The insurance sector is potentially at risk of being misused for money laundering and terrorist financing. This exposes the insurance sector to legal, operational and reputational risks.

Money laundering (ML) is the processing of criminal proceeds to disguise their illegal origin. When criminal activity generates substantial profits, the individual or group involved must find a way to control and “legitimize” funds without attracting attention to the underlying activity or the persons involved. Criminals do this by disguising the sources, changing the form, or moving the funds to a place where they are less likely to attract attention, and therefore may use the financial sector, including the insurance sector, to do so. Examples of criminal activity which may generate large profits and lead to money laundering include embezzlement, tax evasion, insider trading, bribery, cyber-crimes, illegal arms sales, smuggling, drug trafficking, prostitution, human trafficking, as well as corruption and organised crime.

Terrorist financing (TF) is the financing of terrorist acts, and of terrorists and terrorist organisations. It refers to the wilful provision or collection of funds by any means, directly or indirectly, with the unlawful intention that they should be used, or in the knowledge that they are to be used, in full or in part to carry out a terrorist act by a terrorist organisation or by an individual terrorist, or to support terrorists or terrorist organisations. Terrorist financing offenses may constitute predicate offenses for the crime of money laundering, in accordance with applicable law.

The Financial Action Task Force (FATF) is an inter-governmental body, established to set international standards for anti-money laundering (AML) and combating the financing of terrorism (CFT). The FATF standards are comprised of its individual recommendations together with interpretive notes and the applicable definitions in the FATF glossary. In this ICP the term FATF Recommendations encompasses all of these components of the FATF standards. The FATF Recommendations are directed at jurisdictions and supervisors should therefore reference their own national risk assessment, applicable laws and regulations with respect to AML/CFT.

The IAIS is a FATF Observer Organisation and, accordingly, endorses the FATF Recommendations. This ICP is intended to be consistent with the FATF Recommendations; however, compliance with the FATF Recommendations does not necessarily imply observance of ICP 22 nor does observance of ICP 22 necessarily imply compliance with the FATF Recommendations.

• the ML/TF risks associated with the insurance sector are generally lower than those associated with other financial products (such as loans or payment services) or other sectors (such as banking); and
• many life insurance products are not sufficiently flexible to be the first vehicle of choice for money launderers.

This ICP applies to the underwriting and placement of life insurance and other investment-related insurance. Depending upon the jurisdiction’s assessment of the ML/TF risk posed by the non-life sector, the jurisdiction should consider whether and to what extent to apply this ICP to that sector as well.

The FATF Recommendations require jurisdictions to designate a “competent authority” or authorities to have responsibility for ensuring that financial institutions (including insurers and intermediaries) adequately comply with the jurisdiction’s approach to implementing the FATF Recommendations to combat ML/TF. The AML/CFT competent authority is often designated by a jurisdiction’s legislation. There may be jurisdictions where several authorities have AML/CFT responsibilities for the insurance sector. Competent authorities may include supervisors, law enforcement agencies and a financial intelligence unit (FIU) which serves as a jurisdictional centre for receiving and analysing information (such as suspicious transaction reports) and disseminating information regarding potential ML/TF.

In some jurisdictions, the supervisor may not be designated as an AML/CFT competent authority, but nevertheless all supervisors must understand the risk of ML/TF to the insurance sector and take steps to help combat such risk.

The standards and guidance related to ICP 22 are divided into two parts. Part A applies where the supervisor is a designated AML/CFT competent authority, or acts on behalf of such designated competent authority. Part B applies where the supervisor is not a designated AML/CFT competent authority. To demonstrate observance of this ICP the supervisor must meet the requirements of the standards in either Part A or Part B, or both, according to the circumstances of its jurisdiction. In jurisdictions where the supervisor for insurers is different from the supervisor of intermediaries, both Part A and Part B may apply, depending on whether they are also the respective ALM/CFT competent authority.

 In implementing this ICP, the supervisor may consider as relevant various guidance available from the FATF, including its “Guidance for a Risk-Based Approach for the Life Insurance Sector” (FATF Guidance). The FATF Guidance, which is non-binding, aims to support the design and implementation of a Risk-Based Approach (RBA) to AML/CFT for the life insurance sector, taking into account applicable ML/TF risk assessments and legal and regulatory frameworks to combat money laundering and terrorist financing. The RBA concept is related to, but distinct from, the overarching concept of risk-based supervision that applies to all ICPs.

As described in the ICP Introduction, this ICP applies to the supervision of insurance legal entities and, unless otherwise specified, to insurance groups. The supervisor may also consider FATF Guidance concerning supervision and mitigation of ML/TF risks at the group-wide level.

Certain FATF Recommendations require that supervision be applied to the implementation of targeted financial sanctions (TFS) related to terrorism, terrorist financing and financing of proliferation of weapons of mass destruction. Adherence to TFS is not subject to the RBA described in this ICP and TFS is not further addressed in this ICP. Whether insurance supervisors have responsibilities for TFS will depend upon the particular jurisdictional arrangements in place.