Money Laundering ‘Red Flags’: How To Spot Risky Scenarios

1. March 31, 2008
Focus business management: compliance
Money Laundering ‘Red Flags’:
How To Spot Risky Scenarios
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By Patrick McGunaGle
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mon categories of money laundering risk
a
w h at t o l o o k f o r
s insurers ramp up their anti-mon-
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for insurers, including: 1) when clients
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ey laundering (amL) efforts to comply red FlaG tiP sHeet misrepresent themselves to agents and in-
with federal regulatory requirements, surance companies; 2) when rogue agents
3 common
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firms must be aware of important “red flags” categories of money victimize their own clients; and 3) when
that indicate potential money laundering laundering risk for clients and agents conspire together to
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activity—and make sure their agents and insurers: defraud companies or government enti-
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brokers learn them as well. A When clients misrep- ties. These scenarios also indicate the high
Being able to spot these “red flags” is dollar value of some money laundering
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resent themselves to
one of the critical steps in amL compli- agents and insurers. schemes, although insurers need to be
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ance, both as a method for insurance 2 When rogue agents aware that many criminals pursue much
companies to strengthen their own amL victimize their own lower amounts to attempt to operate “be-
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processes and also to demonstrate to clients. low the radar.”
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regulators that their amL programs are 3 When clients and
sound. under the FinCen guidelines, an agents conspire “red FlaG” BeHavior
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together to defraud
insurance company is responsible for amL using existing criminal cases as well as the
companies or govern-
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compliance for all covered products they ment entities. knowledge of certain patterns in money laun-
sell, whether through their own agents or dering behavior, firms can compile a library
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through non-captive/independent distrib- of “red flags” to detect the signs of money
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utors. so it is up to the firm to understand policies purchased offshore. more than laundering—and stop it before it happens.
the “red flag” scenarios and integrate these 250 policies were purchased, some for These “red-flag” scenarios carry an
Pas an ongoing part of amL monitoring for
all sales channels.
more than $1 million dollars in pre-
mium. many of the policies were cashed
above-average risk for criminal behavior:
K sales involving unusually large single
out shortly after purchase, with heavy premiums or a series of large premium
HiGH-ProFile Money launderinG cases surrender charges. payments.
With criminals constantly devising cre- E a south Dakota agent was imprisoned K sales involving excessive transactions or
ative new ways to launder money, insurers for promoting a scheme to conceal taxable early surrenders.
face a wide range of money laundering income from the irs by transferring cli- K Clients who are keenly interested in how
behavior from both the “inside” (brokers ents’ assets into management companies quickly and how much money they can
themselves) and out (the customers). some and trusts. borrow or withdraw from permanent life
examples include these cases reported by E a life insurance settlements provider insurance contracts.
the irs and state authorities: purchased more than 9,000 policies with K sales with a premium paid by a third party
E a Florida case indicted 5 Colom- more than $1 billion in combined death or by a premium financing arrangement.
bian nationals on charges of laundering benefits before the company was discov- K Clients who are not able to account for
millions of dollars from cocaine sales ered and put out of business by regulators the source of funding from their own in-
through single-premium life insurance in 2004. according to the u.s. District come or assets.
attorney and seC, the company sold un- K Clients who lack roots in the local com-
registered securities to 29,000 investors. munity or a legitimate reason for doing
EPatrick McGunagle is
One civil court case against the company business with a local agent or agency.
group executive, advisory
and its executives alleged that a drug cartel K purchases of life insurance that are not con-
services at Fortent. He can
wired large amounts of funds to this com- sistent with a customer’s identified needs.
be reached via email at
pany’s account to launder tainted money. K products in which beneficiaries appear
p.mcgunagle@fortent.com.
These examples demonstrate the 3 com- unrelated to the owner.
www.lifeandhealthinsurancenews.com March 31, 2008 | National Underwriter Life & Health

2. K agents who are especially secretive about own institutional knowledge and experience amL training can encourage active par-
their largest clients, their identities and to develop red flag scenarios. a firm’s amL ticipation by brokers and agents to be
activities. users can manually create scenarios for the on the lookout for suspicious customers
system based on what agents and brokers and transactions—as well as internal “red
How scenarios work have seen for themselves in the trenches, flags” indicating to the firm any improper
in aMl MonitorinG helping the organization learn what money behavior by the agents themselves.
insurance companies can employ scenarios laundering looks like in all its constantly scenarios give both managers and
as a vital part of their amL monitoring sys- changing permutations. employees a very tangible tool for identi-
tems in order to detect red flags wherever fying potential money laundering, trans-
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and whenever they appear. advanced amL draMatizinG “red FlaGs” For forming the process from theoretical
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technology is designed to detect hidden “rule following” to a more real-world set
patterns and relationships, and the red On top of their use in amL programs of challenges and objectives. Firms who
flags built into these systems can identify themselves, these “red flag” scenarios can
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use scenario-training are better able to
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the common, as well as not-so-common, be an integral part of amL training, which motivate their employees in the “compli-
money laundering techniques. is also a FinCen requirement for firms. ance mission” and achieve a more effec-
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But companies can also leverage their By building red flags into case studies, tive amL program overall. NU
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(#16576) Reprinted with permission from National Underwriter Life & Health.
Copyright 2008 by The National Underwriter Company. All Rights Reserved.