Money laundering means turning illegally acquired money, or black money, into legally acquired

money by moving this money through the financial system.

But its not as if the insurance industry does not have a specified list of guidelines to check
money laundering. Insurance regulatory and Development Authority has a clear set of guidelines
that prevent money laundering through insurance products and asks the insurance companies to
report all suspicious transactions
Requiremtnts of act :
It puts certain responsibilities on the banks financial institution and other intermediaries.
1. verify and maintain records
2. maintain the records in hard and soft form for 10 years
3. provide information to authorities as required.
Response of insurance industry
irda has issued guidelines on aml programme for insurers.
The company has to follow these gudielines while framing its policies and procedures to reduce
the threat of money laundering.
Irda guidelines
According to the irda guidelines every company shud have an aml programme which should
include
Internal policies, procedures and controls;
Designating a compliance officer
Recruitment and Training of employees and agents
Internal control / audit.
Internal policies procedures and controls

Each insurance company has to establish and implement policies, procedures, and internal
controls which would also integrate its agents in its anti-money laundering program
: 1. Know Your Customer (KYC)
2. When should KYC be done?
3. KYC and Risk Profile of the Customer
4. Products to be covered

5. Defining Suspicious Transactions (including Suspicious Cash transactions)

6. Reporting of Suspicious Transactions
7. Monitoring and Reporting of Cash Transactions
8. Verification at the time of redemption/surrender
9. Record Keeping
Know your customer
. Insurers need to have a know-your-customer (KYC) process for all insurance policies. This
means that insurers need the identity proof, address proof and a recent photograph of the
insured. But in order to ensure that even people in the unorganized sector or lower income group
are able to buy insurance, recent photograph and residence proof is not mandatory wherein
insurance premiums are below Rs.10,000..
It makes sure that insurance companies do not involved with money launders unwillingly and
while starting a new relationship with a new customer or extending and existing relationship with
an existing customer.
When should kyc be done?
It has to be done while knowing new customers and before making new contracts and in case of
existing customers it should be applied for all contracts made after 1st jan 2006 and whose
annual premium is rs 1 lakh and above.
Risk profiling of customers
A customers profile is classified into high risk and low risk profile based on their profile and
product profile.
Low risk : these are the customers whose identities and sources of income can be easily
identified and transactions of their accounts is usually with known profile .
High risk : these are the customers who are in business.. kyc procedures should be followed
more strictly with these customers to ensure higher verification
Scope of products to be covered
After examining the products , vulnerability criterion and business coverage following products
are exempted from aml requiremtns
i. Standalone Medical/Health Insurance Products

ii. Reinsurance and Retrocession: these are Contracts where the treaties are between
insurance companies for reallocation of risks within the insurance industry and it does not
involve transactions with customers.
iii. Group Insurance : Businesses which are typically issued to a company, financial institution, or
association and generally restrict the ability of an individual insured or participant to manipulate
its investment.
iv. Term Life Insurance: Contracts, in view of the absence of cash surrender value and stricter
underwriting norms for term policies (especially those with large face amounts )

Defining Suspicious Transactions(including Suspicious Cash transactions

The AML program requires submission of STR that is Suspicious Transaction Reports (STR)
and Cash Transactions Reports (CTR) to a Financial Intelligence Unit-India (FIU-IND) set up by
the Government of India so that they can track possible money laundering attempts and for
further investigation and action.
. Reporting of Suspicious Transactions
If there are any suspicious transactions identified then the insurance company should immdtly
report it to the Financial Intelligence Unit-India ..within 3 working days in the format which is
prescribed..
Monitoring and Reporting of Cash Transactions
1. Remittances of premium by cash should not exceed Rs.49,999/2. Premium/proposal deposits >= Rs. 50,000 should be remitted only through cheques, D/D,
credit card or any other banking channels
3. For integrally related transactions, premium amount > Rs. 50,000 in a calendar month should
be examined more closely for possible angles of money laundering. This limit will apply at an
aggregate level considering all the roles of a single person-as a proposer or life assured or
assignee
4. Insurance companies have to report integrally connected cash transactions above Rs. 10
lakhs per month to FIU-IND by 15th of next succeeding month
Verification at the Time of Redemption/Surrender
i. No payments should be allowed to 3rd parties except in cases like superannuation/ gratuity
accumulations and payments to legal heirs in case of death benefits
ii. Free look cancellations needs particular attention of insurer especially in client/agents
indulging in free look surrender on more than one occasion.

iii. AML checks become more important in case the policy has been assigned by the policyholder
to a third party not related to him
Responsibility of Agents
a. All agents have to follow the AML policy of the company strictly.
b. All the agents need to undergo training on Anti Money Laundering conducted by company
c. Services of defaulting agents who expose the insurers to AML related risks on multiple
occasions will be liable to be terminated and the details reported to IRDA for further action
d. Insurance Company when faced with a non- compliant agent or corporate agent will take
necessary action to secure compliance, including when appropriate, terminating its business
relationship with such an agent.

Extra
The limit on cash transaction
But unlike the mutual funds which has a limit on cash transaction of Rs.20,000, there is no limit
on cash transaction to buy a life insurance policy. Though till October 2011, the cash limit
was Rs.50,000. Subsequently an individual can pay for premiums in cash in excess of Rs.50,000
but will have to furnish Permanent Account Number (PAN). Further any cash transaction which
may be done through one policy or multiple policies in excess of Rs.10 lakh in a month will need
to be reported to the Financial Intelligence Unit-India (FIU-IND). FIU-IND is an investigative body
set up by the government to track possible money laundering activities.

When to raise a red flag

Even as there is no limit on cash transaction and a person can avoid giving proof of PAN by
transacting below Rs.50,000 several times in a year, the guidelines have drawn a list of
suspicious transactions that need to be reported. Multiple transactions is one of them. Frequent
free-look surrenders, unusual termination of policies and regular change in address are some of
the other red flags that need to get reported. Other than this, insurers are expected to ensure that
the insurance bought is reasonable according to the income levels of the individual. For this
purpose, in case of big-ticket insurance policies and single premium policies, insurers need to
obtain income proof of the customer. Insurers are expected to maintain these records for at least
10 years. There are still ways to circumvent these guidelines. For instance, the customer could
launder his money through multiple policies through multiple insurers. There is a need for a
central depository that will track such suspicious activities across companies. Insurers say that
the Insurance Information Bureau, that works primarily to collect data, can be an effective
depository