Individuals and networks using life and investment-linked insurance products to launder illicit funds are facing pressure from fresh regulatory guidance that aims to seal such loopholes.
The Insurance Regulatory Authority (IRA) has rolled out new rules that will require insurers to conduct independent reviews of their anti-money laundering and counter-terrorism financing (AML/CFT) programmes and report to the regulator.
High-risk areas such as politically exposed persons, cross-border transactions and complex investment-linked policies will come under increased scrutiny, putting pressure on individuals and networks that have relied on insurance as a discreet channel for moving illicit money.
The guidelines require insurers to carry out the audits at least once a year to identify gaps and potential risks linked with their AML/CFT procedures compliance programmes and strengthen controls that have left the sector exposed to abuse.
They will be required to keep IRA in the loop, with insurers’ boards of directors being directly accountable for reviewing reports, approving remedial action plans and ensuring timely fixes.
IRA Chief Executive Godfrey Kiptum has written to insurers to take note of the guidance note, requiring them to apply enhanced measures where the money laundering and terrorism financing risks are higher.
“The objective of the review is to evaluate the adequacy and effectiveness of these measures and ascertain compliance with the law. Note that you are required to conduct the independent review and submit the report with comments from the board no later than 31st January of every year,” said Mr Kiptum in the circular.
The reviews will assess the technical compliance with laws but also the execution and effectiveness of controls, with institutions rated as compliant, largely compliant, partially compliant or non-compliant.
The reviews will also extend to customer due diligence, record-keeping, staff training, suspicious transaction reporting, and outsourced compliance arrangements.
The long-term nature and packaging of life insurance products make them a target for individuals looking for avenues to launder money, especially because of the cooling-off period of 14 days between filling the proposal forms, making the payment and accepting the product.
The 14-day cooling period means one can register for a life insurance product, make payment and then cancel the contract and seek a refund weeks later, providing room for launderers to disguise their source of money as though coming from insurance compensation.
Long-term products also allow top-ups, which launderers can exploit by first making a small investment and following up with several top-ups to avoid being reported to the Financial Reporting Centre.
Premiums can also be paid at regular intervals, and this makes it palatable for criminals. Some of the long-term products also allow for surrenders—meaning that one can park illicit money in an insurance policy and pull out three years later and declare the surrender as the source of cash.
IRA’s move is part of a broader campaign to tighten compliance, expand customer due diligence and prevent policies from becoming conduits for illicit finance.
The country was grey-listed in February 2024 by the Financial Action Task Force (FATF) —a global anti-money laundering and terrorism financing watchdog— which cited shortcomings in the country’s financial oversight systems. Authorities are under pressure to plug gaps identified in the FATF review.
