFIs and NBFIs play a critical role in identifying and disrupting the movement of funds used to support and carry out terrorist attacks.

Some of the situations which may require additional scrutiny to identify money laundering and CFT methods in the insurance sector are:

• Cash Payments: Purchase of Insurance policies using cash payments.

• Use of different modes of payment: Use of multiple currency equivalents such as cashier checks and money orders to make payments for an insurance policy or annuity payments.

• Request for Compensations: Request for refunds during “Free Look Period.”

• Overlooking potential losses while cancellation of the policy: Lack of concern for significant tax or other penalties while cancelling the policy.

• Redemption in cross border Jurisdiction: Redemption of insurance bonds originally subscribed by an individual in one country, by a business entity in another country.

• Usage of Offshore accounts: Policy premiums paid on behalf of the policy holder from unrelated foreign offshore accounts.

• Cancellation of the Insurance policy within a short period of time: The customer requests for cancellation of the policy in a short period of time after making large premium payments.

• Third Party Funding: The funding of the insurance policy done by third parties who have not been subject to KYC process and the source of funds and the relationships between policyholder and third party is unclear.

A key factor in assessing money laundering and terrorist financing risks in the insurance sector is determining whether the company allows customers to use cash or cash equivalents to purchase insurance products.

When evaluating ML/CTF risks in this sector, it’s important to consider whether customers are permitted to purchase policies with a single lump-sum payment or if the company allows customers to borrow money against the value of an insurance product.

As per the prevalent regulations within the UAE, only life insurance and other investment related insurance products are subject to the UAE’s AML/CFT legal and regulatory framework. For more information contact please contact renu@affiniax.com

In today’s increasingly complex financial landscape, safeguarding the integrity of Financial Institutions/Designated Non-Financial Businesses and Professions (DNFPBs) is more important than ever.

One of the key tools in this effort is the Suspicious Activity Report (SAR). Understanding how and when to file a SAR is critical for protecting your organization from potential risks.

What is a SAR?

A Suspicious Activity Report (SAR) is a document that financial institutions and certain businesses such as DNFBPs are required to file with the GoAML when they detect potentially suspicious activity that might indicate money laundering, fraud, terrorist financing, or other financial crimes.

Filing a SAR is a way for these institutions to communicate their concerns to the authorities, who can then investigate the matter further.

Common scenarios that might trigger the need for a SAR

1. Unusual Transactions:

   If a customer is conducting transactions that are inconsistent with their normal behavior, it might be cause for suspicion. For example, large deposits followed by immediate withdrawals, especially if these transactions are inconsistent with the customer’s history or business profile.

2. Structuring:

   This involves breaking down large transactions into smaller amounts to avoid reporting requirements, such as trying to stay under the threshold for currency transaction reports.

3. Rapid Movement of Funds:

   Frequent transfers between accounts or across borders, especially when there’s no clear business reason, could indicate potential money laundering.

4. Suspicious Documentation:

   If you notice that a customer is providing inconsistent, incomplete, or suspicious documentation, such as false identification or discrepancies in their records, it might be a red flag.

5. Unusual Patterns of Behaviour:

   Unexplained changes in a customer’s financial habits, such as suddenly moving large sums of money without a clear reason, can also be suspicious.

6. Linked Accounts or Activities:

   If you discover that multiple accounts or transactions are linked in a way that raises questions, such as using different accounts to transfer funds in a circular manner, it’s worth investigating.

The Process of Filing a SAR is a structured process that requires careful documentation.

How to file a SAR: A step-by-step guide:

1. Identification

   First, gather all relevant information about the suspicious activity. This includes details about the individuals or entities involved, the type of transactions, dates, amounts, and any other pertinent data.

2. Internal Reporting:

   Many institutions have an internal process for reporting suspicious activity.This may involve notifying a Compliance officer/MLRO or a dedicated team responsible for investigating and making the final decision on whether to file a SAR.

3. Filing the SAR:

   If it’s determined that a SAR is necessary, it must be filed electronically through the GoAML System. The report should include detailed information about the suspicious activity and the rationale behind the decision to file the SAR.

4. Confidentiality:

   It’s important to note that SARs are confidential. Disclosing the existence of a SAR or its contents to the person or entity involved in the suspicious activity is illegal and is called tipping-off. The confidentiality of the SAR process is crucial for effective enforcement and protection of Financial Institutions/DNFBPs.

5. Retention and Documentation:

   After filing SARs, institutions are required to keep a copy of the SAR and all supporting documentation for at least five years. This ensures that records are available for any future audits or investigations.

Conclusion

By understanding when and how to file a SAR, and by staying vigilant, you can play an essential role in detecting and preventing financial crimes. Contact us for more information at renu@affiniax.com.