By Oscar P. Lagman, Jr.
When I advised the insurance company with which my house has been insured for years to renew the cover, I was told to provide them personal information before they issue me a new policy. I demanded an explanation of the unusual requirement. In response, the company sent me the letter below.
“Pursuant to Insurance Commission Circular Letter No. 45 2018, Anti-Money Laundering and Combating the Financing of Terrorism Guidelines for Insurance Commission Regulated Industries, (as authorized under Republic Act 9160, Anti-Money Laundering Act of 2001), all insurance companies are required to collect the following personal information from its clients. Section 24. Minimum Customer Information and Identification Documents when Conducting Customer Due Diligence.
1. Name of customer;
2. Date and place of birth;
3. Name of beneficial owner’ if applicable;
4. Name of beneficiary;
5. Present address;
6. Permanent address;
7. Contact number or information;
9. Specimen signature or biometrics of the customer;
10. Proof of identification and identification number;
11. Nature of work and name of employer or nature of self-employment /business if applicable;
12. Source of funds or property; and
13. TIN, SS or GSIS number, if applicable.”
To get my house re-insured, I sent in the information required by the insurance company. I wondered, however, why a person insuring his property could be a potential money launderer as to be required to provide the information above.
Money laundering is generally defined as the illegal process of making large amounts of money generated by a criminal activity, such as drug trafficking or terrorist funding, appear to have come from a legitimate source. The money from the criminal activity is considered dirty, and the process “launders” it to make it look clean.
Dealing in large amounts of illegal cash is risky. For its safety, criminals deposit the money in legitimate financial institutions like banks. But they have to make the money appear to have come from legitimate sources. To do so, three basic steps have to be taken. These are:
1. Placement or movement. This step hides the connection of the funds to the illegal activity by placing the “dirty money” into the legitimate financial system.
2. Layering or disguise. This conceals the source of the money through a series of transactions and bookkeeping tricks, thus obscuring the money audit trail.
3. Integration or return. The “laundered” money is withdrawn from the legitimate financial system and placed back into the economy so that it would look like a legitimate business transaction.
Money launderers usually use a legitimate, cash-based business — a restaurant, a trading company, or an art gallery — as the source of funds. Such establishments are called “fronts.” To disguise the illegally generated funds, the owner inflates the cash revenue of the establishment, the tax payable on the overblown “gross sales” considered part of the cost of the illegal operations.
The “cash revenue” of the establishment is placed in a financial institution in the name of the establishment. Having been “laundered” by the institution, the funds are withdrawn for use in criminal activity.
A bank is a common medium in laundering money. That is why banks are required to report large cash transactions as they could be conduits for money laundering.
This is the reason I find ridiculous the requirement of the Insurance Commission to apply Republic Act 9160, known as The Anti-Money Laundering Act of 2001, to general insurance companies as well.
The money given to the general insurance company by the owner of the property insured is not a deposit. It is in payment of a risk the insurance company assumes. Ownership of the money is transferred to the insurance company. The policyholder cannot layer the funds through a series of transactions and bookkeeping tricks as the funds are out of his control. Besides, the sum (the premium) involved is small change to a money launderer, not the kind of amount he would normally deal with.
I asked a friend who has been in the general insurance business for 60 years if there are ways a general insurance company can serve as a conduit for money laundering. “You can burn down your house. The money you collect from the insurer is considered ‘clean’ as it is legitimate compensation for the loss of your valuable property,” said he. I inferred from his smile and shrug of his shoulders that he considered the idea stupid.
If a money launderer had that much money to build or buy a house whose ruin could mean an indemnification of millions of pesos, he would have had the money laundered in a bank instead of building or buying a house only to burn it down to be able to be compensated a huge sum of money. If he burned down a business establishment, he would lose the “front” for his illegal source of funds. He also risks being found out as responsible for the deliberate destruction of the property, which finding would not only leave him without compensation but would get him into big trouble.
Just in case there are ways by which a general insurance company can be used as a conduit for money laundering that I do not know of, I read up on the subject. I came across an article written by the Insurance Commissioner Dennis Funa. He gave as an example the filing of a claim (demanding indemnification) for valuable property lost.
But as I have shown above, such a scheme is unlikely to be pulled off by a money launderer. In fact, Mr. Funa himself wrote that the risk of money laundering in general insurance is low.
Just recently, my daughter, a graphics designer who works from home, was required to provide the same information specified in the letter above before her personal accident policy would be renewed. I cannot imagine how her PA insurance can be the instrument of money laundering. To be able to collect a significant amount of money from the insurer, the same general insurance company my house is insured with, my daughter has to cause serious injury upon herself. That is much more unlikely to happen than burning down one’s house or business establishment to collect the sum insured.
I maintain, it is ridiculous of the Insurance Commission to require all insurance companies to collect from all their clients a set of personal information for purposes of ascertaining that the clients are not engaged in money laundering.
Oscar P. Lagman, Jr. is a retired corporate executive, business consultant, and management professor. He has been a politicized citizen since his college days in the late 1950s.