MAS 314

11 Nov 2002

NOTICE TO LIFE INSURERS
INSURANCE ACT, CAP 142

MAS 314 dated 22 Feb 2000 is cancelled.

PREVENTION OF MONEY LAUNDERING

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This notice ('Notice') is issued pursuant to Section 64 of Insurance Act (Cap 142).

1 INTRODUCTION

1.1 For the preservation, nationally and internationally, of the good name of life insurance industry in Singapore and recognising the need to prevent the financial system from being used in furtherance of money laundering activities (described in Section 2) arising from or in connection with drug trafficking or criminal conduct, and taking into account:

1. the provisions of the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (Chapter 65A) (the Act); and

2. the Financial Action Task Force 40 Recommendations, in particular Recommendations 9 to 20,

life insurers, including their agents (thereafter referred to as insurers), shall comply with the Directions issued in this Notice.

1.2 In this Notice, the following terms shall have the meanings ascribed to them in the Act:

1. Terms defined under Section 2 of the Act

   - authorised officer

   - criminal conduct

   - drug trafficking

   - drug trafficking offence

   - foreign drug trafficking offence

   - foreign serious offence

   - serious offence

2. Terms defined under Section 36 of the Act

- financial transaction document

- minimum retention period

1.3 Where Singapore-incorporated insurers have branches or subsidiaries overseas, they shall ensure that their group policy on money laundering is communicated to the management of their overseas offices. The group policy shall ensure that verification of identity and record keeping are undertaken at least to the standards required under Singapore law, taking into account the laws and regulations of the host country. Where the laws and regulations of the host country and the Notices conflict, the overseas branch or subsidiary should comply with the laws and regulations of the host country and inform the head office of any departure from the group policy.

2 DESCRIPTION OF MONEY LAUNDERING

2.1 Money laundering is a process intended to mask the benefits derived from drug trafficking or criminal conduct so that they appear to have originated from a legitimate source.

2.2 Generally, the process of money laundering comprises three stages, during which there may be numerous transactions that could alert an insurer to the money laundering activity:

1. Placement: the physical disposal of the benefits of drug trafficking or criminal conduct;

2. Layering: the separation of benefits of drug trafficking or criminal conduct from their source by creating layers of financial transactions designed to disguise the audit trail;

3. Integration: the provision of apparent legitimacy to benefits of drug trafficking or criminal conduct. If the layering process succeeds, integration schemes place the laundered funds back into the economy so that they re-enter the financial system appearing to be legitimate business funds.

2.3 The chart in Annex 1 (PDF, 13.8KB) illustrates the money laundering stages in greater detail.

3 BASIC PRINCIPLES AND POLICIES TO COMBAT MONEY LAUNDERING

3.1 The Authority seeks to combat money laundering by requiring insurers to apply the following principles:

1. Know your customer: insurers shall obtain satisfactory evidence of the customer's identity, and have effective procedures for verifying the bona fides of new customers.

2. Compliance with laws: insurers shall ensure that business is conducted in conformity with high ethical standards, that laws and regulations are adhered to, and that service is not provided where there is good reason to suppose that transactions are associated with money laundering activities.

3. Co-operation with law enforcement agencies: within legal constraints relating to customer confidentiality, insurers shall co-operate fully with law enforcement agencies. This includes taking appropriate measures allowed by law if there are reasonable grounds for suspecting money laundering. Disclosure of information by insurers for the purposes of the Act (suspicious transaction reports) shall be made to Head, Suspicious Transactions Reporting Office within the Commercial Affairs Department (STRO). To facilitate the process, insurers shall identify a single reference point within their organisation (usually a relevant officer of the insurer) to which staff are instructed to report suspected money-laundering transactions promptly.

4. Policies, procedures and training: each insurer shall adopt policies consistent with the principles set out in this Notice, and ensure that its staff, wherever located, are informed of these policies and adequately trained in matters covered by this Notice. To promote adherence to these principles, insurers shall implement specific procedures for customer identification, retention of financial transaction documents, and reporting of suspicious transactions.

4 CUSTOMER IDENTIFICATION

General

4.1 Insurers shall obtain satisfactory evidence of the identity and legal existence of persons applying to do business with or through them. Such evidence shall be substantiated by reliable documents or other means. They should also establish that any applicant claiming to act on behalf of another person is authorised to do so. There should be an explicit policy that significant business transactions will not be conducted with applicants who fail to provide evidence of their identity, but without derogating from the insurers' obligations to report suspicious transactions. Where initial checks fail to identify the applicant, or give rise to suspicions that the information provided is false, additional verification measures should be undertaken to determine whether to proceed with the business. Details of the additional checks are to be recorded.

4.2 When an insurer acquires the business of another financial sector company or firm, either in whole or as a product portfolio, it is not necessary for the identity of all existing customers to be re-identified, provided that:

1. all customer records are acquired with the business; and

2. due diligence enquiries do not raise any doubt as to whether the anti-money laundering procedures previously adopted by the acquired business have satisfied Singapore requirements.

4.3 Insurers may start processing the business while taking steps to verify the customer's identity. Pending receipt of the required evidence, insurers should "freeze" the rights attaching to the policy. This means that redemption proceeds, including income, are to be retained by the insurers and documents of title should not be issued. Where satisfactory evidence of identity is not forthcoming, the transaction or business relationship in question should not proceed further. In some circumstances, failure by a policyholder to provide satisfactory evidence of identity may, in itself, lead to a suspicion that the policyholder is engaging in money laundering. In preparing their procedures, insurers will need to consider the circumstances under which the freezing of rights may occur and, where appropriate, the steps to be taken to unwind the transaction if necessary. Insurers are advised to establish clear and consistent policies to deal with arrangements arising from a failure to verify identity.

4.4 If during the business relationship, the insurer has reason to doubt the accuracy of the information relating to the customer's identity, it shall take further measures to verify the identity of the customer.

Personal Customers

4.5 Insurers shall obtain from all personal applicants the following information:

• name and/or names used;
• permanent and mailing address;
• date of birth;
• nationality.

4.6 Insurers shall request applicants to produce original documents of identity issued by an official authority, preferably bearing a photograph of the applicants. Examples of such documents are identity cards and passports. Where practicable, file copies of documents of identity are to be kept. Alternatively, the identity card or passport number and other relevant details are to be recorded.

4.7 Where a person applies for a policy to insure a life other than himself (e.g. his children), it is the applicant for the policy whose identity has to be verified rather than the life to be insured.

Verification Without Face-to-Face Contact

4.8 Insurers shall take particular care in accepting new business via the internet, post or telephone. Any mechanism that avoids face-to-face contact with applicants inevitably creates difficulty in customer identification and can be abused by money launderers to gain access to the financial system. For non-face-to-face contact, insurers should assess the money laundering risk posed by internet, postal and telephone products offered and devise customer identification procedures with due regard to this risk.

4.9 The customer identification procedures for non-face-to-face verification should be at least as stringent as those for face-to-face verification. Reasonable steps should also be taken to avoid fraud and single or multiple fictitious applications. There are a number of checks which, when undertaken successfully, will give insurers and brokers a reasonable degree of assurance as to the identity of the applicant where there is no face-to-face contact. For example,

• telephone contact with the applicant at an independently verified home or business number;
• subject to the applicant's consent, telephone confirmation of the applicant's employment with the employer's personnel department at a listed business number;
• confirmation of the address through an exchange of correspondence or by other appropriate methods.

An initial deposit cheque drawn on another financial institution regulated by the Authority will provide additional comfort.

Group Insurance Policies

4.10 Insurers shall exercise due diligence in underwriting group insurance policies. To prevent money launderers from gaining access to the financial system via fictitious applications for group insurance, the identity of the holder of the master policy shall be verified in accordance with the details set out in paragraphs 4.11 to 4.16. However, where such policies do not have any cash proceeds returned to policyholders on maturity, it is not necessary to adopt the following verification procedures.

Corporate and Other Business Customers

4.11 Before establishing a business relationship, a company search and/or other commercial enquiries shall be made to ensure that the corporate/other business applicant has not been, or is not in the process of being, dissolved, struck off, wound-up or terminated. In the event of doubt as to the identity of the company or its directors, or the business or its partners, a search with the Registry of Companies and Businesses shall be made.

4.12 The following relevant documents shall be obtained in respect of corporate/other business applicants which are registered in Singapore:

• copies of the Certificate of Incorporation, Certificate of Partnership, or Certificate of Registration, as appropriate; and
• for established businesses, a copy of the latest report and accounts (audited where applicable).

4.13 The originals or certified copies of certificates (issued by the Registrar of Companies and Businesses) should be produced for verification.

4.14 For companies, businesses or partnerships registered outside Singapore, comparable documents are to be obtained. However, as different countries have varying standards of control, attention should be paid to the place of origin of the documents and the background against which they are produced. The originals or certified copies of certificates (issued by foreign authorities) should be produced for verification.

4.15 Where the applicant is an unlisted company, or an unincorporated business (e.g. a partnership), and none of the directors/partners is already known to the insurer or broker, the insurer or broker shall identify one or more of the principal directors, partners or shareholders according to customer identification procedures for personal applicants.

4.16 In addition, if significant changes to the company structure or ownership occur subsequently, or suspicions are aroused by a change in the payment profile through a company account, further checks are to be made.

Clubs, Societies and Charities

4.17 In the case of group policies taken up by clubs and societies, an insurer or broker shall satisfy itself as to the legitimate purpose of the organisation, for example, by requesting sight of the constitution.

5 RECORD KEEPING

5.1 Insurers shall prepare and maintain documentation on their customer relationships and transactions such that:

1. requirements of legislation are fully met;

2. the relevant authorities in Singapore and the internal and external auditors of the insurer will be able to judge reliably the insurer's transactions and its compliance with the Notice;

3. any transaction effected via the insurer can be reconstructed; and

4. the insurer can satisfy within a reasonable time any enquiry or order from the relevant authorities in Singapore as to disclosure of information including without limitation whether a particular person is a policyholder and/or beneficiary of life policies underwritten by the insurer.

5.2 When setting document retention policy, insurers must take into account the requirements of the Act. The following document retention periods shall be followed:

1. financial transaction documents relating to the issuance of a life insurance policy are to be kept for 6 years after the date the policy has expired; and

2. other financial transaction documents are to be kept for 6 years after the date on which the transaction takes place.

5.3 Financial transaction documents may be retained as originals or copies, on microfilm, or in electronic form, provided that such forms are admissible in court. Notwithstanding paragraph 5.2, if the records relate to on-going investigations or transactions that have been the subject of a disclosure, they shall be retained beyond the stipulated retention period until it is confirmed that the case has been closed.

6 SUSPICIOUS TRANSACTIONS

6.1 Each insurer shall clarify the economic background and purpose of any transaction or business relationship if its form or amount appears unusual in relation to the customer, or if the economic purpose or legality of the transaction is not immediately clear. In this regard, insurers should exercise due diligence by implementing adequate systems for identifying and detecting suspicious transactions.

6.2 Examples of suspicious transactions are found in Appendix I (PDF, 8.19KB). These are not intended to be exhaustive and only provide examples of the most basic ways in which money may be laundered. Identification of any transaction listed in Appendix I (PDF, 8.19KB) should prompt initial enquiries and, if necessary, further investigations on the source of funds.

6.3 Each insurer shall institute a system for reporting suspicious transactions under the Act. This may include appointing one or more senior persons, or an appropriate unit responsible for reporting to STRO. A copy of the suspicious transaction report should also be sent to the Authority. The reporting formats are set out in Appendix II (PDF 18.7KB). In the event that urgent disclosure is required, particularly when the policyholder concerned is part of an on-going investigation, an initial notification should be made by telephone.

6.4 The obligation to report is on the individual who becomes suspicious of a money laundering transaction. Officers and employees of the insurer who deal with customers should be made aware of the statutory obligation to report suspicious transactions under the insurer's reporting system.

6.5 Where a customer seeks to conduct insurance transactions with the insurer and an employee of the insurer knows that the customer has engaged in drug trafficking or criminal conduct, the matter must be promptly reported to the relevant officer or unit within the organisation who, in turn, must immediately report the details to STRO. If the employee suspects or has reasonable grounds to suspect that the customer has engaged in drug trafficking or criminal conduct, the officer or unit, on receiving the employee's report, must promptly evaluate whether there are reasonable grounds for such belief and must then immediately report the case to STRO unless the officer or unit considers, and records an opinion, that such reasonable grounds do not exist.

6.6 Each insurer shall maintain a complete file on all transactions that have been brought to the attention of its officer or unit, including transactions that are not reported to STRO.

6.7 Where it is known that a report has already been disclosed to STRO and it becomes necessary to make further enquiries of the customer, care should be taken to ensure that the customer does not become aware that his name has been brought to the attention of STRO.

6.8 Under Section 39 of the Act, where insurers disclose to an authorised officer¹ a knowledge, suspicion or belief that any fund, property or investment is derived from or used in connection with drug trafficking, criminal conduct or any matter on which such a knowledge, suspicion or belief is based, such disclosure shall not be treated as a breach of any restriction upon the disclosure of information imposed by law, contract or by rules of professional conduct. Furthermore, under Section 39 of the Act, insurers would not be liable for any loss arising out of such disclosure, or any act or omission, in relation to the fund, property or investment in consequence of the disclosure.

7 COMPLIANCE AND TRAINING

7.1 Each insurer shall appoint one or more senior persons, or an appropriate unit, to advise its management and staff on the issuing and enforcement of in-house instructions to promote adherence to the Notice, including personnel training, reporting of suspicious transactions, and generally, all matters relating to the prevention of money laundering.

7.2 Each insurer shall appoint a senior officer as the compliance officer or set up a designated compliance unit headed by a senior officer. The object is to ensure a speedy and appropriate reaction to any matter that requires special attention under the Notice and the Act.

7.3 The in-house audit department of an insurer shall monitor regularly the effectiveness of the measures taken by the insurer in preventing money laundering.

7.4 Each insurer shall train their respective staff and agents to be fully aware of their responsibilities in combating money laundering and to be familiar with its system for reporting and investigating suspicious matters.

7.5 All relevant staff and agents should be educated in the importance of the "Know-Your-Customer" requirements to prevent money laundering. Training in this respect should cover not only the need to know the true identity of the applicant for business relationship but also, where a business relationship has been established, the need to know enough about the expected type of business activities of that customer at the outset in order to know what might constitute suspicious activity at a future date. Relevant staff and agents should be alert to any change in the pattern of a customer's transactions or circumstances that might constitute money laundering.

7.6 Although senior management of an insurer may not be involved in the day-to-day procedures, it is important that they understand the statutory duties placed on them, their staff, and the entity itself. Some form of training to raise general awareness of senior management of their statutory duties is therefore suggested.

7.7 Timing and content of training for various sectors of staff and agents will need to be adapted by the insurer for their own needs. The following is recommended:

1. New Staff and Agents
   A general appreciation of the background to money laundering, the need to be able to identify suspicious transactions and report such transactions to the appropriate designated point within the insurer or broker, and the offence of "tipping off'" should be provided to all new staff and agents who deal with customers or their transactions, irrespective of the level of seniority.

2. "Front-Line" Staff
   "Front-line" staff who deal directly with the public are the first point of contact with potential money launderers. Their efforts are therefore vital to the insurer's reporting system for such transactions. Staff should be trained to identify suspicious transactions and on the procedure to be adopted when a transaction is deemed to be suspicious. They should also be aware that the offer of suspicious funds or the request to undertake a suspicious transaction needs to be reported to the relevant authorities whether or not such funds are accepted or transactions proceeded with. In addition, the need to verify the identity of the customer must be understood, and training should be given for customer identification procedures.

3. Supervisors and Managers
   A higher level of instruction covering all aspects of money laundering procedures should be provided to supervisors and managers. This will include the offences and penalties arising from the Act, procedures relating to service of production and restraint orders, internal reporting procedures, and the requirements for verification of identity and the retention of records.

7.8 Refresher training should be provided at regular intervals to ensure that staff and agents are reminded of their responsibilities and are kept informed of new developments.

8 SUMMARY OF KEY PROVISIONS OF THE ACT

Money laundering offences

8.1 It is an offence for insurers to:

1. enter into or otherwise be concerned in an arrangement knowing or having reasonable grounds to believe that by that arrangement:

   a) it will facilitate the retention or control of benefits of drug trafficking or criminal conduct by/on behalf of; or

   b) the benefits of drug trafficking or criminal conduct are used to secure funds or acquire property (by way of investment or otherwise) for,

   another person (whom the insurer knows or has reasonable grounds to believe has been/is involved in, or has benefited from, drug trafficking or criminal conduct);

2. conceal or disguise; or convert, transfer, or remove from the jurisdiction, any property which, in whole or in part, directly or indirectly, represents another person's benefits of drug trafficking or criminal conduct (for the purpose of assisting any person to avoid prosecution for a drug trafficking offence, foreign drug trafficking offence, serious offence or foreign serious offence or the enforcement of a confiscation order issued under the Act); or

3. acquire any property for no or inadequate consideration, knowing, or having reasonable grounds to believe, that the property, in whole or in part, directly or indirectly, represents another person's benefits of drug trafficking or criminal conduct.

Offences under this paragraph are punishable by a fine not exceeding $200,000, or imprisonment for a term not exceeding 7 years, or both.

Disclosure of Suspicious Transactions

8.2 Insurers shall disclose suspicious transactions to an authorised officer when they know or have reasonable grounds to suspect that any property:

1. in whole or in part, directly or indirectly, represents proceeds of drug trafficking or criminal conduct; or

2. was used/will be used in connection with drug trafficking or criminal conduct.

Failure to disclose such knowledge, suspicion, or other related information amounts to an offence which is punishable by a fine not exceeding $10,000.

Tipping Off

8.3 It is an offence for insurers knowing or having reasonable grounds to suspect that an investigation under the Act is taking/to take place, to make a disclosure which is likely to prejudice such investigation. This is a tipping off offence punishable by a fine not exceeding $30,000, or imprisonment for a term not exceeding 3 years, or both.

Failure to co-operate with law enforcement agencies

8.4 The following acts constitute an offence under the Act:

1. contravening a production order issued by the Court under the Act without reasonable excuse;

2. providing material known to be false or misleading in purported compliance with a production order, without:

   a) indicating that the material is false or misleading, and how it is false or misleading; or

   b) providing correct information which is in the insurers' or brokers' possession or can reasonably be acquired by them;

3. hindering or obstructing an authorised officer in the execution of a search warrant issued under the Act; or

4. obstructing or hindering any authorised officer in the discharge of his duty under the Act.

Offences under paragraphs (i) to (iii) are punishable by a fine not exceeding $10,000, or imprisonment for a term not exceeding 2 years, or both. The offence under paragraph (iv) is punishable by a fine not exceeding $2,000, or imprisonment for a term not exceeding 6 months, or both.

Record Retention

8.5 Insurers are required to retain each financial transaction document or a copy of it for the relevant minimum retention period. Such documents are to be stored in a manner that is reasonably practicable to retrieve them. In addition, insurers or brokers shall retain a copy, and maintain a register, of financial transaction documents released by the insurer or broker under Section 38 of the Act. Failure to observe any of these requirements amounts to an offence which is punishable by a fine not exceeding $10,000.

8.6 Insurers should note that some of the statutory obligations and prohibitions, which give rise to the offences described in paragraphs 8.1 to 8.5, also apply to their employees.

8.7 Section 8 of this Notice (or any reference to the Act in other parts of this Notice) does not constitute a legal interpretation of the Act, and should not be construed as an exhaustive write-up on all relevant provisions in the Act applicable to insurers. They are advised to seek legal counsel where necessary.