Why have they become a target and what can you do?
With large funds, flexible and easily accessible policies and comparatively relaxed customer due diligence (CDD) processes, the life insurance sector has become a hot target for money laundering.
Although any customer could potentially be involved in fraud or money laundering, politically exposed persons (PEPs) present a higher risk, highlighting the need for life insurance providers to take extra care.
Here’s what you need to know:
PEPs – the basics
A PEP is someone who holds a prominent or influential position (for example, a politician or someone in a trusted public role). The assumption is that being in a position of power makes a PEP more susceptible to bribery or corruption, and close business associates and family members also present a risk.
Why life insurance has become a target for financial fraud
Life insurance policies can be used to filter large amounts of money through an eventual withdrawal of funds.
Policy elements that are attractive to fraudsters include:
- The ability to transfer ownership of the policy – some life insurance policies can be transferred from one customer to another. This allows the initial customer to pass a policy on to a PEP, who cashes it in later.
- Policies that allow top-ups – policies with small premiums don’t typically trigger a red flag. Money launderers will start with a smaller policy, then top it up with illegal funds, which are eventually withdrawn.
- The ability to withdraw funds– it’s possible to draw down on some life insurance policies, and these sums don’t have to be repaid. Policy loans aren’t typically subject to AML measures either.
- Selling on secondary markets – it’s entirely legal to sell life insurance policies on a secondary market to receive a cash pay-out. These policies can be purchased by a PEP through a broker, avoiding any upfront CDD checks.
Protect your life insurance business from financial fraud
Understanding the risks involved with PEPs and life insurance is a positive step for providers, but there’s more to do. To protect your business against financial fraud – including money laundering through life insurance – it’s essential to put a robust AML/CFT program in place. This helps you verify new customers, identify risk levels and monitor transactions in the long term.
If you’re a life insurance provider, PEPs and their relatives and close associates should be subject to enhanced CDD screening through your AML program, to minimise the risk as much as possible. Managing a complex program with continuous monitoring can be time-consuming – so it’s worth seeking professional help. First AML has specialists, automated, customised AML/CFT software and years of experience in the financial fraud sector. Get in touch to protect your business today.