Insurance companies- Moving against Money Laundering

It will be true to say that until recently the insurance industry has shown very little interest in the Proceeds of Crime Act 2000. In fact the indifference might have stemmed from the fact that generally the insurance industry rarely handles sizeable cash transactions and the vast majority of its income is generated through negotiable instruments e.g. cheques, bank drafts etc. In addition, money laundering is perceived by the public at large as the cleaning of dirty money associated with the illicit drug trade.

However, money laundering is much more than just related to the drug trade. Those involved in organized crime as well as white-collar criminals are also its main users. Money laundering is the process where the identity of dishonestly and/or illegally obtained money is changed so that it appears to have come from some legitimate source and will therefore encompass all proceeds from criminal activities.

Money launderers are clever, innovative and resourceful people who are prepared to take risks in order to clean the proceeds of their criminal and illegitimate enterprise and will try to be one step ahead of the law enforcement agencies. Whereas the insurance industry is required to continuously develop products and services to compete against other providers of financial services it exposes itself to infiltration by money launderers since in recent times some of the products sold are ideally suited to this kind of criminal enterprise. It will be true to say that other types of businesses are equally vulnerable for example banks, credit unions, real estate and used car dealerships.

Insurance companies must guard against the payment of premiums in the form of cash. The sale of single premium policies – i.e. the payment upfront of the full premium in the case of a life insurance contract must be viewed with suspicion. The market for unregistered annuity contracts which can be compared with certificates of deposit since their term is short usually 1-3 years with a guaranteed interest rate component can be a major facilitator for money laundering.

The Proceeds of Crime Act 2000 has some provisions that are far reaching and imposes severe penalties for the officers of institutions that facilitate money laundering. Ignorance of the law is not an excuse. The Strategic Services Agency has been sensitizing various trade associations and industries of the provisions of the law and while there are obvious and inherent concerns as well as shortcomings the undisputed fact is that this piece of legislation is on the statute books. The world has changed forever following 9/11. Legislation dealing with money laundering and the confiscation of ill gotten gains not only from drugs but also criminal activities has become a priority everywhere and it is essential that Trinidad and Tobago has tough laws as it continues to sell this destination as a place to do business.

Firstly, the Proceeds of Crime Act 2000 defines an insurance company that is registered under the Insurance Act 1980 as a financial institution. The Act requires the insurance company to know the true identity of its customer and to understand his business. It must establish internal controls and systems to identify and monitor suspicious transactions and it must maintain records from start to finish- i.e. from proposal to maturity or claims settlement so that there can be a proper paper trail. Most importantly, the Act makes it an offence when an institution fails to disclose knowledge or suspicion of money laundering. The difficulty lies in the application and interpretation of the law since there must be procedures established so that in the event of failure to report that leads to a charge brought against the company and its officers a reasonable defence could be made for their inaction.

The penalties for assisting in money laundering are extremely severe. Upon summary conviction i.e. found guilty by a Magistrate, the fine is $10 million and 10 years jail BUT if found guilty by a Judge and jury the fine is $25 million and 15 years in jail. The way to avoid prosecution is simply to assist the law enforcement agencies by reporting all suspicious cash transactions.

The insurance industry is now starting to take action which is quite late when compared with the banks. It is almost 10 years since the banks introduced mechanisms to deal with money laundering where businesses are required to complete a Source of Funds declaration form when making deposits in excess of $40,000 and ordinary citizens – non business customers are required to do the same when depositing more than $10,000.

While the banking industry is more cohesive and will agree on co-operation to deal with serious issues the insurance industry is less capable of coming together and dealing decisively when some companies are not inclined to view money laundering with the same degree of seriousness.

Laws are only worth the paper that they are written on when they are scrupulously observed and enforced. That is the problem with Trinidad and Tobago. We have laws but they are not enforced. The Proceed s Of Crime Act 2000 is a piece of legislation which must be enforced in order to make it difficult for the money launderers to clean their dirty money. Everyone must play his part- in particular the insurance industry.

Article prepared by Bernard K. Aquing, Chartered Insurer and Consultant to Association of Trinidad and Tobago Insurance Companies (ATTIC)