Life Insurance: SAR Analysis? Indications of Suspicious Activity
Life Insurance: SAR Analysis ? Indications of Suspicious Activity
In August 2002, FinCEN conducted an analysis of all SARs submitted by depository institutions, affiliates of depository institutions, and those voluntarily filed by broker-dealers, MSBs, or gaming businesses from the years 1996 through 2002 in which activity was reported in the narrative section that could be linked to a set of specific terms related to the insurance industry. This analysis was not conducted to assess the money laundering risks associated with the insurance sector; rather, it was conducted to provide a snapshot of what SAR filers were reporting regarding key terms related to the insurance industry.
A search of the SAR database revealed 1,032 SARs containing the term "life insurance" in the narrative portion of the SAR.
- A total of 97 SARs were filed by eight life insurance companies/providers.
- A total of 1,130 violations were reported in the 1,032 SARs (note that a SAR may report no violation, one violation, or multiple violations.)
- The violation amounts reported in the SARs fell into the following categories: 69% - $51 to $99,000; 19.7% - $100,000 to $975,000; and 5.8% - $1 million to $500 million. [Note: 57 SARs (5.5%) reported no violation amount.]
- The BSA/Structuring/Money Laundering violation totaled 19.2% of all the violation categories reported.
- A total of 154 SARs (14.9%) were forwarded directly to federal, state or local law enforcement or regulatory authorities. Of these referrals, 50 SARs (32.5%) were referred to the FBI, 40 SARs (26.0%) were referred to the Drug Enforcement Administration (DEA), and 30 SARs (19.5%) were referred to state and local law enforcement organizations.
A sample of 206 SARs (20.0%) was randomly selected and reviewed from the years 1996 through 2002. The following are summaries of these types of activities.
The most common scenario found involved fraud with respect to checks of life insurance companies.
- The principal check fraud involved counterfeit checks. There were numerous reports of counterfeit checks on the accounts of life insurance companies that were deposited into the suspect's bank account. Often, the false checks cleared and the suspect transferred the funds before the bank was notified that the checks were counterfeit.
- Another check fraud involved checks written by life insurance companies that were altered by the suspect. Often, the checks were stolen and the suspect altered the payee, dollar amount, or both. In many cases, the suspect was able to withdraw funds against these altered checks.
- Blank checks of life insurance companies were also reported as having been stolen and then made out to the suspects for various amounts. The maker's signature was forged and the suspect deposited the forged instrument and withdrew the funds.
- There were also many reported instances of checks that were stolen and the payee's signature forged by the suspect.
Another common scenario involved the suspicious transfer of funds to or from life insurance companies.
- Financial institution customers made structured cash withdrawals from an account funded with the proceeds of a life insurance company check.
- Withdrawals and transfers from accounts funded with the proceeds of a life insurance company check were reported as suspicious. Some of these transfers were to persons or accounts located in foreign countries.
- Some financial institution customers made structured cash deposits into an account and then transferred the funds, by wire or check, to a life insurance company. Other customers made structured cash purchases of cashier's checks made out to life insurance companies.
- When informed of the CTR reporting requirements when attempting to cash a check from a life insurance company, customers either reduced the amount of cash back or demanded to have the transaction completed without filing a CTR. Some individuals walked away without completing the transaction.
A significant percentage of SARs that contained the term "life insurance" described various types of loan fraud.
- Borrowers who had pledged life insurance policies as loan security cashed-out the policies and then defaulted on the loans.
- Credit applicants overstated the cash value of life insurance policies on credit applications or listed term life policies as whole life policies.
- Borrowers pledged life insurance policies to obtain loans from one financial institution while such policies were already the security for loans from other financial institutions.
Life insurance companies were targets of "Nigerian Advanced Fee" scams. There were reports of letters and e-mails from purported former government officials of African countries (Nigeria, South Africa, Sierra Leone, Congo) who were seeking assistance in moving millions of dollars to accounts in the United States. The solicitor promised the participant fees up to 35% of the amount to be transferred.
- A bank employee sold an annuity issued by a life insurance company to a bank customer. The customer and his beneficiary both died shortly thereafter. The bank employee then diverted the annuity's death benefit to himself.
- Several bank officers used bank funds, without proper authorization, to purchase whole life insurance policies on their lives.
- One bank employee conspired with the bank's life insurance agent to have premium rebates paid to the bank employee instead of the bank.
Excerpted from SAR Activity Review Issue 5, page 35
First published on 02/01/2003