IRA slaps insurers with new rules to lock out illicit cash

Insurers will be required to conduct know-your-customer (KYC) exercise, appoint a money laundering reporting officer and file compliance reports on any suspicious transactions with the regulator every three months.

IRA though was mum on ownership disclosure of insurance firms, which has been cited as a key weakness of the financial sector in fighting illicit cash.
“An insurer or an insurance intermediary can be involved knowingly or unknowingly in money laundering and financing of terrorism activities thus exposing it to legal, operational and reputational risks,” warned IRA.

Insurers will have to vet their customers to identify those who have a high risk of handling dirty money based on their place of birth, source of income, mismatch between product sort and real needs, among other factors.

Some of the vulnerabilities in the insurance industry include use of life policies as collateral to buy other financial instruments including loans, which may merely be one part of a sophisticated web of complex transactions.

Inflated and bogus claims

Inflated and bogus claims, for example, through arson can allow fake claims to be made and recover part of invested illegitimate cash under general insurance.

“Re-insurance may be used by establishing fictitious (re)insurance companies and intermediaries fronting arrangements and captives (clients),” said IRA.
Insurers will be required to develop internal policies and training manuals for staff to keep out the illicit cash. The IRA is following other regulators — Capital Markets Authority and Central Bank of Kenya (CBK) — in putting in place guidelines to rein in dirty money.

Illicit inflows have been cited as key funding for terror activities, which had afflicted the country in recent past. Such inflows also entrench economic inequality and undermine social institutions.

Little is also known about owners of insurance firms, creating room for ill-intentioned persons to own institutions for the purpose of cleaning money or forwarding returns to finance terror.

The CBK has recently ordered all banks to disclose shareholders with a stake greater than five per cent.

“I would urge legislatures to consider implementing changes to our national laws that would enhance our national registries, particularly as relates to the obtaining and sharing of beneficial ownership information,” said CBK governor Patrick Njoroge in a statement published last week.

[email protected]