Money Laundering Red Flags: A Growing Concern in Zimbabwe’s Insurance Sector

By Ronald Zvendiya

Money laundering, the process of disguising proceeds of crime as legitimate funds, is a global concern that continues to evolve. In Zimbabwe’s insurance sector, specific financial products and features increase the risk of money laundering activities.

Insurance Products with Increased Money Laundering Risk

1. Unit-linked or with-profit single premium contracts
2. Single premium life insurance policies with significant cash values
3. Second-hand endowment policies
4. Fixed and variable annuities

Identifying Money Laundering Red Flags

The Financial Action Task Force (FATF) recommends reporting all suspicious transactions to the Financial Intelligence Unit (FIU), regardless of the transaction amount. Red flags, or suspicious activities, should be identified to mitigate money laundering risks.

Product Features

1. Transactions inconsistent with the customer’s needs
2. Unusual payment methods
3. Early termination resulting in a cost to the customer or benefit to an unrelated third party
4. Suspicious beneficiary designations

Customers

1. Difficulty providing identification
2. Third party control of the policy
3. Customers associated with high-risk industries
4. Customers listed on sanctions lists
5. Politically exposed foreign persons

Geographic Locations

1. High crime rates
2. Financial havens
3. Significant drug production or trafficking regions

Transactions

1. Unknown third parties
2. Unusual large premiums paid by third parties

Entities operating in the insurance value chain, including insurers, intermediaries, and agent networks, are required by Zimbabwe’s Money Laundering and Proceeds of Crime Act to report suspicious transactions. Protections for those reporting are also in place under section 32(1) of the same act.

Understanding these red flags is essential as the 2016 Eastern and Southern Africa Anti-Money Laundering Group Mutual Evaluation Report highlighted a low number of suspicious transactions reports by the insurance sector. Between January 2016 and April 2022, the FIU reported only three such reports. Consequently, insurance entities are required to report as recommended by FATF recommendation 20.

Ronald Zvendiya is a Research and Innovation Analyst at the Insurance and Pensions Commission (IPEC). For more information, please contact email@pe.com.

Disclaimer: The opinions expressed in this article are the author’s alone and do not reflect the opinions and beliefs of IPEC or its affiliates.

This weekly article is coordinated by Lovemore Kadenge, an independent consultant, past president of the Zimbabwe Economics Society, and past president of the Chartered Governance & Accountancy Institute in Zimbabwe. Email: email@pe.com and mobile number: +263 772 382 852.