ANTI-MONEY LAUNDERING MEASURES FOR THE INSURANCE SECTOR
Money laundering and terrorism financing are economic crimes that require specific intensive efforts for combating them in various sectors. The insurance sector is a potential area targeted for money laundering operations. The Capital Market Authority of the Sultanate of Oman has specified regulatory procedures to combat money laundering, for Insurance Companies, Brokers and Agents, based on the Money Laundering Law. Although, the insurance brokers and agents are responsible for implementing the Customer Due Diligence (CDD) measures, it is important to note that the ultimate responsibility for customer identification and verification remains with the insurance company. Therefore, the insurance company should obtain necessary information and confirmation from the insurance broker/agent that all CDD measures have been established and implemented. Some of the important measures to combat money laundering specifically for the insurance sector are briefly enumerated below:
Timing of Due diligence Measures
The insurance licensees shall apply CDD measures on:
- Establishing a business relationship.
- A significant or unusual or occasional transaction above OMR 6,000 taking place in a single or several operations that appear to be linked.
- A change being made to a policy-holder’s beneficiary.
- A material change in the terms of an insurance policy.
- Claims, commissions and other monies being paid to persons other than the policy-holder.
- Suspicion of money laundering or terrorism financing.
Nature of CDD Measures
Broadly, the nature of the CDD measures to be undertaken by the insurance licensees are:
- Obtaining evidence of customer’s identity and existence.
- Determining whether the customer is acting on behalf of another person, and if so obtaining evidence of the other person’s identity and existence.
- Identifying the ultimate beneficial owner (especially for ‘Life’ and other ‘Investment’ related insurance products) and verifying the identity of the beneficial owner.
- Obtaining the real purpose and intended nature of business relationship.
- Conducting ongoing due diligence on the business relationship and scrutinising the transactions undertaken.
Trigger Events for Insurance Transactions
Some of the important trigger events for insurance transactions are summarized below:
- A change in beneficiaries (for example, to include non-family members, or requests for payment to be made to persons other than beneficiaries).
- A change in/ increase of the capital sum insured and/ or premium payment which appear unusual in light of the policy-holder’s income.
- Use of cash and/ or payment of large single premiums.
- Payment/ surrender by wire transfer from/to foreign parties.
- Lump-sum top-up of existing life insurance contracts.
- Early surrender of policy or prepayment of benefits.
Classification of Customers
Based on the customer and insurance product profile, the insurance licensees may classify the customers into Low Risk and High Risk categories, so that enhanced CDD procedures can be applied to all business relationships, clients and transactions where the risk of money laundering is high.
Low Risk Categories
- Banks, financial institutions and companies monitored by regulatory authorities like Central Bank, Capital Market Authority, etc.
- Government institutions, enterprises and companies where the government is the major shareholder.
- Life insurance policies where the annual premium is not more than OMR 500 or a single premium is not more than OMR 1,000.
- Insurance policies for pension schemes, if there is no surrender clause and the policy cannot be used as security for loan.
High Risk Categories
- Non-resident customers.
- High net-worth non-Omani individuals.
- Private banking.
- Trusts and charities
- Companies having closed-family shareholding or sleeping-partners.
- Politically exposed persons.
Internal Organisation for Insurance Licensees
Insurance licensees should establish the following internal control arrangements for detection and prevention of money laundering:
- Establishing and implementing internal policy, procedures and controls.
- Appointment of a Compliance Officer and elaborately specifying their duties.
- Internal audit.
- Compliance monitoring.
- Screening of staff.
- Staff training
- Record keeping (of customer documents and transactions) for at least 10 years.
- Identification and reporting of suspicious transactions to regulatory authorities.
(This article is compiled by Mr. Zarir Patwa, a Partner in PKF L.L.C., Muscat, the PKF member firm in the Sultanate of Oman.)