Fri, Sep 28, 2018 page12

• Insurers fighting terrorist financing, arms proliferation

  • Staff writer
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  On July 27, 2016, the government promulgated the Counter-Terrorism Financing Act (資恐防制法) which differs from the Money Laundering Control Act (洗錢防制法) in that it controls money flows from legal assets, as well as illegal profits. Today, many terrorist organizations have established public welfare and religious nonprofit organizations overseas to attract donations from the general public. Such organizations are a hotbed for terrorism.

  Thanks to Taiwan’s stable demographic composition and harmonious religious, lifestyle and linguistic diversity, the external or internal conditions for developing terrorist activities do not exist and no threat arising from the financing of terrorism has been discovered.

  There have been isolated cases that were suspected to be terrorist attacks, such as a failed bombing attempt on a high-speed rail train in 2013, a Taiwan Railways Administration bombing incident in 2016 and a 2014 truck attack at the Presidential Office Building.

  However, these incidents were all proven in subsequent investigations to be unrelated to terrorist activities.

  Taiwan is highly dependent on foreign trade and its geographical advantage has turned it into a transportation hub for East Asia. There are several global economic giants in the region, such as China and Japan, as well as high-risk jurisdictions listed by the Financial Action Task Force, such as North Korea.

  Over the past few years there has been a series of individual arms proliferation cases, underscoring the increasing importance of arms proliferation-related issues.

  Last year, Taiwanese businessman Chen Shih-hsien (陳世憲) had the vessels Billions No. 18, owned by one of Chen’s companies, and the Lighthouse Winmore, which he chartered from Billions Bunker Group (比利恩油品集團), loaded with refined oil in South Korea and then falsely declared that the vessels were bound for Taiwan. However, the cargo was sold to North Korea in an obvious contravention of UN sanctions against Pyongyang.

  Early this year, the Ministry of Justice formed the TF Review Committee, which is comprised of officials from the National Security Bureau, the Ministry of the Interior, the Ministry of Foreign Affairs, the Ministry of National Defense, the Ministry of Economic Affairs, the central bank and the Financial Supervisory Commission (FSC), in compliance with the Counter-Terrorism Financing Act.

  The Ministry of Justice then placed Chen on a sanctions list along with two offshore corporate juridical persons — both of which listed Chen as the beneficial owner — in compliance with Article 4, Paragraph 2 of the Counter-Terrorism Financing Act.

  The main arms proliferation risk comes from clients using ships to transport goods, materials or restricted articles to parties subject to sanctions.

  As insurance is normally used to transfer the risk of goods and vessels during transportation, Taiwanese insurance companies treat shipping insurance as a high-risk product. Prior to accepting such contracts, the insurers perform due diligence on the shipper or forwarder and implement enhanced verification and control measures.

  In addition, insurance policies include clauses regarding items prohibited from transportation. This means that if there is an insurance claim due to an incident when goods are shipped to a country under a trade embargo by international organizations, the insured party would most likely not receive a payout.

  Generally speaking, insurance companies use their own databases to check the names of applicants and parties in an insurance policy prior to making an underwriting decision.

  To effectively enhance insurance companies’ grasp of the risks of terrorist financing and arms proliferation activities, the Life Insurance Association of the Republic of China (壽險公會), 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) in July announced Guidance for Insurance Sector on the Best Practices for Anti-Money Laundering and Combating the Financing of Terrorism Compliance (保險業防制洗錢及打擊資恐最佳實務指引).

  These organizations recommended against insurance companies overly relying on databases purchased from other sources. Instead, the companies should use a database they have established themselves and keep the sanctions list up to date.

  They also recommended that terrorists and terror organizations recognized or pursued by other nations or international organizations should also be included in the database, and that attention should be paid to transaction risks.

  For example, once the Ministry of Justice announced that it placed Chen on a sanctions list, insurance companies would add that list to their database and verify whether Chen was one of their clients. If he was, his insurance policies would be suspended and a report would be submitted to the Investigation Bureau.

  To help businesses enhance their ability to fight terrorist financing and arms proliferation activities, the insurance associations and the Insurance Anti-Fraud Institute have cohosted a series of conferences, to which experts — including domestic reviewers who have participated in the Asia-Pacific Group on Money Laundering’s third round of mutual evaluations and representatives of the Executive Yuan’s Anti-Money Laundering Office, as well as representatives of the FSC — were invited to deliver lectures and speeches.

  These associations have also sponsored a conference — organized by the Bankers Association of the Republic of China and the Taiwan Academy of Banking and Finance — about international sanctions on North Korea and the best due diligence practices in accordance with US regulations. Experts from the US Department of the Treasury, the US Department of Justice and the US Department of State were invited to share and explain practical experiences in dealing with issues related to international sanctions on North Korea.

  Due to the particularities of the insurance industry, the associations have also convened several meetings focused on what to do once a sanctioned party’s insurance policy is suspended and determining the extent of the policy’s validity during the suspension.

  Their efforts have aimed to facilitate how insurance companies execute targeted financial sanctions to deter terrorist financing and arms proliferation.
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