1. Proof of Concept Samples and Techniques
Money Laundering
Republic of China
Insurance Industry
Proof of Concept
Samples and Techniques

2. Money Laundering - Introduction
Money laundering is an international crime that affects all nations and governments
Criminals use the financial system to launder or hide the proceeds of illegal activity, including insurance companies
To prevent money laundering, governments worldwide regulate financial institutions, including insurance companies to prevent abuse by criminals and money launderers
Insurance companies are required by ROC law to have Anti-Money Laundering programs, and to train employees to recognize suspicious or illegal activity.

3. Anti-Money Laundering (AML) Program
The ROC law to address money laundering is the MONEY LAUNDERING CONTROL ACT Amended June 10, 2006.
The MLCA takes on the money laundering crime in two ways – generally punishment and prevention.
The MLCA criminalizes money laundering and punishes those who launder proceeds of crime.
The MLCA regulates businesses and industries that can be used by money launderer.
As part of the prevention of money laundering, the MLCA designates certain businesses as “financial institutions” for purposes of the statute.
Article 5, No. 10 includes Insurance companies as “financial institutions.”

4. Anti-Money Laundering (AML) Program
Every Insurance company must establish its own AML program and conduct AML training for its employees.
Every financial institution referred to in this Act shall establish its own money laundering prevention guidelines and procedures, and submit those guidelines and procedures to the central authorities governing target businesses for reference. The content of the money laundering prevention guidelines and procedures shall include the following items:
1. The operation and the internal control procedures for money laundering prevention;
2. The regulatory on-job training for money laundering prevention instituted or participated in by the financial institution referred to in this Act;
Article 6, MLCA

5. Anti-Money Laundering Training
Every ROC insurance company must conduct AML training for employees.
AML training by MissLife explains the laws and regulations governing the insurance industry and responsibilities of MissLife employees for reporting suspicious transactions and conducting Customer Due Diligence (CDD)
These two elements are key parts of anti-money laundering prevention programs in the Republic of China.
ROC’s MLCA and regulations for the insurance industry are designed to prevent criminals using insurance products to launder proceeds of crime.
Training allows insurance agents and employees to detect suspicious activity and to perform customer due diligence.

6. Key Elements of AML Prevention
Reporting suspicious transactions
Customer due diligence
Detecting fraud
Stopping all cash transactions
A and B

7. What is Money Laundering?
Money laundering is an attempt by the criminal to make the proceeds of a criminal activity appear to come from a legitimate source.
The MLCA defines money laundering as:
Knowingly disguising or concealing the property or property interests obtained from a serious crime committed by themselves or,
Knowingly concealing, accepting, transporting, storing, intentionally buying, or acting as a broker to manage the property or property interests obtained from a serious crime committed by others.
Money laundering is a criminal offense carrying a penalty of up to 7 years and a fine of up to 10 million NTD

8. Article 2, Section 1 - Laundering
Person knowingly disguises or conceals the property or property interests obtained from a serious crime committed by themselves.
Practical Example:
Drug trafficker disguising or concealing money from drug sales by purchasing cars in cash and placing the titles in the names of friends and relatives.
Conceal or disguise – using nominees on vehicle titles conceals true ownership and control of the property.
Property – cash, automobiles are both “property.”
Serious crime – Drug trafficking is a serious crime from the listed offenses.

9. Article 2, Section 1 - Laundering
Person knowingly disguises or conceals the property or property interests obtained from a serious crime committed by themselves.
Practical Example:
Insurance fraud – an insurance agent empties client’s annuity fund and places the money in an offshore account in Hong Kong. Later, he moves some of the money to the account of a shell company in Taiwan.
Conceal or disguise – taking the money offshore conceals or disguises it, and so does the use of shell companies and nominees.
Property – bank accounts and any financial instruments downstream are “property.”
Serious crime – A violation of the Insurance law, section is a Serious Crime and a listed offense.
Each subsequent transaction with the funds is a new money laundering offense.

10. Money Laundering -Elements
Knowingly
Concealing or disguising
Property or property interest
From a serious crime he committed
All of the above

11. Article 2, Section 2 - Laundering
Person knowingly conceals, accepts, transports, stores, intentionally buys, or acts as a broker to manage the property or property interests obtained from a serious crime committed by others.
Practical Example:
Automobile dealer – knowing that the customer is a drug trafficker, accepts cash for a new automobile.
Act – The dealer accepted cash in exchange for a vehicle.
Serious crime – The property must come from one of the “serious crimes” listed in the statute. In this case, drug trafficking is a listed offense and the car dealer knew the source of the money.

12. Article 2, Section 2 - Laundering
Person knowingly conceals, accepts, transports, stores, intentionally buys, or acts as a broker to manage the property or property interests obtained from a serious crime committed by others.
Practical Example:
Insurance agent– knowing that his client is a drug trafficker, accepts cash and other instruments which are placed in an annuity that the agent manages.
Act – The agent accepts funds and acts as a broker and manager of the annuity (property).
Serious crime – Drug trafficking is a listed offense and the agent knew the source of the money.
Note that the agent commits the money laundering offense even though he was not involved with drug sales.

13. Money Laundering -Elements
Knowingly
Accepts
Cash
From a serious crime
All of the above

14. Case Study – Investment or Laundry?
A1 Insurance Taiwan, a highly rated insurance company, offers investment products similar to mutual funds. The rate of return is tied to the major world stock market indices so the insurance policies were able to perform as investments.
In 2014 several individuals purchased the investment products and these account holders would then over-fund the policy, moving monies into and out of the fund for the cost of the penalty for early withdrawal.
When funds were withdrawn from the account, a wire transfer or a check from the insurance company was issued.
Throughout 2014 and 2015, $29 million USD went into and out of the accounts.

15. Case Example – Customer Due Diligence
In our case example, the insurance company’s AML program does not start with transactions that take place. It starts with Customer Due Diligence, a requirement of the Money Laundering Control Act and Financial Supervisory Commission insurance regulations.
The MLCA requires financial institutions, including insurance companies to:
Operate internal control procedures for money laundering prevention.
Take cautionary measures prescribed by the central authorities governing (insurance companies).
To open an account and for large currency transactions, the company must identify the customer and maintain records about the transactions.

16. Case Example – Customer Due Diligence
Customer Due Diligence requirements are further set out in regulations of the Financial Supervisory Commission.
The FSC requires insurance businesses to conduct customer due diligence CDD:
NOT allow anonymous customers or fictitious customers, companies or entities to be insured.
Take CDD identification measures when establishing a business relationship with any customer
Report receipt, payment or withdrawal of cash or currency exchange of 500,000 NTD or more
Report suspicion of money laundering or terrorism financing or inward remittances from areas at risk for money laundering or terrorism financing

17. Case Example – Customer Due Diligence
Customer Due Diligence requirements are further set out in regulations of the Financial Supervisory Commission.
A. Identifying the customer and verifying that customer's identity using reliable, independent source documents, data or information. In addition, an insurance business shall retain copies of the customer's identity documents or record the relevant information thereon for five years. B. Verifying that any person purporting to act on behalf of the customer is so authorized, identifying and verifying the identity of that person using reliable, independent source documents, data or information where the customer applies for insurance coverage, claims request, contract changes, or other transaction. In addition, the insurance business shall retain copies of the person's identity documents or record the relevant information thereon.

18. A national identification card is sufficient identification for opening an account for Customer Due Diligence.

19. Customer Due Diligence – CDD Insurance companies must -
Positively identify customers using independent source ID
Retain copies of customer ID information for five years
Not allow anonymous accounts
Verify ID of any person acting on behalf of account holder
All of the above

20. Case Example – Large Cash Transactions
In the case example, the account holders were withdrawing the funds in the form of wire transfers or checks. These are not cash equivalents for purposes of the MLCA. However, when they funded the account, they frequently made large deposits in currency, in amounts over 500,000 NTD.
Under the provisions of the MLCA and the FSC Directions, the insurance company is required to file a Currency Transaction Report (CTR) each time such a deposit is received. In each case, the insurance company must take these CDD steps:
“Identifying the customer and verifying that customer's identity using reliable, independent source documents, data or information. In addition, an insurance business shall retain copies of the customer's identity documents or record the relevant information thereon.”

21. Case Example – Large Cash Transactions
The Currency Transaction Report (CTR) Form is filed electronically with the Anti-Money Laundering Division of the Ministry of Justice Investigation Bureau.
A CTR Form is required in all transactions involving currency or currency equivalents in amounts over 500,000 NTD.
This includes foreign currencies and currency exchanges.
The types of transactions that must be reported include:
Deposits
Withdrawals
Payments
Exchanges
A CTR Form is NOT required for checks or similar financial instruments, regardless of the amount of the transaction.

22. Cash transactions over 500,000 NTD are reported on a Currency Transaction Report

23. A CTR Form should be filed for transactions involving more than 500,000 NTD in -
Republic of China currency
American dollars
PRC Renminbi
Traveler’s checks
All of the above

24. Case Study – Investment or Laundry?
In the case involving A1 Insurance Taiwan, a routine transaction – the sale of an insurance product – raised no suspicions. Customer Due Diligence was required at the opening of the account and for the transactions that took place afterward.
CDD, which “ascertains the identity of the customer,” disclosed that the purchasers of the instruments were foreign nationals from a country which is at high risk for narcotics trafficking.
Additional transactions that over-funded the annuity were conducted in cash, not a normal practice at A1.

25. Case Example – Suspicious Transactions
In the case example, a routine transaction – sale of an insurance product – can become a “suspicious transaction,” and something that must be reported to the authorities.
Article 8 of the MLCA requires insurance companies to report suspicious or illegal activity. They shall:
“ascertain the identity of the customer and keep the transaction record as evidence, and report the suspect financial transaction to the designated authority.”
The Directions of the FSC require insurance companies to make these reports on a Suspicious Transaction Report (STR) form.

26. Case Example – Suspicious Transactions
All financial institutions file Suspicious Transaction Reports (STRs)
The STR is filed when the insurance agent or business suspects money laundering, terrorism financing, or other illegal activity.
It is NOT necessary to have confirmation or proof of illegal activity. The report documents activities that are suspicious or unusual and might indicate money laundering or terrorism financing.
Suspicious Transaction Reports are confidential and may not be disclosed to the customer/client by the reporting party or the government.

27. Case Example – Suspicious Transactions
Suspicious Transaction Reports are Risk-based, with some activities increasing the risk for money laundering or terrorism financing.
The STR form may be submitted in high-risk situations such as:
Client/customer from area where drug trafficking/terrorism financing is a risk
Client/customer is concealing identity using nominees or business entities
Client/customer is using cash in large amounts
Client/customer’s assets or wealth is not commensurate with statements or income.

28. Suspected money laundering activity is reported on a
Suspicious Transaction Report

29. A Suspicious Transaction Report is confidential and cannot be disclosed to the client.

30. Case Study – Investment or Laundry?
At A1 Insurance Taiwan, a review of the client files after the account was opened revealed that the identification used by the individuals who purchased the investment products was fraudulent. The account holders were foreign nationals from a country that is a known source for narcotics.
Further, after an A1 employee told one of the account holders that he was filing a Currency Transaction Report (CTR) for a deposit of 5 million NTD, the customer broke the deposit into 12 smaller deposits to avoid the filing of the CTR.

31. Case Example – Suspicious Transactions
In the case example, the insurance agents observe several indicators of suspicious activity
Use of forged, false, or fraudulent identification
Attempting to conceal true identity when opening an account
Client/customers are from a high-risk country
Use of cash to make deposits into the account
Attempting to avoid the filing of the Currency Transaction Report (CTR) by breaking a large deposit into smaller deposits is a clear effort to evade government scrutiny.
The insurance company should file a Suspicious Transaction Report to document these activities.

32. Suspicious Activities triggering filing of an STR
Frequent large cash transactions
Attempting to evade a reporting requirement
Concealing Identity or control of account
Using nominees or anonymous persons to conduct transactions
All of the above

33. Match the transaction/activity to the money laundering prevention measure:
Suspicious Activity
Suspicious Transaction Report
Cash over 500,000 NTD
Account opening CDD
Independent source ID
Suspicious Transaction Report
Check over 500,000 NTD
Currency Transaction Report
High-risk customer
No report required

34. Case Study – Investment or Laundry?
In the A1 Insurance example, the objective of the criminals was not to invest in insurance products, it was to launder drug money. Their goal was to make dirty money appear to come from a legitimate source. They were willing to pay a price – the penalty for early withdrawal from the annuity fund – to obtain the checks and wire transfers that were drawn on the clean A1 Insurance Taiwan account.
This laundering scheme processed $29 million USD and authorities seized $9 million from the insurance company account.
Customer Due Diligence and proper reporting of Suspicious Transactions prevents money laundering and terrorism financing at Mississippi Life and Casualty.

35. Money Laundering Suspicions?
Report suspicions of money laundering activity
Management and supervision
Anti-Money Laundering Control Group
New Taipei City Branch Office
74 Chung-Hua Rd., Hsin-Tien Dist., New Taipei City,
Taiwan, ROC Tel： ext 6220