Financial Institutions Must be Vigilant Against Money Laundering and Terrorist Financing Risks
Oman’s financial institutions (FIs) are required to be aware of the risks of money laundering (ML) and terrorist financing (TF) when dealing with various businesses, including life insurance products, general insurance products, prepaid cards, tax evasion, and non-financial businesses.
Life Insurance Products and General Insurance Products
Life insurance products may be used for ML when they have saving or investment features that allow full or partial withdrawals or early surrenders. Similarly, general insurance products have been misused to launder money through the early cancellation of policies with return of premium. The Financial Action Task Force (FATF) guidance highlights several red flags in this regard:
- Policies entered into by the same insurer/intermediary for small amounts and then cancelled at the same time
- Return premiums credited to an account different from the original account
- Requests for return premiums in currencies different from the original premium
- Regular purchase and cancellation of policies
- Insurance policy being closed with request of payment to be made to a third-party account
Prepaid Cards and Non-Financial Businesses
Prepaid cards can also be misused for ML and TF due to their potential anonymity and ease of cross-border transactions. Non-financial businesses such as travel agencies, car dealerships, cash-intensive businesses like hypermarkets, and others may be used to launder money or finance terrorism by providing a means to legitimize illicit funds through transactions or services.
Risk-Based Approach (RBA)
To mitigate these risks, FIs must apply a risk-based approach in the identification and assessment of ML/TF risks. This requires conducting a business ML/TF risk assessment that helps understand risk exposure and identifies areas for prioritization in combating ML/TF. The RBA is central to effective implementation of AML/CFT obligations, requiring FIs to:
- Identify, assess, and understand ML/TF risks
- Take measures commensurate with those risks
- Allocate resources on a risk-sensitive basis
Business ML/TF Risk Assessment
FIs are required to conduct a business ML/TF risk assessment, which is a crucial step in establishing a good AML/CFT compliance program. The assessment helps identify areas that require specific controls to mitigate ML/TF risks.
Conclusion
In conclusion, FIs must be vigilant against ML/TF risks when dealing with various businesses, including life insurance products, general insurance products, prepaid cards, tax evasion, and non-financial businesses. Implementing a risk-based approach is essential in identifying, assessing, and mitigating these risks to ensure the integrity of the financial system.