Crime and its proceeds do not pay

Many in the regulated sector have expressed concern at becoming 'spies' for the taxman and the conflict between the requirement to report and client confidentiality/data protection. Those currently outside the regulations may be heaving a sigh of relief that they need not give money laundering a second thought. But the Proceeds of Crime Act 2002 affects everyone and, while general insurance brokers currently enjoy non-regulated status, they cannot be complacent.

POCA applies to the proceeds of all criminal activity and makes it an offence to become involved in an arrangement that assists someone to acquire, retain, use or control criminal property.

As traditional methods of laundering money became more difficult, less obvious methods of cleaning cash are increasingly prevalent. Two clear examples arise in the case of non-life insurance. The first is a customer paying a large premium, or series of premiums, in cash and then cancelling the policy shortly after inception. Any penalties outweigh the benefits of obtaining a cheque in refund from an insurance company, which is unlikely to be queried when presented for payment. The second is by making claims.

For example, a legitimate business could be purchased with 'dirty' money and insured, then destroyed, perhaps by arson. Again, the cheque in settlement of the resulting claim will be clean.

Faced with a suspicious transaction, those with no obligation to report could simply decline to act. Alternatively, a report can be made to the National Criminal Intelligence Service, which then provides a defence to the offences under POCA. To avoid becoming entangled in a money-laundering scheme, brokers need to know enough about their clients to recognise that a transaction is unusual. Having procedures in place to ensure you can identify and fully understand the client and the nature of their business is good practice, not only to avoid falling foul of POCA but also from a general risk management perspective: know your client, understand their needs and keep good records.