Criminal actors may use life insurance and other investment-related insurance products to place illicit proceeds into the financial system, especially (though not exclusively) where the insurer or intermediary accepts premium payments in cash. Such products may be purchased with the intention of either holding the insurance policy over its standard duration or canceling coverage before maturity and, where permitted, withdrawing premiums paid less a penalty (a practice known as “early surrender”) so as to free up funds for alternative uses. Illicit actors may also deliberately overpay premiums and request a refund for the amount overpaid to the insurance carrier in order to trigger payout under a policy. Reimbursed premiums, withdrawn contributions, and payout proceeds (whether legitimate or fraudulent) can then be deposited into a bank account or used to purchase other financial instruments without necessarily revealing the ultimate origin of the funds.

As noted above, life and other investment-related products are generally considered to present higher ML/FT risk, particularly where they have high cash values upon surrender. The following methods may be employed to launder funds through life insurance and other investment-related insurance products or relationships:

In addition to these vulnerabilities, the insurance sector is also vulnerable to abuse from other types of economic crime, particularly orchestrated fraud. Moreover, even where insurance products or relationships are not directly abused to launder money or perform other illicit transactions, insurance may be purchased by illicit actors to provide an appearance of legitimacy to the underlying, insured activities. As per Article 11.2 of the AML-CFT Decision, LFIs must consider the customer and the beneficiary of life insurance and family Takaful policies as risk factors when determining the applicability of enhanced due diligence procedures (EDD).

The remainder of this section presents additional examples of key ML/FT risk factors relevant to the insurance sector for life insurance and other investment-related insurance products, organized by risks related to insurance products, services and transactions, distribution channels and intermediaries, customers, and geographies. These should be considered by insurance sector operators when performing their financial crimes risk assessments (see section 3.1) and determining the risks presented by specific customers or business activities. Individual risks may be heightened in view of the UAE’s national and regional circumstances and the composition of the local insurance sector. Where a risk factor is coupled with one or more of the red flag indicators provided in Annex 1 of this Guidance, insurance sector operators should consider assigning additional resources or controls to the area of heightened risk, such as by applying enhanced due diligence (“EDD”) or heightened ongoing monitoring.

Insurance operators are expected to perform and document an enterprise ML/FT risk assessment and keep the risk assessment up to date given material changes to their risk profile or legal, regulatory, or supervisory environment. Additional details on the enterprise risk assessment process and the use of risk assessment findings to support a risk-based approach are provided in section 3.1.