Three stages:

1. Placement:
- Introduce illegal money into financial system
- Cash-based transactions
- Buy insurance with cash

2. Layering:
- Complex transactions to hide origin
- Multiple transfers
- Policy loans, surrenders
- Beneficiary changes

3. Integration:
- Money appears legitimate
- Returned to criminal
- "Clean" funds

Characteristics exploited:

High-value transactions:
- Large premium payments
- Lump sum acceptable
- Cash value accumulation

Liquidity features:
- Policy loans
- Surrenders for cash
- Quick access to funds

Anonymity potential:
- Beneficial ownership
- Trusts as owners
- Offshore policies

Investment-like products:
- Variable products
- Accumulation focus
- Returns generated

Suspicious indicators:

Customer behavior:
- Reluctant to provide information
- Vague about source of funds
- Unusual lack of concern about costs
- Requests unusual beneficiary arrangements
- Frequent policy changes
- Overfunds policy

Transaction patterns:
- Large cash payments
- Structured payments (just under $10K)
- Immediate surrender or loan
- Premium from unknown third party
- Cancels shortly after purchase
- Multiple policies with different companies

Business purpose unclear:
- Coverage doesn't match needs
- Over-insurance
- No insurable interest explanation
- Investment focus, not protection

Know Your Customer (KYC):

Must verify:
- Customer identity
- Source of funds
- Purpose of insurance
- Beneficial ownership
- Business/financial profile

Documentation:
- Government-issued ID
- Social Security number
- Proof of address
- Source of wealth
- Financial statements (large cases)

Enhanced due diligence:
- High-risk customers
- Large transactions
- Foreign nationals
- Politically exposed persons (PEPs)

Must report:

SAR (Suspicious Activity Report):
- File with FinCEN
- Within 30 days of detection
- Suspicious transactions
- Known or suspected violations

Currency Transaction Report (CTR):
- Cash transactions over $10,000
- Single transaction or related
- File with FinCEN
- Within 15 days

Do not tip off:
- Cannot tell customer about SAR
- No disclosure
- Criminal penalties for tipping

Insurance companies must:

Anti-Money Laundering (AML) Program:
- Written policies
- Designated compliance officer
- Employee training
- Independent audit
- Risk assessment

Customer Identification Program (CIP):
- Verify identity
- Maintain records
- Check against government lists
- OFAC screening

Front-line defense:

Must:
- Know AML policies
- Verify customer identity
- Recognize red flags
- Report suspicious activity
- Complete training
- Maintain records

Cannot:
- Ignore red flags
- Accept suspicious transactions
- Tip off customers
- Facilitate money laundering

Office of Foreign Assets Control:

Screening required:
- Check against SDN list (Specially Designated Nationals)
- Blocked persons
- Prohibited countries
- Terrorists and drug traffickers

If match found:
- Cannot do business
- Freeze assets
- Report to OFAC
- Reject transaction

Criminal:
- Prison (up to 20 years)
- Fines (up to $500,000)
- Both individual and company

Civil:
- Fines (up to $250,000 per violation)
- Regulatory sanctions
- License revocation
- Reputational damage

• Money laundering: Making illegal money appear legitimate
• Three stages: Placement, layering, integration
• Insurance vulnerability: Large transactions, liquidity, anonymity potential
• Red flags: Cash payments, vague information, immediate surrender, structured payments
• Customer due diligence: Verify identity, source of funds, purpose
• SAR: Suspicious Activity Report - file within 30 days
• CTR: Currency Transaction Report - cash over $10,000
• Do not tip off: Cannot tell customer about SAR
• USA PATRIOT Act: Requires AML program and CIP
• OFAC: Screen against blocked persons list
• Producer duties: Verify identity, recognize red flags, report suspicious activity
• Penalties: Criminal (prison, fines) and civil (fines, sanctions)