Money Laundering is the process used by criminals to disguise the origin and ownership of the proceeds of their criminal activities to avoid prosecution, conviction and confiscation.
Managing agents are at risk of money laundering and terrorist financing offences under the UK’s Proceeds of Crime Act 2002 (POCA) and the Terrorism Act 2000 (TACT) where applicable and should adopt a risk-based approach in implementing AML controls.
Criminal offences around engaging in money laundering and/or assisting others to launder the proceeds of crime include:
- Failure to disclose/reporting requirements in respect of suspicious activities/transactions;
- Tipping off offences: ensuring that law enforcement is not hampered in its investigations by the subject of the suspicion becoming aware of the allegations.
Similar AML legislation will be in force within the jurisdictions where delegated authorities operate, but the extent to which it applies to intermediaries may vary.
In addition to the obligations under PoCA and TACT, managing agents underwriting certain types of life business, such as group life or other forms of long-term insurance are classified as being at a higher risk to money laundering and therefore such business will fall under the requirements of the UK’s Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. Where such insurance falls within the remit of delegated authority business, know your customer and due diligence processes should be part of the client onboarding and claims processes operated by delegated authorities.
Managing agents should assess their delegated authorities’ exposure to money laundering risk and consider the appropriateness of their controls at the time of onboarding and during the relationship. There is an expectation that delegated authorities have awareness of and controls in place to manage potential money laundering risk and that at a minimum those controls should include policies and processes to recognise, monitor and report suspicious activity, including escalation to managing agents.
Once managing agents have assessed the potential money laundering risk at the delegated authority, they should clearly set out the AML/financial crime controls it expects its delegated authorities to operate.
Activities that might trigger a suspicion include but are not limited to:
- Difficulty in obtaining information about, or doubts over the credentials of, the policyholder or other parties involved;
- Transactions set up and then quickly cancelled for no identifiable reason that would incur a return premium;
- Transactions involving placements from, or the involvement of intermediaries, in different jurisdictions for no discernible purpose;
- Return premiums, overpayments or claim payments where a third party appears to benefit;
- Transactions where insurance does not appear to be the primary object or make no economic sense;
- Inflated values (e.g. on jewellery/fine art).
Please refer to Market Bulletin Y5424 for other examples of activities that might trigger a suspicion and best practice recommendations for managing money laundering risk.
Download Y5424