A Win-Win for AML Teams and Fraud SIUs

By Vicki Landon, CAMS-Audit, FLMI, CFCS

Insurers are reporting cybercrimes, account takeovers, and elder financial exploitation in ever-increasing numbers, and their boards of directors list cybercrime among their top concerns. Yet many companies have not recognized the challenges and opportunities of the convergence of anti-money laundering (AML) and fraud. Yes, insurers are at increasing risk of being fined under Bank Secrecy Act (BSA) regulations, but also now have greater opportunity to use AML tools to discover and fight fraud and cybercrime, adding to the company’s bottom line and protecting its reputation.

The first and most valuable take-away from the recent ACAMS Conference in Las Vegas, according to Ted Sausen of NICE Actimize, was that “Convergence of AML and Fraud is continuing with momentum…. AML and Fraud lead into one another and there are synergies to take advantage of.”(1)

First, the risks: Because regulators have not yet fined insurers under the BSA, many insurers have become complacent, assuming that money laundering involves only exchanging bags of cash for clean money – not a large risk in insurance companies. But the SEC and FINRA have recently fined broker-dealers for failing to file Suspicious Activity Reports (SARs) for attempted account takeovers, improprieties by Investment Advisors, elder financial exploitation, and failure to protect client information. These crimes pose significant risks for insurers as well as broker-dealers.

Moreover, FinCEN and Department of Justice have fined large money service businesses very heavily after the IRS found evidence of serious agent fraud that was not reported via SAR. This could open the door to FinCEN / DOJ actions against insurers for failure to effectively oversee agents and report fraudulent activities via SAR.

Next, the opportunities: Regulators expect insurers to file SARs for most types of fraud(2) and cybercrime. This convergence of fraud and AML allows insurers to share valuable tools and resources, sharing the synergies to protect clients and the company, while providing the combined AML/Fraud teams to rise above corporate silos and turf wars.

For example, in our experience, few insurers are taking advantage of an excellent information sharing tool that can only be used in investigating money laundering. Section 314(b) provides a safe haven for insurers to request information from banks or other insurers to investigate agents and clients. This can help confirm suspicion of agent fraud (for example, premium rebating or other illicit funding) or avoidance of reporting cash (such as conversion of large cash payments to cashier’s checks or wires for submission to the company). Section 314( b) is also a key tool in investigating customer fraud.

Also, many insurers hesitate to terminate agents “for cause” because of potential legal exposure. But insurers are required to file SARs on agents under certain circumstances AND are protected by safe harbor. The result: Law enforcement will have access to the information of an agent’s misconduct and have the option of investigating potential crimes, with no legal jeopardy for the insurer.

In summary, the convergence of AML and fraud exposes insurers to risk of BSA actions for failure to prevent and report on fraud. The good news is that the convergence enables insurers to capitalize on the AML/fraud synergies, such as tools, processes, and resources. It also brings the weight of the board of directors and senior management to rise above silos and turf wars to inculcate a culture of compliance throughout the company.

For guidance on filing of SARs, on fraud as predicate crimes under the BSA, or for the mandatory Independent AML Review of your AML programs, please email Currin Compliance Services, Inc. or call (518) 692-2492.

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(1) Blog post / email by Ted Sausen, Director - AML Subject Matter Expert, NICE Actimize, 10/3/2019: 6 Takeaways from ACAMS, Las Vegas

(2) The Bank Secrecy Act provides a carve-out for insurers in CFR 31 §1025.320(c): Exception. An insurance company is not required to file a SAR-IC to report the submission to it of false or fraudulent information to obtain a policy or make a claim, unless the company has reason to believe that the false or fraudulent submission relates to money laundering or terrorist financing.