The fight against Money Laundering and Terrorist Financing has been given a fresh impetus by anti-money launderers, governments and international organizations such as GIABA -- Inter-Governmental Action Group against Money Laundering in West Africa -- as well as financial practitioners in the banking and insurance sectors. Recently the West African Insurance Companies Association held an annual international conference on the above subject in The Gambia, from 22 to 24 November this year, to evaluate, analyse and find solutions to money laundering and terrorist financing and their predicate offences. One of the expert reports presented at that meeting is published in this column as part of our thematic presentations of the subject in our subsequent editions.

The topic on focus is MONEY LAUNDERING AND TERRORIST FINANCING RISKS IN THE INSURANCE INDUSTRY, presented by Victor Odozi, Managing Consultant of TEREDOZ CONSULTING. The paper looks at the overview of the insurance industry, money laundering risks and vulnerabilities in the insurance industry, overview of the global AML/CFT standards and best practices for the insurance industry, and enhancing AML/CFT Compliance in the insurance industry.

INTRODUCTION

Anti-money laundering (AML) and combating the financing of terrorism (CFT) have become key global concerns, particularly after the 9/11 terrorist attacks in the U.S. This increased attention is in recognition of the fact that money laundering and terrorist financing are global phenomena and that these criminal activities pose major threats to international peace and security and could also seriously constrain national development and progress.

Thus, concerted global efforts have been made to check these crimes. Financial institutions have come under unprecedented regulatory pressure to enhance their monitoring and surveillance systems with a view to preventing, detecting and responding appropriately to money laundering and terrorist financing. Players in the financial services sector are exposed to varying money laundering and terrorist financing risks and could suffer serious financial and reputational damage if they fail to manage these risks adequately.

Thus, the initial regulatory focus was on banks because they were perceived to be the most vulnerable, given the variety, size and complexity of their operations which could readily be exploited and abused by criminals. However, with increased compliance by banks with AML/CFT requirements, criminals have sought to exploit the loopholes afforded by other financial service providers and non-financial businesses and professions which were either not regulated or subjected to rigorous monitoring and controls.

Accordingly, global action under the auspices of the Financial Action Task Force (FATF), the Basel Committee on Banking Supervision (BCBS), the International Association of Insurance Supervisors (IAIS) and the International Organisation of Securities Commissions (IOSCO), has resulted in the emergence of best practice guidance papers integrating the FATF 40+9 Recommendations for adoption by other financial institutions and non-financial businesses and professions.

Furthermore, various national jurisdictions, including those in ECOWAS, have politically committed themselves to combating money laundering and terrorist financing by adopting the FATF standards. Thus, they impose certain statutory AML requirements on these non-bank institutions, including insurance companies. In particular, AML laws in all ECOWAS member-states not only designate money laundering and predicate offences but also prescribe criminal sanctions for non-compliance with the relevant laws and regulations.

Implementation of these new regulations would be challenging, burdensome and costly. However, properly considered, it is a strategic imperative and operators, including those in the insurance industry, fail to implement them at their peril, given that the regulatory fines and sanctions and reputational damage that they are exposed to for non-compliance, could have a devastating economic and financial impact on the affected institutions.

Furthermore, apart from the need to avoid sanctions, the need to be perceived as being compliant and pursuing best practices in the conduct of the business of a company, is a unique selling point which could enhance customer goodwill and competitive advantage, especially at a time when customers increasingly place a premium on good business ethics. Thus, being AML/CFT compliant not only means staying on the right side of the law and thereby avoids fines but it also generates good business. The above assertion is compelling when put in the context of the prevailing low AML/CFT awareness and compliance status in the regional insurance industry.

Farmers also face other context-related risks such as international trade policies, tariff fluctuations, market rules and interest rate variations. All these factors make the crop farming community quite vulnerable to social and political events and decisions that are likely to impact on their operational environment.

Accordingly, it is hoped that the insights mediated during this session would serve the purpose of furthering the regional stakeholder sensitisation efforts of GIABA and improve the compliance status of operators in the insurance industry.

OVERVIEW OF THE INSURANCE INDUSTRY – Features, Roles and Recent Developments

The insurance industry is a key component of the financial services sector. Thus, various countries have initiated measures for the development and effective regulation of the industry. As a result of these measures, the insurance industry in most ECOWAS member-countries has grown over the years, in terms of the number of companies, customer base, intermediaries and asset base. Their underwriting capacity and risk retention have also increased, especially in those countries that have undergone recapitalisation/consolidation exercises.

In spite of these achievements, the insurance industry in most, if not all, of the ECOWAS countries is bedevilled by numerous negative features and problems which have AML/CFT implications.