Preventing Money Laundering in Insurance Companies: Importance of AML Regulations and Customer Due Diligence
Insurance companies, like other financial institutions, have access to large amounts of money and have the ability to move money around the world, which makes them vulnerable to money launderers who want to use them to move and hide illicit funds.
AML regulations aim to prevent, detect, and report money laundering activities, and thus, insurance companies, like other financial institutions, are required to comply with these regulations to prevent them from being used for illicit activities. The regulations require insurance companies to establish policies, procedures and controls to detect and report suspicious activities, and to have a robust Customer Due Diligence process in place.
Insurance companies can be exploited for fraud and money laundering through a variety of methods, such as:
Filing false claims: Criminals may file false claims for damages or injury and then receive payment from the insurance company, which is then used to launder dirty money.
Premium diversion: Criminals may set up fake insurance policies and collect premiums, but never pay out claims. The premiums are then used to launder money.
Policy ownership: Criminals may use a network of shell companies to purchase insurance policies and then claim large payouts on those policies, using the payouts to launder money.
Agent involvement: Criminals may bribe or threaten insurance agents to overlook suspicious activity or to help facilitate fraudulent claims or premium diversion schemes.