Study On Anti-Money Laundering In The Domestic Insurance Sector

The insurance sector, like other financial services, is exposed to the threat of money laundering. The insurance sector could be attractive to money launderers seeking to place funds into a financial product that will provide them with a reliable, clean return of funds invested. If a money launderer is able to move funds into an insurance product and receive a payment made by an insurance company then he will have made his funds appear legitimate.Peking Shidu Department Store Case 1999 witnessed the money laundering vulnerabilities in the domestic insurance sector. Money laundering has been a serious problem in the insurance sector these years, especially in the group insurance. Some report of CIRC in 2003 said that early redemption was very common in the developed district, like Jiangsu and Zhejiang Province, and 20 policies were redeemed even on the next day of policy purchase in the Wenzhou Branch of China Pacific Life Insurance Company. The surrender volume of Peking's group insurance in 1st month of 2005 reached 150 million, compared only 50 million in the whole year of 2004. The Financial Action Task Force (FATF), meeting in Paris from 9 to 11 February 2005, has welcomed for the first time, the People's Republic of China to attend its plenary meeting as an observer, and sent a delegation to inspect the money laundering risk exposure in the three domestic life insurance companies.At present, there are a lot of papers focusing on the money laundering vulnerabilities in the bank industry, either aboard or domestic, while there are less comprehensive and systematic analysis about anti-money laundering(AML) in the insurance sector. This shows that China's current insurance sector AML issues, from both practical and theoretical perspective, need for a comprehensive and systematic study, in order to provide necessary theoretical support and guidance to the promulgation of relevant policies and regulations. The author is from this perspective, and hope to be able to serve as a trigger effect.This article is actually the interdisciplinary studies involving economics, law, management science, etc. Main research methods are: Normative research– focus on the domestic insurance sector AML system theory and environment, Empirical methods– focus on analysis of the present AML mechanism in insurance sector, and attempt to provide some recommendations to establish AML system for the insurance sector; Inductive and deductive methods– sum up the Chinese and foreign AML experience, and interpret to a number of applicable conclusions, Comparison methods– compare the domestic AML provisions in the insurance sector with the United States's and major international organizations'provisions.The article is made up by 4 chapters, which is"overview of money laundering in insurance sector","domestic insurance AML mechanisms and analysis of its vulnerability","Economic Analysis of insurance sector AML,"and"proposal to optimize domestic AML mechanism of the insurance sector".Chapter I is the overview of money laundering in insurance sector. For the 1st half, this paper introduces the concepts related to money laundering, i.e. the related definition, the basic characteristics, the typologies and the process of money laundering. For the 2nd half, paper presents the related concept of money laundering in insurance sector, i.e. the money laundering risk exposure in the insurance sector, nine typologies in the insurance sector and the key indicators for inspecting money laundering risk exposure.Chapter II is the domestic insurance AML mechanisms and analysis of its vulnerability. For the 1st half, this paper introduces the related existing AML mechanisms in the insurance sector, like internal control system, customer due diligence policy, maintaining full business and transaction records, large and suspicious transaction report. Then by analyzing the classical money -laundering case, Peking Shidu Department Store 1999, this paper points out that there are several vulnerabilities in the currently AML mechanisms, i.e. imperfect AML mechanisms; inadequate AML force of insurance institution ; lack of specialized AML personnel.Chapter III is the economic analysis of insurance sector AML. Through cost-benefit analysis and economic external analysis, this paper concludes that participating in AML activities must cost insurance institutions more and produce a strong and positive external effect. But currently we have all the detected dirty money handed in the state treasury without detected laundered funds sharing system. Insurance institutions cannot get any corresponding compensation under the circumstances, there is a lack of motivation and enthusiasm for insurance institution to pursue illegal source of funding.Chapter IV is the proposal to optimize domestic insurance sector AML mechanisms. The AML legislation begins abroad, so it is necessary to analyze the principles of international AML legislation, and the AML provisions of, FATF, IAIS and the United States, which are the most representative international AML organizations. For the 2nd half of this chapter, through a comparative study of domestic AML mechanisms in insurance sector with the advanced provisions, this paper reaches several suggestions: First, perfect the insurance sector AML legislation system, especially establish the detected laundered funds sharing mechanism, in order to fully mobilize the insurance sector participation in the AML work actively. Second, establish a society-wide information sharing system and accelerate the building of the Financial Intelligence Unit. Third, expand international cooperation. Fourth, enhance personnel's comprehensive anti-money laundering ability.Compared to the previous study, this paper may be the innovation in the following:First, the research angle is innovative. There are many articles about domestic financial sector AML, but the papers specific to the insurance sector are very rare. This paper sums up the existing view and makes use of benefit-cost and economic external method to analyze the domestic AML mechanism in insurance sector these years.Second, the material is refined. Based on the translation of the FATF and IAIS's AML report, this paper sums up nine money laundering typologies.Third, the study highlights the method of case study and empirical analysis in analyzing China's insurance sector AML mechanisms to ensure that the article theoretical viewpoint is combined with practice.