• Insurance: Fraud

    By Nancy Lazar Lamers, JD, Division Manager and Insurance Subject Matter Expert 
    Kaplan University School of Professional and Continuing Education 
    Published October 2014

    In June 2000, Mohammed Atta received a wire transfer of $9,985 from the United Arab Emirates into his South Flor­ida bank account, according to a December 11, 2001, criminal indictment of suspected September 11, 2001, conspirator Zacarias Moussaoui. The money Atta received is alleged to have been used to finance the September 11 terrorist attacks. The dollar amount of $9,985 is important—it was just $15 and a penny short of the over $10,000 reporting threshold requirement for banks, indicating the terrorists knew to send smaller amounts to hide the transactions.1

    When President Bush signed the USA PATRIOT Act into law on October 26, 2001, after the September 11 terrorist attacks, money laundering suddenly became visible because it had now become associated with terrorism. While banks and other depository institutions have long been required to implement anti-money laundering (AML) programs, the PATRIOT Act extended the AML program and reporting requirements to most financial institutions, including certain insurance companies.

    What exactly is money laundering? Money launderingis a process that crimi­nals use to convert dirty money—that is, money derived from illegal drug, ter­rorist, or other criminal activities—into clean or legitimate money. Money laundering is similar to washing clothes—you put in dirty clothes and after being washed, the clothes are clean.

    To empower insurance companies to be active in preventing and identifying money laundering and terrorist financing, federal laws and regulations require these companies to report certain transactions.

    Insurers Must Report Cash Transactions Over $10,000

    Insurers must file IRS Form 8300 when they receive more than $10,000 in cash in one transaction or in two or more related transactions.2 Any transac­tions conducted between a payor or the agent and the recipient during a 24-hour period are called related transactions. Transactions are related even if they occur over more than 24 hours if the recipient knows or has reason to think that each transaction is in a series of connected transactions. 

    Insurers Must Report Suspicious Transactions

    Given the nature of money laundering and the clandestine practices that attend to it, there are no hard and fast rules that define exactly if or when a suspicious activity report is required or warranted. Every insurer subject to AML requirements must con­duct its own assessment to evaluate the money laundering risks it faces on the basis of its products, customer base, and customer activity. From this assess­ment will come a suspicious activity monitoring and reporting program that is unique to the company and its business.

    Insurance companies engaged within the United States as a business in the issuing or underwriting of covered products must file with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) a report of any suspicious transaction involving a covered product that is relevant to a possible violation of law or regulation.3  

    An insurance company must report a suspicious transaction if it involves, separately or in the aggregate, at least $5,000 in funds or other assets and the insurance company knows, suspects, or has reason to suspect that the transaction:

    • involves the use of the insurance company to facilitate criminal activity;  
    • is designed to evade the requirements of the Bank Secrecy Act; 
    • involves funds from illegal activity or is intended to hide or disguise funds from illegal activity; or 
    • lacks apparent business or lawful purpose and the insurer, after reviewing all available facts, sees no reasonable explanation for it.4

    An insurance company may report any suspicious transaction it believes is relevant to the possible violation of any law or regulation, regardless of the amount of the transaction.5

    When such reports are made, the insurance company must not notify the individual involved with the transaction that these activities were reported, nor can the government or its agents make such a disclosure. Addi­tionally, the requirement absolves an insurance company from any liability it might otherwise face for the disclosure.6  

    Red Flags May Indicate Suspicious Activity

    FinCEN states that “there is no way to provide an exhaustive list of suspicious transactions.” However, insurance companies should be aware of red flags, which may point to suspicious activity. FinCEN has provided some examples of red flags:

    • The purchase of an insurance policy that appears to be inconsistent with a customer’s needs 
    • Any unusual payment method, notably cash or cash equivalents 
    • A customer shows little or no concern for an insurance product’s investment performance, but much concern about the early termination features of the product 

    Although a red flag does not automatically require the filing of a suspicious activity report, it should be reported immediately to the AML compliance officer. Only an insurer is obligated to file suspicious activity reports. The insurer’s agents and brokers are not required.



    Nancy Lazar Lamers, JD, is an insurance subject matter expert and Division Manager of Content Development of Insurance Continuing and Professional Education at Kaplan University’s School of Professional and Continuing Education. She has a Bachelor of Arts in Political Science from the University of Michigan-Ann Arbor and a Juris Doctor from Loyola University Chicago School of Law. 

    The views expressed in this article are solely those of the author and do not represent the view of Kaplan University.

     1. Fins, A. (2001, December 23). Closer Watch on Clients Ordered. Sun Sentinel. Retrieved from http://articles.sun-sentinel.com 
     2. 31 C.F.R. §1025.330 (2011). 
     3. Covered products are those insurance products FinCEN has determined to present a higher degree of risk for money laundering or financing terrorists—a permanent life insurance policy (other than a group life policy); an annuity contract (other than a group annuity contract); and any other insurance product with cash value or investment features. 
     4. 31 C.F.R. §1025.320 (2011). 
     5. 31 C.F.R. §1025.320 (2011). 
     6. 31 C.F.R. §1025.320 (2011). 
     7. FinCEN Section-by-Section Analysis of 31 C.F.R. §1025.320 (2011). Retrieved from http://www.fincen.gov/statutes_regs/frn/pdf/sarforinsurancecompany.pdf 
     8. FinCEN Section-by-Section Analysis of 31 C.F.R. §1025.320 (2011). Retrieved from http://www.fincen.gov/statutes_regs/frn/pdf/sarforinsurancecompany.pdf 


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