Taiwan enacted the Money Laundering Control Act (洗錢防制法) in 1996, the first law in the Asia-Pacific region designed to prevent money laundering.
To keep up with international money laundering prevention developments and in response to the heavy fine imposed on a Taiwanese financial institution in August 2016 by an overseas financial supervisory agency, the competent authorities made substantial amendments to the act’s original provisions.
After passing the third legislative reading and promulgation by the president in late 2016, the amendment came into effect on June 18 last year.
To prevent money laundering through financial institutions and other channels, and to be able to detect signs of suspicious transactions as they are processed, money laundering regulations around the world require that financial institutions report suspicious transactions.
The same obligation is set forth in Article 10 of the Money Laundering Control Act. The authority responsible for handling and analyzing suspicious transaction reports is the Financial Intelligence Unit.
Article 5 of the act stipulates that financial institutions include insurance companies. Insurance companies must therefore report suspicious transactions to the Ministry of Justice’s Investigation Bureau (MJIB).
The nation’s life insurance industry was rated as a high-inherent risk sector in the National Risk Assessment Report (國家洗錢及資恐風險評估報告), and should therefore take a more active role in fulfilling the obligation to report suspicious transactions.
Of the 9,656 reported suspicious transactions recorded in Taiwan in 2015, a majority of the cases, or 9,163, were reported by the banking industry, while only 59 cases were reported by the insurance industry.
A change began to appear last year, as the proportion of cases reported by the banking sector decreased from 95 percent to 82 percent, whereas the number of cases reported by the insurance industry increased to 799.
This change also reflects a significant increase in the insurance sector’s awareness of reporting suspicious transactions. As of June this year, the number of cases reported by the life insurance industry alone had reached 792.
The main reason for this big increase in the number of reports by the life insurance industry is that the obligations specified by the law have increased, that the “Red Flags for Suspicious Money Laundering or Terrorism Financing Transactions” (疑似洗錢或資恐交易態樣) have increased, and that insurance companies have made great investments in manpower and resources in response to money laundering prevention requirements, for example by setting up units dedicated to money laundering prevention.
According to data compiled by the Life Insurance Association of the Republic of China (壽險公會), of the 20 patterns announced by the association in the Red Flags for Suspicious Money Laundering or Terrorism Financing Transactions, the two most common money laundering or terrorist financing transactional patterns are, first, where a customer “over a short period of time requests and repays several large policy loans, where the amounts borrowed and repaid are comparable and no reasonable explanations are provided;” and, second, where “an individual implicated in negative news reported on TV, in the newspapers or magazines or on the Internet wishes to purchase a cash value insurance contract, or is the insured person or the beneficiary of the insurance policy and wants to change the insured or beneficiary, or carry out a monetary transaction and the transaction carries the signs of money laundering.”
These two patterns accounted for 668 cases, or 53 percent of the total number of cases reported by the life insurance industry last year.
In July, the Life Insurance Association of the Republic of China, the Non-Life Insurance Association of the Republic of China (產險公會), the Professional Insurance Brokers Association of the Republic of China (保險經紀人公會) and the Insurance Agency Association of the Republic of China (保險代理人公會) jointly announced the “Guidance for Insurance Sector on the Best Practices for Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) Compliance” (保險業防制洗錢及打擊資恐最佳實務指引), which proposes five major recommendations for how the insurance industry should report suspicious transactions.
First, in addition to referring to the Red Flags for Suspicious Money Laundering or Terrorism Financing Transactions, as set out by the association, insurance companies should refer to suspicious transaction patterns defined by the company itself based on past experience.
Second, insurance companies should communicate and interact fully with the MJIB and periodically analyze and review patterns and types of suspicious transactions by, for example, periodically following up on the progress of reported cases.
Third, insurance companies can hold training courses for employees to increase their alertness to signs of suspicious money laundering transactions and to enhance the quality of suspicious transaction reporting.
Fourth, insurance companies should adopt appropriate security measures regarding information about their reports of suspicious transaction.
Fifth, insurance companies should preserve sufficient records of their transactions to permit reconstruction of individual transactions, and consider the security of relevant document and electronic data storage, for potential use as evidence when determining the legality of such activities.
To help businesses enhance the quality of their suspicious transaction reports, relevant insurance associations and the Insurance Anti-Fraud Institute have cohosted a series of compliance forums, inviting representatives from the Executive Yuan’s Anti-Money Laundering Office (洗錢防制辦公室) and MJIB officials to conduct lectures on reported cases of suspicious transactions and types of predicate offenses and how to enhance the quality of suspicious transaction reporting.
The forums also enable face-to-face communications between the associations, officials and businesses.
Furthermore, the Life Insurance Association will hold another Compliance Forum on Wednesday next week on analysis and research of the cases and quality of suspicious transaction reporting from the insurance industry.
Officials from the relevant law enforcement agencies are invited to participate in the event.
The continual face-to-face communication with law enforcement agencies should enable the insurance industry to continue identifying new suspicious transaction patterns, enhance the quality of reports, and reinforce the operative effectiveness of money laundering prevention and the fight against terrorist financing, so as to facilitate criminal investigations conducted by law enforcement agencies and effectively achieve the goals of preventing money laundering and cracking down on criminal activities.
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