Distinguished guests,
Ladies and Gentlemen.

1    Good morning. I am delighted to join you at the Asia Anti-Money Laundering Summit. The theme for the summit – combating money laundering effectively – is apt and timely in light of the increasing focus on anti-money laundering and countering the financing of terrorism (or “AML/CFT” in short). This is a good opportunity for the industry to take stock of the money laundering and terrorist financing risks it faces, and how prepared it is in dealing with these risks.

2    All international financial and business centres face the risks of being abused as conduits for money laundering and terrorist financing activities (or “ML/TF” in short). Singapore is no different. As our financial centre develops in scale and sophistication, all of us have to step up our vigilance and strengthen our measures against those who seek to use our financial hub for illicit purposes.

3    Compared to 10 years ago (2005), Singapore’s insurance sector has grown significantly – total insurance premiums have more than doubled to S$38.5 billion¹ . With the growth in business, product range, and number of customers, insurers are exposed to higher risks now than before. It is therefore paramount that insurers actively seek to understand the ML/TF risks they face, and maintain strong controls to address these risks.

Key messages for the insurance industry

4    So, what are the ML/TF risks that the industry faces? To answer this, insurers need to constantly survey the environment that they operate in and stay abreast of any emerging trends that may give rise to such risks. By fostering a broader and deeper understanding of these risks, insurers can then develop more targeted and effective risk mitigation measures.

5    Today, I would like to touch on two points that I believe are important for insurers to consider when performing such risk assessments: 

       •   First, we should challenge and re–evaluate any perception that we may have held previously or still hold, that ML/TF risks for insurance business will remain low; and 
       •   Second, we need to be mindful of the growing complexity and cross-border nature of illicit activities.

Let me elaborate.

ML/TF risks faced by the insurance industry

6    On the first point, insurance business has traditionally been thought of as being less exposed to ML/TF risks. This is because premium amounts are relatively lower compared to other financial sector activities, such as banking, and insurance payouts are contingent on certain events occurring, for example a road accident or fire at home. However, a proper risk assessment will suggest that the landscape has become more complex, and different insurers are exposed to varying levels of ML/TF risks depending on the type of products they offer, size of premiums, the location of the risks insured, among others.

7    Singapore’s National Risk Assessment report, published in 2014, has identified certain insurance products as potentially posing higher money laundering risk. These include life insurance products with single premium payments and high cash values on surrender. It is conceivable that money launderers may use illicit funds for purchasing such policies, and then prematurely surrendering them – trading the financial penalties incurred due to early termination, for the stamp of legitimacy. Money can also be laundered by making a partial withdrawal, taking a loan soon after a policy comes into force, or even cancelling the policy during the free-look period. Because these payments and refunds come from insurers, which are regulated financial institutions, the subsequent deposit of these monies into the banking system may not arouse suspicion.

8    These are just some examples by which insurance policies can be abused. Insurers must therefore have in place robust customer due diligence checks at onboarding to ascertain whether, given the customer’s profile and circumstances, the sum assured is reasonable and the reasons for purchasing a policy are legitimate. Equally important, insurers must also assess if an early termination is suspicious.

9    Contrary to popular notion, general insurance and reinsurance are not immune to money laundering risks. Singapore’s role as a global trading and transportation hub exposes us to the inherent risks of money laundering through trade and trade financing². Similarly, insurers offering trade credit insurance are exposed to such risks. Money launderers may also purchase marine insurance for phantom ocean-going vessels³ using illicit funds, and make fraudulent claims for these vessels.

10   In addition, insurers run the risk of inadvertently providing marine insurance coverage for vessels or shipping companies that may be involved in proliferation financing activities. The example of Chinpo Shipping Company, which had facilitated the shipment of arms to North Korea in violation of U.N. sanctions, comes to mind⁴. While no insurer in Singapore was involved in this incident, such risks are real. Insurers have to remain vigilant, be alert to tell-tale signs and conduct enhanced due diligence and robust monitoring where the risks are higher. Relying on contractual clauses – for example, to withhold claims on grounds of terrorism or terrorist financing – remains important, but is ultimately a reactive response. To effectively forestall such threats, insurers need to have in place strong surveillance through the use of technology. This is an area I will come back to later.

11   In summary, we should not take for granted that the insurance industry will continue to face lower ML/TF risks. The industry needs to stay vigilant to new and emerging risks, and look to enhance their controls to address these risks.

Complex and cross-border ML/TF activities

12   Moving to my second point on risk assessment, money laundering and other illicit financing activities have become increasingly complex, especially when they involve cross-border transactions and multiple jurisdictions. In recent years, there have been reports on sophisticated cases of tax fraud and corruption, and subsequent laundering of these illicit gains. There is greater use of shell companies in multiple jurisdictions to conceal identities and layer fund flows. As AML/CFT controls continue to tighten globally, criminals will try to get ahead and make their webs more intricate and harder to detect. Insurers must therefore continue to maintain robust due diligence checks and fully understand any complex structures used by customers before onboarding them. The industry must continue to stay alert to detect and deter these illicit activities, particularly given the more complex operating environment.

Effective mitigation against ML/TF risks

13   Against these challenges that give rise to ML/TF threats, I suggest insurers focus on four key areas in their quest to combat money laundering and other illicit financing activities. These are: 

       1.  Risk culture; 
       2.  Strong compliance function and training; 
       3.  Leveraging technology; and 
       4.  Knowledge sharing.

Focus 1: Risk culture

14   First, on risk culture. Studies have shown that most of us exhibit optimism bias⁵, which is the tendency for us to believe that we are less likely to experience negative events than others – the classic “it would not happen to me” assumption. Can such mind-set and bias influence a company’s risk culture? Most definitely. Insurers cannot take for granted that ML/TF activities “will not happen to me”. Instead, insurers should take the view that it “can happen to me”. Having the right mind-set and sound risk culture are the foundation for ensuring that the frameworks and processes put in place are effective.

15   To achieve the desired risk culture, board and senior management must set the tone from the top – that AML/CFT responsibilities are important and taken seriously. It is critical that board and senior management promote a sound risk culture that emphasises professional integrity and strong risk awareness, and ensure that this permeates through the organisation. In addition, the message needs to be reinforced regularly and consistently.

16   Insurers with sound risk culture and awareness would continually ask themselves these questions: 

       1.  Do we fully understand the ML/TF risks we face? Have the risks changed? How would we know? 
       2.  Are all ML/TF risks considered in the enterprise-wide risk assessment? Is this conducted regularly? 
       3.  Are our frameworks, controls and processes for customer due diligence and ongoing transaction monitoring adequate and effective? 
       4.  What are our surveillance tools for monitoring, gathering, assessing and disseminating news and information? Do we conduct trend analysis? 
       5.  Are our systems robust enough to detect unusual or suspicious trends and patterns? 
       6.  Do we file suspicious transaction reports (“STRs”) promptly? Do our STRs contain useful information for law enforcement agencies?

The list of questions goes on. By constantly asking the right questions, insurers would be a step closer to having in place effective systems and measures.

Focus 2: Strong compliance function and training

17   Second, the compliance function plays a crucial role in the fight against ML/TF activities. We should ask ourselves these questions – Is the compliance function competent and adequately resourced? Is it given sufficient importance within the organisation? Are the views of the compliance function being over-ridden by business considerations? Insurers must have a structure that supports and recognises the important role of the compliance function, and that allows the compliance function to perform this role effectively.

18   The responsibility of AML/CFT does not lie solely with the compliance function, or solely with the board and senior management. The entire organisation has a part to play. To effectively manage ML/TF risks, insurers should devote sufficient resources towards training of all employees at different levels and functions, including agents, to ensure that they are fully equipped to detect and mitigate risks.

Focus 3: Leveraging technology

19   Third, the industry has to leverage technology. Given the growing business and scale of transactions, and increasing complexity, it is no longer tenable to rely on manual processes.

20   Insurers should employ technology solutions such as automated name screening that allows for superior detection logic and the use of real time information. Another example is the use of data analytics. Data analytics systems and techniques enable insurers to understand consumers for marketing and insurance solutions. Such investments are just as critical to help detect patterns across payment flows and customer data, which in turn allows for accurate customer profiling and monitoring. Having the appropriate systems and technologies in place will further enhance insurers’ surveillance efforts and understanding of the evolving risks.

Focus 4: Knowledge sharing

21   This brings me to my fourth and last point. Even as MAS sharpens its supervisory focus on AML/CFT, this cannot be a substitute for the industry’s vigilance and commitment to this cause. Industry associations have important roles to play too – that of elevating the knowledge and awareness among their members. Today’s conference organised by Asia Insurance Review is one example of how the industry can come together to share practices and exchange views on how to overcome challenges. MAS looks forward to a closer partnership with the industry in this respect and will continue to engage the industry to enhance the overall risk understanding and strengthen mitigating controls, so that we can effectively combat ML/TF activities.

Conclusion

22   Let me conclude. With a more interconnected and complex world, the risks of today are not the same as yesterday. Neither will they be the same tomorrow. We must therefore not be complacent. Instead, we need to continually improve on our understanding of risks and take pre-emptive steps to stay ahead in this dynamic climate.

23   On this note, I wish you a successful and fruitful conference.

¹  Swiss Reinsurance Company Ltd, "Swiss Re: Sigma No. 3/2016 – World insurance in 2015". Released in June 2016.
²  Financial Action Task Force, "Trade Based Money Laundering". Released in June 2006.
³  Financial Action Task Force, "Report on Money Laundering Typologies 2003-2004". Released in February 2004.
⁴  The Straits Times, "Chinpo fined $180k over illegal arms case and running remittance business without licence". Published on 29 January 2016.
⁵  Tali Sharot, "The optimism bias". Published in ScienceDirect on 6 December 2011.