A look at some of the latest trends in money laundering challenging the insurance sector and how effective compliance monitoring can reduce risk in the sector.
Fraudsters are experts at finding novel ways to launder money. This is evidenced in the variety of ways that dirty money is cleaned, from crypto assets to online auctions. The insurance industry and its products are another opportunity for fraudsters to launder illegal gains. The fraudsters just need to know where to look within the sector to find novel mechanisms to enable crime.
The insurance sector is already challenged by financial crime, including money laundering; PwC Global Economic Crime Survey 2022 found that two-thirds of insurance companies experienced fraud or financial crime the previous year. Money laundering and insurance fraud go hand in hand and are a growing threat to the insurance sector. Here, Eastnets explores some of the trends in insurance fraud and which compliance monitoring solutions can protect your insurance organization against this financial crime.
Money laundering and insurance
Money laundering that exploits the insurance sector can be a complex web of illegal activities mixed with social engineering, identity theft, and other nefarious activities. The chain of financial crime is enabled using money laundering. Examples showing the complex nature of financial crimes in the sector are captured by the Coalition Against Insurance Fraud (CAIF). CAIF provides a tracker of money laundering-related fraud schemes that affect the industry. One recent case involved a money laundering and wire fraud campaign targeting Medicare stakeholders in the USA. The scam involved fraudsters sending fake emails from spoof, but realistic-looking hospitals, to healthcare insurers, requesting reimbursements for faked health provisions. These payments were sent to scammer bank accounts. The cybercriminals then laundered the money, withdrawing large sums and transferring them into synthetic or stolen identities of shell companies; the funds were then subsequently moved overseas to buy luxury goods.
Health is one area of insurance that is experiencing money laundering fraud. However, health is not the only area of insurance suffering at the hands of fraudsters; the FBI estimates that the total cost of (non-health) insurance fraud is more than $40 billion per year, increasing annual insurance premiums for the average U.S. family by between $400 and $700.
Some of the current areas trending in money laundering in insurance include the following:
Insurance platforms and automation
The Covid-19 pandemic has driven insurance online along with its financial sector counterparts. The 2022 Interpol Global Crime Trend Report has this to say on money laundering and online platforms and tools, "Money laundering ranked second among the crime trends most frequently indicated by member countries in the region as posing a 'high' or 'very high' threat"… "The use of online tools by criminals to perpetrate financial fraud schemes has also rapidly expanded, particularly during the pandemic." The reference by Interpol to online tools is notable as the insurance sector has embraced online platforms. Insurance platforms are a growing industry paradigm, with a predicted market value of $169 billion by 2026. Fraudsters abuse online insurance platforms to identify digital methods to propagate money laundering schemes. For example, online investment platforms provide automation to digitize the industry, make efficient decisions, and remove human error. However, fraudsters who use synthetic identities and deep fakes to open policies to launder money can manipulate these same platforms. A recent survey by Attestiv into insurance claim fraud and AI-enabled media generation found that over 80% of insurers were concerned about tampered digital media being used for insurance transactions. Using synthetic and AI-developed identities will help in the chain of fraud that enables money laundering to progress.
DLT, blockchain, and insurance
A 2002 IAIS (International Association of Insurance Supervisors) report into fintech developments in insurance identified Distributed Ledger Technology and blockchain as providing pros and cons when applied to insurance use cases. The IAIS warns that these technologies could advance money laundering activities; IAIS states that "the use of DLT solutions could also heighten the money laundering/terrorism financing risks that insure could be exposed to."
Insurance product fraud and money laundering
Products make prizes in the world of the money launderer. Fraudsters look for certain types of life insurance and similar insurance products to move dirty money and clean it up. The fraudsters look for insurance policies that are cash redeemable. The fraudsters then 'invest' in the policy, using illicit funds to pay the insurance policy premiums or make a significant top-up payment. At an appropriate time, the fraudsters surrender the policy for a cash payment given out by a legitimate insurer on a legitimate policy, i.e., clean money. In a related scheme, fraudsters will overpay policy payments and request a refund; again, the money paid out is clean. In yet another related money laundering scheme, fraudsters will take out a life insurance policy, making a significant sum investment up front, then after the policy "cool off" period, they will request the money be returned and the policy canceled.
Intermediaries and money laundering
While FinCEN regulations place anti-money laundering (AML) requirements and SAR obligations on insurance companies, these regulations apply only to insurance companies, and there are no associated obligations for intermediaries such as brokers and agents. However, an insurer is responsible for an AML compliance program's overall effectiveness, so intermediary activities must be considered. If an insurance company does not manage its supply chain, this extended business associate network could seriously threaten the industry. As a result, supply chain-enabled money laundering through intermediaries is a likely trend in the sector.
Anti-money laundering technologies for the insurance sector
Insurance fraudsters hide money laundering activities in webs of deceit and complex, multi-part transactions. Teasing apart these unlawful activities requires tools designed for such a task. Breaking these advanced solutions down into core areas of focus helps to identify how insurance companies can tackle money laundering:
PEP lists and watchlist currency
The use of beneficial owners and other entities to perpetuate money laundering requires deep interrogation of sanction lists; however, these lists are regularly updated and contain vast amounts of data; Ensuring that the checks are made on current lists and handling the volumes of data can be a stumbling block ineffective watchlist checks. Solutions such as Eastnets SafeWatch Screening tool ChainFeed use blockchain technology to ensure that any updates are captured automatically and in real-time.
AML checks
AML checking is becoming increasingly complex in response to sophisticated money laundering chains. As a result, AML tools must utilize intelligent technologies to handle this complexity. The ability for fraud experts to augment their work with AI-enabled behavioral monitoring provides the means to pull the needle from the haystack and spot anomalous behavior that signals a fraudulent transaction. For example, spotting that a customer is suddenly making a significant overpayment on a policy or an early and unexpected redemption is in progress can provide an alert that triggers a response by the financial crime team.
KYC/CDD
Insurance fraud is heavily dependent on identity, and verifying an individual's identity is critical in preventing money laundering. Therefore, customer due diligence must be a fundamental part of an insurance organization's anti-financial crime strategy.
Insurance companies must comply with AML regulations. Eastnets offer an integrated platform that provides Watchlist Screening, AML Detection, and KYC. The platform is designed for the complex and sophisticated money laundering experienced in the insurance sector. Click here to request further details or a demo.
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