Money Laundering

Understanding Money Laundering

Test your knowledge on the critical aspects of money laundering, including its legislative framework and how to identify suspicious activities in the insurance industry.

Key Areas Covered:

Stages of Money Laundering
Legislation and Compliance
Suspicious Transactions
Reporting Obligations

19 Questions5 MinutesCreated by AnalyzingPaper315

WHAT IS MONEY LAUNDERING?

Money Laundering is defined as the process used by criminals to disguise the origin and ownership of the proceeds of criminal activities so that it looks like they have come from a legitimate source and in doing so avoid prosecution, conviction and confiscation.

WHAT IS MONEY LAUNDERING? - Continued

There are three stages of money laundering:

Stage 1

The physical disposal of criminal proceeds (predominately cash).

Example

An insured paying 'dirty money' to a coverholder or a coverholder's intermediary to obtain an insurance policy to 'legalise' an asset. For example, purchasing vault insurance coverage for a fine art object in order to authenticate it and using the insurance documentation as proof of existence and ownership in order to obtain a line of credit.

WHAT IS MONEY LAUNDERING? - Continued

Stage 2

Attempt to distance the money from its source.

Example

The criminal will attempt to distance the money from its source by creating layers of transactions, thus disguising its origin and creating the appearance of legitimacy. This might involve one or a series of cancel and replacement endorsements.

LEGISLATION

In the UK, the primary legislation for anti money laundering is the Proceeds of Crime Act 2002 (PoCA). Whilst coverholders are likely to to be subject to legislation other than PoCA, anti money laundering legislation around the world is broadly similar.

LEGISLATION - Continued

There are 3 primary money laundering offences under PoCA which can result in criminal prosecution:

Concealing

Where someone knows or suspects that property constitutes someone's benefit from criminal conduct, he or she commits an offence if he or she conceals, does not report to principals, disguises, converts, transfers or removes that criminal property from the UK.

Arranging

A person commits an offence if he or she enters into or becomes concerned in an arrangement which he or she knows or suspects will facilitate the acquisition, retention, use or control of criminal property by or on behalf of another person.

Acquisition, use and possession

An offence is committed if someone acquires, uses or has possession of property if he or she knows or suspects that the property constitutes a person's benefit from criminal conduct.

LEGISLATION - Continued

In addition there are 2 other related offences:

Failure to disclose

If a person knows or suspects or has reasonable grounds for knowing or suspecting that another person is engaged in money laundering and does not make the required disclosure as soon as practicable after the information comes to him/her, he/she will commit a failure to disclose offence.

Tipping Off

If a person acts in a way to prejudice an investigation (e.q. Informs the subject (or the subjects broker or other intermediary) that they have been reported for the suspicion of money laundering), he/she will commit a tipping off offence.

IMPACT ON COVERHOLDER ARRANGEMENTS

Delegated underwriting could be exposed to suspicious transactions where there are movements of cash or assets in a manner which is not in line with usual business expectations. This could occur on both the underwriting and claims handling (where claims handling is delegated).

The types of transactions reported to Lloyd's often relate to suspicions about specie or fine art risks. In particular, vault or goods in transit insurance relating to the storage of cash, precious metals, fine art and gemstones where the value of the goods is overstated, there are doubts over the ownership and existence of the property, and there is a request for insurance to secure collateral are often reported as suspicious transactions.

The next page lists examples of other transactions that should raise suspicion.

EXAMPLES OF SUSPICIOUS TRANSACTIONS

A request for a payment to be made in cash
Payments made in excess of premium or expected amount with request to pay the excess into a third party account or foreign currency
Payments for which there are no obvious business reason or no genuine reason for the insurance, and or which appear unrealistic illegal or unethical
Requests to make payments, e.q. Claims to third parties
Payments from jurisdictions which are perceived as having a greater than usual level of financial crime and money laundering such as appearing on the Financial Action Task Force warnings list or Transparency International Corruption Perceptions Index
Difficulties and delays in obtaining copies of accounts or other documents regarding a company's incorporation or about the ownership of new business
Numerous use of offshore accounts, companies/structures in circumstances where the client's needs do not support such requirements
The client is interested in the early cancellation of the contract

EXAMPLES OF SUSPICIOUS TRANSACTIONS - Continued

Policy purchased for large premium considered to be beyond the client's means
Attempts to use a third party cheque when purchasing a policy or payment in cash
Excessive commission paid to an intermediary or role of intermediary is superfluous
Premium financing arrangements between insureds and intermediaries which may obscure source of funds or large unusual cash payments
Assignment of policy to unrelated third party, particularly prior to a loss
Regular small claims from the same intermediary or insured
Claims investigations which reveal other evidence of suspicious activity e.g. Claimant enjoys a lifestyle which is beyond his/her apparent financial means or reveals that insured is avoiding tax
Suspicions about cargo, specie or fine art risks

REPORTING

In respect of reporting expectations, the following procedures should be regarded as a minimum standard:

Each coverholder to ensure there is a person designated to handle the reporting of suspicious transactions and to ensure that any suspicions are reported in accordance with local legislation and to the Lloyd's managing agent's designated person
Document the fact that this has been done
Document any decisions made not to report suspicions

Information to Capture in the report:

Details of the subject and any associated subject, risk details such as description and value, the status of the transaction, e.g. Whether it has been declined and the reason for the suspicion should he included in the report.

Which of the following transactions could be a stage of the money laundering process?

An insured wishes to pay a very large premium, which relative to the type of insured, appears out of line with the insured's economic profile. The insured is interested in finding out about the process for the early cancellation of the policy.

An insured overpays premium and asks that the excess is refunded to a bank account that is not in the insured's name.

The insurance transaction involves a number of different companies and jurisdictions all of which seem superfluous to the client's needs.

All of the above.

Which of the following activities might constitute "tipping off"?

An unfamiliar type of transaction involving a placement has been received by you. To clarify what might be the transaction's purpose you contact the retail agent concerned to seek further answers.

You have reported some unusual activity on a claims transaction and have been instructed not to settle the account until permitted to do so by the Lloyd's managing agent. Under pressure from the external party to make the required payment, to diffuse the situation you advise that you are unable to proceed until consent from SOCA has been received by Lloyd's.

A request for payment in cash has been received from a claimant unsupported by documentation to explain this unusual transaction You are unsure whether to proceed and despite being uncertain as to the next course of action vou discuss our concerns internally by calling your line manager.

An unexpected written request has been received to arrange payment on a transaction but unusually it requests payment to a third party. You seek clarification from the party concerned but in the meantime report your concerns to a designated person at the Lloyd's managing agent.

Unlock and Upgrade

Remove all limits from your Quizzes

Money Laundering

Understanding Money Laundering

More Quizzes