Life insurance policies having a cash surrender value are of particular interest to money launders as they provide attractive a money laundering vehicles. The cash value of policies can be redeemed by a money launderer or may be used as a source of further investment of tainted funds, for example, by taking out loans against such cash value of the policy. These policies operate in the same manner as unit trusts or mutual funds ie, a launderer can over-fund the policy and move funds into and out of the policy for the cost of early withdrawal. Annuity contracts pose a significant money laundering risk because they allow a money launderer to exchange his illicit funds for an immediate or deferred income stream. With-profits insurance bonds invested in a mix of shares, fixed-interest securities and property; they become one of the most popular types of lump-sum investment. They are generally promoted as low-risk investments because returns are passed on to policyholders through bonuses and this aspect is very appealing even for those who intend to invest through.1
Payments originating from insurance companies are considered as commonplace by the financial institutions. The money is assumed to be clean and the payments do not attract attention. By placing funds into an insurance policy, money launder makes a significant step in layering and integrating the funds into the financial system. This happens because the beneficiary of an insurance product is often different from the policyholder, hence it is difficult to determine when and for whom to perform customer due diligence?
In cases where an outright purchase of insurance products with criminal cash proceeds has been made, money launderers exploit the fact that insurance products are often sold by brokers and these agents are not acting directly or under the control or supervision of the company that issues the product. The launderer thus seek an insurance broker who is not aware of or does not conform to required procedures, or those who simply fail to recognise or report wanting information in respect of possible money laundering.
Link to the detailed article: click here