Money Laundering Trends in the Insurance Sector

Money laundering and terrorist financing strategies used by organized criminal networks evolve each year, continuously reshaping financial crime prevention efforts. Both financial institutions and insurance sector organizations must actively address these risks.

The Financial Action Task Force (FATF) has identified various tactics employed by criminal networks to launder money and legitimize illicit funds. These methods aim to introduce illegal money into the financial system and withdraw it as seemingly legitimate funds. For example, criminals purchase policies to insure assets as collateral for loans or acquire life insurance for members of their criminal networks, who are often exposed to high-risk activities and illicit businesses.

One of the most common methods of money laundering in the insurance sector is the acquisition of life insurance policies with savings components. Criminals make excessive premium payments, which can later be withdrawn by the policyholder or included as part of the death benefit payout, effectively laundering illicit funds.

Members of these organized networks are highly trained, technologically skilled, and strategic individuals who successfully manipulate insurance systems to:

• Fraudulently claim insurance payouts.

• Cancel policies prematurely to receive cash disbursements.

• Obtain property insurance for assets subject to asset forfeiture.

• Acquire vehicle insurance for cars they later make disappear.

These are just some of the schemes they execute due to the lack of continuous monitoring and proactive control strategies that stay ahead of evolving criminal trends.

How Can Insurance Companies Counter These Threats?

In the «Guidance on a Risk-Based Approach for the Life Insurance Sector,» the Financial Action Task Force (FATF) recommends considering the following measures when designing insurance products and services:

• Define payouts strictly for predefined events (e.g., set dates or death).
• Exclude investment-related elements.

  Avoid facilitating payments to third parties.

• Restrict cash payments.

  Ensure that products cannot be redeemed in the short or medium term, such as pension plans with no early withdrawal options.

Red Flags for Policyholders: The guide also highlights key warning signs regarding policyholders:

• Legal entities with structures that obscure the identification of the ultimate beneficiary.
• Policyholders or contract beneficiaries that are corporations with nominee shareholders and/or bearer shares.
• Clients with low or average incomes holding policies with high current deposits.
• Clients in high-risk occupations linked to money laundering or terrorism financing (due to local crime typologies, heavy cash-based business exposure, or international transactions).
• Clients reluctant to provide identification information when purchasing a product, or those who provide minimal or seemingly false details.
• Clients who transfer their contract to another insurer after a short period.
• Clients who incur high costs to terminate a product early.
• Clients who make unusual or excessive requests to change or increase the insured sum and/or premium payments.

On the other hand, insurance companies must assess their employees to prevent internal fraud. Professionals in various roles who provide legitimate services may become corrupt and go unnoticed by financial organizations, insurance companies, and regulatory authorities, ultimately achieving their goal of money laundering.

To tackle this major challenge of preventing money laundering and terrorist financing in insurance, companies can rely on a strategic ally—a comprehensive, automated, and efficient system like Sentinel that allows for the initial risk assessment of prospects, the execution of risk matrices for the client portfolio, monitoring of restrictive lists (OFAC, UN, CIA-PEPs), rule creation and simulation, alert monitoring, audits and case investigations, workflow automation, as well as the creation of reports, tables, charts, and dashboards on demand.

Ariana Hütt Fernández
Gerente Desarrollo de Negocios – Centroamérica
SmartSoft

*FATF is an intergovernmental body established in 1989 by Ministries and its Member jurisdictions. The FATF’s mandate is to set standards and promote the effective implementation of legal, regulatory, and operational measures to combat money laundering, terrorist financing, and the financing of proliferation, as well as other threats to the integrity of the international financial system. – Taken from FATF (icd.go.cr)