ANTI MONEY LAUNDERING - TATA AIG · PDF fileANTI MONEY LAUNDERING . 2 ... IRDA periodically sends the list of persons on the “UN Sanctions ... do not accept the same and report the

For Internal Use only Tata AIG General Insurance Company Limited 1

TATA AIG GENERAL INSURANCE COMPANY LIMITED

ANTI MONEY LAUNDERING

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Money Laundering: Meaning and Process

“Money laundering” is an act of disguising illegal sources of money so

that it looks as if it has originated from a legal source. There are 3

stages which are as follows:

Placement: Generation of illegally acquired cash (e.g. through criminal

acts like kidnapping, drug trafficking etc.) and placing in the financial

system

Layering: Passing such illegal money through a series of complex

financial transactions with an intent to disguise the true origin and

ownership of the proceeds

Integration: Using the illegal money to purchase genuine assets - at

this stage, it becomes impossible for investigative agencies to detect

the source and origin of such illegal funds

Important: All money laundering transactions need not go through all the three stages

For Internal Use only Tata AIG General Insurance Company Limited

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Regulatory framework

� Financial Action Task Force (FATF) is an inter-governmental body

that sets broad standards policies to combat money laundering and

terrorist financing. India became a member country of FATF in

June 2010

� It has released 40 initial and 9 special recommendations- an

important recommendation is establishment of AML program

� In India, the Prevention of Money Laundering Act (PMLA) was

enacted in 2002 but brought into force with effect from July 1, 2005

� For General Insurance companies, IRDA has issued Guidelines on

AML from time to time, latest being the Guidelines released on

February 7, 2013


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Key AML focus points in policy life cycle

Breach of AML guidelines can happen at the following stages:

�When money enters the system:

Receipt of premium

�At policy servicing stage:

Assignment (i.e. change of ownership)

�When money leaves the system:

Payment of Claim/ Refund


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Key requirements

� Know Your Customer (KYC)

� Recruitment and Training of Employees/Agents

� Monitoring and Reporting of Transactions

� Internal Control/Audit

� Record Keeping


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KYC

� Insurers are required to make reasonable efforts to determine the true

identity of all its customers. This is known as KYC.

� KYC can be of two types:

� Basic KYC: Check on the identity and residential address

Doc. Reqd: ID proof + Address proof + Photograph

� Enhanced KYC: Basic KYC + check on the genuineness of

“source of funds”

Doc. Reqd: ID proof + Address proof + Photograph + SOF doc.


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KYC (Contd.)

� Guidelines require General Insurers to conduct KYC at settlement

stage only, that too where the amount of claim payout / premium

refund > Rs. 1 lakh

� In case claim/ refund is paid out to third parties (e.g. garage,

network hospital etc.), KYC shall apply on “customers” on whose

behalf service providers act.


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KYC (Contd.)

� However, KYC is mandated at issuance stage in following scenarios:

� Where Premium > Rs. 1 lac: Collect PAN number

� Premium > Rs. 10 lacs: Perform Enhanced KYC

� KYC also required at the time of “Assignment” in following scenarios:

� Assignment to third party not related to policyholder (except where

assignment is done to an entity regulated by IRDA/SEBI/RBI)

� Where there is a suspicion of money laundering or terrorist

financing or factors to indicate higher risk


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KYC (Contd.)

� Section 51A of Unlawful Activities Prevention Act, 1957 authorises

Central Govt. to freeze, seize and/or attach funds of individuals/

entities engaged in terrorist activities

� In order to implement Section 51A Act, Insurers are required to follow

process as stated below:

� IRDA periodically sends the list of persons on the “UN Sanctions

List” to all insurers

� In the back-end, Insurer has to update the same in its system and

periodically scan its customer database for any matches with such

entities

� In case any match is observed, procedure for reporting of STR to be

followed


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KYC (Contd.)

� FATF also periodically releases a list of countries who are identified

as having deficiencies in the AML/CFT regime

� For any proposal received from persons connected with such

countries, Insurer is required to conduct enhanced KYC irrespective

of premium amount


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Risk Assessment and Exempt products

� Vulnerable Products:

� Personal Accident policies

� Assignment of policies

� Exempt Products:

� Reinsurance and retrocession contracts

� Group insurance business


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Cash acceptance

� Acceptance of premium in cash must never exceed Rs.49,999/-

Note: Though IRDA has now relaxed the above capping of Rs. 50,000/- on acceptance of premium in cash, as a Company policy it has been decided to continue with the same.

� For cash acceptance of Rs. 50,000/- and above,

request customer to pay through banking channels

e.g. cheque, demand draft, credit card etc.

Remember:

In case you suspect that customer is intentionally bypassing the above threshold (by splitting funds into multiple transactions/ policies), do not accept the same and report the case immediately to Compliance)


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Responsibility on behalf of Employees and Agents

� Guidelines require selection process of Employees and Agents to be monitored carefully

� AML has to be a mandatory part of the In-house Training Curriculum for new employees and agents and AML refresher training to be conducted

� Training requirements vary w.r.t. the scope of responsibility which is as follows:

� New employees: General appreciation of AML background

� Sales/Advisory staff : Need to be extra vigilant and cautious esp. in case of large transactions or where source of funds does not seem genuine

� Administration/Operations employees: Higher level of AML understanding needs to be imparted


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Responsibility… (Contd.)

� Compliance to AML guidelines has been made mandatory as a part of the contract with the agents and corporate agents

� Services of defaulting agents who expose the company to AML risks shall be terminated


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Other requirements

� In case of premium paid by a person other than the insured, ensure compliance with Company’s “Third Party Cheque Guidelines”

� Insurer’s Internal Audit team verifies compliance of policies and procedures and do an exception reporting to the Audit Committee of Board of Directors


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Reporting obligations

Insurers have to submit the following reports to the Financial Intelligence Unit (FIU) of Govt. of India:

� Suspicious transaction report (STR)

For any suspicion on possibility of money laundering

� Cash transaction report (CTR)

For cash receipts exceeding a specified threshold per month

� Report for payment to Non profit Organizations

For payments to non profit organizations beyond a specified threshold per month

� Counterfeit Currency report (CCR)

For any incident of receipt of premium in counterfeit currency


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Suspicious Transactions Reporting (STR)

“Suspicious Transaction” is defined as Transaction(s)/ unusual pattern(s) which have no apparent economic or lawful purpose

IRDA has given the following as illustrative list of suspicious transactions:

� Customer insisting on anonymity, reluctance to provide identifying information, or providing minimal, seemingly fictitious information

� Splitting the premium in cash and demand drafts below Rs. 50,000

� Frequent free look surrenders by customers or assignments to unrelated parties without valid consideration

� Frequent cancellation of policies for return of premium by an Insurer’s through cheque


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STR (Contd.)

� Inflated or totally fraudulent claims e.g. by arson or other means causing a fraudulent claim to be made to recover part of the invested illegitimate funds

� Established trend or pattern or frequent overpayment of premiums with a request for a refund of the amount overpaid

Remember:

It is your duty to escalate any suspicious transaction to the Principal Compliance Officer (PCO) at the E-mail ID: [email protected]


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Record Keeping

Insurers have to retain records of following transactions for a min. period of 5 years:

� Reporting made to FIU and the back-up working papers

� Documents relating to the verification of the identity of

clients

� Records pertaining to accounts settled by

claim/maturity/ surrender or cancellation

Remember:

Record keeping has to be sufficient to permit reconstruction of individual transactions swiftly in case of an investigation


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Penalty for non-compliance

� Rigorous imprisonment for a term of min. 3 years which may

extend to seven years

� Fine (no maximum threshold)


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Activity & Responsibility

Activity Responsibility

Issue and update IRDA AML Guidelines and Company’s AML policy Principal Compliance Officer

Reporting to the Board and FIU Principal Compliance Officer

Training to employees Principal Compliance Officer

Monitoring the distribution intermediary/ Agency sales practices Head – Distribution Channel

Training to distribution intermediary / agents Head – Distribution Channel

Training to Corporate agents Head – Distribution Channel

KYC at the time of Refunds Head Operations

KYC at the time of Claims Head Claims

Record keeping – CTR &STR reports Principal Compliance Officer

Claim related records Head Claims

Ongoing transaction level Compliance Monitoring Head Operations

Recording Keeping – Other than regulatory reports & claim records Head Operations

Screening procedures when hiring employees Head- Human Resources


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Your responsibility

� In case of any suspicion of money laundering/ terrorist financing,

it is your duty to report immediately to [email protected]

� Seek AML advisory on any clarification on applicability of AML

regulations

Remember: Your vigilance can make a big difference!!!


23For Internal Use only Tata AIG General Insurance Company Limited

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