Académique Documents
Professionnel Documents
Culture Documents
CONTENT
Project synopsis
Introduction
3-4
Types of Insurance
5-6
6-8
Impact of Non-Compliance
9-10
Summary of Case
10-11
Recommendations
11-12
Conclusion
12
Reference
13
immediate premium cancellation with full refund are considered high risk. Only 2% of the
total business was single premium, which met all the high risk characteristics and the
remaining 98% of the business are regular premium basis.
Most significant laundering and terrorist financing risks in the insurance industry are found in life
insurance and annuities products. While many life insurance policies are generally structured to
pay a certain sum upon the death of the insured, others have an investment value which can
create a cash value if the policyholder wishes to cancel the policy. Life insurance policies that
have an investment feature, which can increase the death benefit as well as the cash value of
the policy, are often referred to as whole life or permanent life. Vulnerabilities in the insurance
sector include:
1) Lack of oversight/controls over intermediaries
Insurance brokers have a great deal of control and freedom regarding policies.
2) Decentralized oversight over aspects of the sales force
Insurance companies may have employees (captive agents) who are subject to the full
control of the insurance company. Non-captive agents, those who offer an insurance
companys products, but are not employed by an insurance company (i.e., the noncaptive agent will often work with several insurance companies to find the best mix of
products for their clients) may fall between the cracks of multiple insurance companies
or may work to find the company with the weakest AML oversight if they are complicit
with the money launderer.
3) Sales-driven objectives
The focus of brokers is on selling the insurance products and, thus, they often overlook
signs of money laundering, such as a lack of explanation for wealth or unusual methods
for paying insurance premiums.
Risk associated with the Insurance Products
Reputational risk is described as the potential that adverse publicity regarding an organizations
business practices and associations, whether accurate or not, will cause a loss of public
confidence in the integrity of the organization.
Legal risk is the potential for lawsuits, adverse judgments, unenforceable contracts, fines and
penalties generating losses, increased expenses for an organization, or even the closure of the
organization. For instance, legitimate customers may become victims of a financial crime, lose
money and sue the organization for reimbursement. There may be investigations conducted by
regulators and/or law enforcement authorities, resulting in increased costs, as well as fines and
other penalties. Also, certain contracts may be unenforceable due to fraud on the part of the
criminal customer.
Concentration risk is the potential for loss resulting from too much credit or loan exposure to
one borrower or group of borrowers. This is particularly a concern where there are related
counter-parties, connected borrowers, and a common source of income or assets for
repayment. Loan losses can also result, of course, from unenforceable contracts and contracts
made with fictitious persons.
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Understanding of money laundering and terrorist financing risks in a bigger scope can be seen
three levels which are:
1) Countrys level
a. Results of NRA
b. Reports by reputable sources
c. FIs own analysis on the countrys ML/TF risks
2) Financial Institutions Inherent Vulnerabilities (Factors influencing FIs vulnerabilities)
a. FIs size, structure and geographical locations of branches/operations
b. Variety of channels of deliveries available for products and services
c. Extent of exposures to cash-based transactions or cash-intensive customers
d. Level of skills and experience of resources in AML/CFT including front liners
3) Customers Level (Factors influencing ML/TF risks of the customers)
a. Type of customers
b. Type of transactions
There are three types of risks involved in mapping out anti-money laundering procedures
depending on the capacity of a company to map its risks. The risk types are:
a) Risk linked to the product itself;
b) Risk inherent in client relationship; and
c) Risk linked to distribution networks
Therefore, based on FATF recommendations that recommends to the Risk-Based Approach as
the central for AML/CFT measures. The purpose of Risk-Based Approach is life insurance
companies and intermediaries are able to ensure that measures to prevent or mitigate money
laundering (ML) and terrorist financing (TF) are commensurate to the risks identified. This will
allow resources to be allocated in the most efficient ways. The principle is that resources should
be directed in accordance with priorities so that the greatest risks receive the highest attention.
The alternative approaches are that resources are either applied evenly, so that all life
insurance companies and intermediaries, customers, products could receive equal attention, or
that resources are targeted, but on the basis of factors other than the risk assessed.
FATFs new assessment methodology focuses on:
RISK
MATERIALITY
CONSEQUENCES
S
D BY INFLUENCE
Country situation
(economic and financial)
THREATS
Structural elements
(geographical location)
VULNERABILITIES
Other contextual factors
(maturity of financial sectors
This would also closely relate to the Malaysias National Risk Assessment. National Risk
Assessment is an assessment of the countrys exposure to prevail crimes (domestic and
foreign) and vulnerabilities of various sectors to ML / TF risk. This is an initiative by National
Coordination Committee to Counter ML (NCC). National Coordination Committee is a
combination several law enforcement which are Malaysian Anti-Corruption Commission,
Attorney-Generals Chamber, Companies Commission of Malaysia, Inland Revenue Board,
Labuan Offshore Financial Services Authority, Ministry of Domestic Trade and Consumer Affairs,
Ministry of Finance, Ministry of Foreign Affairs, Ministry of Internal Security, Royal Malaysian
Customs, Royal Malaysia Police, Securities Commission and Bank Negara Malaysia.
The risk-based approach places the responsibility to identify and assess the money laundering
and terrorist financing risks and to take appropriate measures to identify, manage and monitor
those risks.
Risk-based approach to money laundering covers:
1) Risk identification and assessment identifying the money laundering risks facing a firm
(including related legal, regulatory and reputational risks) given its customers, product
and services profile and having regard to available information including published
typologies and assessing the potential scale and impact of the risks if they were to
crystallize.
2) Risk mitigation identifying and applying measures effectively to mitigate the material
risks emerging from the assessment.
3) Risk monitoring putting in place management information systems and keeping up to
date with changes to the risk profile through changes to the business or to the threats.
4) Documentation having policies and procedures that cover the above and deliver
effective accountability from the board and senior management down. Documenting the
risk assessments undertaken to provide the rationale for decisions made.
Financial institutions that rely on the proceeds of crime have additional challenges in adequately
managing their assets, liabilities and operations. The adverse consequences of money
laundering are generally described as reputational, operational, legal and concentration risks.
They are interrelated, and each has financial consequences, such as:
1.
2.
3.
4.
5.
6.
7.
Impact of Non-Compliance
8
located in money laundering havens because the necessary extra scrutiny will make them more
expensive. Legitimate businesses located in money laundering havens may suffer from reduced
access to world markets (or may have to pay more to have access) due to extra scrutiny of
ownership and control systems. Once a countrys financial reputation is damaged, reviving it is
very difficult and requires significant resources to rectify a problem that could have been
prevented with proper anti-money laundering controls. Other effects include specific countermeasures that can be taken by international organizations and other countries, and reduced
eligibility for governmental assistance.
Social Costs
Significant social costs and risks are associated with money laundering. Money laundering is
integral to maintaining the profitability of crime. It also enables drug traffickers, smugglers and
other criminals to expand their operations. This drives up the cost of government expenses and
budgets due to the need for increased law enforcement and other expenditures (for example,
increased health care costs for treating drug addicts) to combat the serious consequences that
result.
Summary of Case
MALAYSIA
Offence : S.4(1)(a) AMLATFA 2001& S. 25(1) of BAFIA
Accused
: Datuk Adzhar Sulaiman, Noradzma Adzhar and Noradzrin Adzhar Director
Noradz Travel
Fact of the case :
They were alleged to have used the money to buy several properties in Perak and Pahang,
buy insurance and investment products and also transfer part of the money into a
subsidiary of the company.
Actions :
1) Two (2) years imprisonment against Noradzma bt. Dato Adzhar
2) Three (3) years imprisonment against Dato Adzhar b. Sulaiman
3) One (1) year imprisonment against Noradzrin bt. Dato Adzhar
4) Travel & Services Sdn Bhd was fined RM5 million;
5) Noradzma bt. Dato Adzhar (1st accused) was sentenced to one (1) year imprisonment
and fined RM 500,000.00 (in default - 6 months imprisonment); and
6) Dato Adzhar b. Sulaiman (2nd accused) was sentenced to two (2) years imprisonment
and fined RM 1 million (in default - 10 months imprisonment).
Offence : S.4(1)(a) AMLATFA 2001
Accused
: T. Gauthaman
Fact of the case :
He was also convicted on charges of engaging in money laundering and using money from
illegal activities to pay deposit to buy a car and bought life insurance policy.
Actions :
1) T.Gauthaman was sentenced to nine (9) year imprisonment and fined RM 1,800,000.00
OVERSEA
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Accused
: Gao Ailing Wife of Linkwell owner
Fact of the case :
Evidence showed she had spent some of the money on insurance and investment
funds. She also transferred HK$3 million to her personal account in Singapore.
FRAUD OPENING ACCOUNT
Accused : Randall Petersen Insurance Agent of Equity Leadership Insurance Agency Inc.
Fact of the case :
Florida - Petersen advertised job opportunities on the internet for College Consultants of
the Gulf Coast, and induced hundreds of applicants to provide information for life
insurance that he and his associates described as free job benefits. College
Consultants was not a real company and Petersen merely used the information from
the job applicants to complete life insurance applications that he submitted to the
insurance companies (American National Insurance Company and Liberty National
Insurance Company).
Actions :
1) Petersen faces a maximum of 60 years state prison.
Recommendations
The Money Laundering Compliance Officer (MLCO) who is appointed by BNM are authorized
and have access to FINS to report STR and CTR. The STR will be submitted by the MLCO via
FINS to report directly to BNM. However the information were escalated only one way direction
where only RI such as insurance company report to BNM but the information collected didnt
available for review. Therefore it will be useful if BNM can perform live update such as summary
of the STR reported. BNM should communicate the latest modus operandi and current status
money laundering activities to the insurance company and communicated to the other Reporting
Institutions for risk assessment and mitigation action purposes. This information will assist who
deal with heavy daily cash transactions to identify the indicator and trends of any suspicious
transaction which relevant to current trends of money laundering activities.
Looking at the perspective of financial institutions that are involved in dealing with the antimoney laundering, they need to provide continuous education for their members of staff at all
levels. For example at an entry level, every new member of staff joining in, has to undergo a
compulsory course on money laundering, to start with and perhaps later on, they need to keep a
record on how many hours they have spent on attending the update courses on the subject.
Everything is aimed so that their level of knowledge is keep up to date with the current
environment.
On the other hand, the STRs and CTRs will be more effective if proper legal frameworks are
included and introduced to all members of staff. Be it for people working in financial institutions
or elsewhere, they need to be able to understand a comprehensive explanation of suspicious
transactions, and need well organized supervision and aware of the penalties in the cases of
failure to comply with regulations. Then again, the financial institutions and Financial Intelligence
and Enforcement Department (FIED) have to ensure that Anti Money Laundering policies are
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respected and followed by all employees, so that it can deter and prevent the money laundering
activities from occurring in their organizations.
Government with the co-operation of the financial institutions and FIED should advise the
private sectors on the importance of their role in combating money laundering activities.
Wolfberg principles mentioned that the responsibility to combat money laundering is not only
borne by the government but also with the help of the private sectors, by giving the information
on suspicious transaction activities. Through decentralization of the law in Malaysia, the laws
should be strengthen at all levels of the Government as because money launders in this era are
always eager and could still find ways or loopholes that will give them those illegal benefits.
In addition, FINS system introduced by BNM can be updated such as automatically block funds
movement of the suspected account which STR reported by the MLCO and able directly
generates significant amount to be frozen for further investigation. Nevertheless, law
requirement might need to review in order to add and implement as we recommend. In addition,
law enforcement agencies and regulators should maintain an exchange of ideas medium to
develop the use of harmonized data recording practices for the key variables of policy
importance.
Conclusion
Money laundering activities consist of 3 main activities such as placing, integration and layering.
The ultimate goals for money launder was not motivated to gain profit, however their focus is to
covert illicit proceed to legitimate fund and use as clean money in daily economy business
cycle. Nevertheless, as a result of containing high effort in combating criminal such as
corruption, transnational crime and terrorism financing by international and local community,
reporting institutions such as commercial bank are mandatory to practice anti money laundering
activities with serious approach. Therefore there are law as a regulation and guidelines for the
reporting institutions such as insurance company to follow and obliged and responsible to
monitor on their customer accounts activities and reported promptly to the authorities.
Other than, the laws had set a guideline for the insurance sector to have a good practice how to
monitor and techniques in order to face the AMLA related issue. Adequate and continuous
training needs to provide to the compliance officer in order to increase awareness to identify any
suspicious transactions and report it to relevant authorised appointed MLCO. Supports from top
management are crucial in order to implement the guidelines set up by BNM in order to fight
and detect money laundering activities.
The top management need to identify the risk involved and implement relevant and necessary
control to minimize and mitigate money laundering transaction performed and able to detect if
any. In addition, continuous monitoring such as annual review by Internal Audit are important in
order to ensure appropriate controls had implemented in order to fight against money
laundering activities.
Reference
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1) http://www.themalaysianinsider.com/malaysia/article/money-laundering-man-and-two-
daughters-ordered-to-enter-defence#sthash.WQlHOs9K.dpbs
2) http://www.bnm.gov.my/microsites/fraudalert/0301_status.htm
3) http://www.thesundaily.my/news/1082834
4) http://www.sprm.gov.my/name-and-shame.html
5) http://www.scmp.com/news/hong-kong/article/1679702/mainland-chinese-housewife-
jailed-hk240m-hong-kong-laundering-case
6) http://www.insurancejournal.com/news/southeast/2015/04/14/364171.htm
7) AML/CFT Compliance Conference 2014 FIED, Bank Negara Malaysia
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