The paper "Exploitation of the Insurance Industry for Money Laundering: The Malaysian Perspective" is a good example of a finance and accounting case study. The insurance sector plays a major role in ensuring that there is an improvement in the economic growth of a nation (Shanmugam, 2008). They do have similar responsibilities as institutional investors and load providers. Despite conducting such an important role in a nation, it is unfortunate that this sector that enhances the economy of a nation is not consistent at enforcing laws and measures against money laundering. Money laundering is a crime which involves legitimising money attained from illegal activities.
Insurance sectors have become rather ignorant of matters related to this. This has been strongly supported by three main reasons (Shanmugam, 2008). First, lawmakers have found out that it is very difficult to connect insurance with money laundering activities since it is perceived unattractive. Secondly, when dealing with insurance, there are a number of risk assessment methodologies that are applied before entering into an agreement with a customer. Thirdly, it is very difficult to transfer funds from one person to another in the insurance sector.
These three reasons bring about the idea that the insurance sector is less vulnerable to frauds such as money laundering. In the past 10 years, there have been cases of money laundering escalating through the insurance sector. The Insurance Association of Insurance Supervisors (IAIS) has been combating these cases since early 2000 by placing priority to such cases (Shanmugam, 2008). Insurance sectors in most developing countries are more vulnerable to money laundering fraud. This is because governors in these countries often take sides with the insurance sectors in enforcing various protective measures (Shanmugam, 2008).
Therefore, in countries such as Malaysia, regulators have commenced carrying out protective measures regarding fraud within the insurance sectors. They have also devised policies that are obligated to identifying money laundering activities within the Malaysian insurance sector with the aim of protecting the integrity of the nation’ s economic and financial sector. As we know, insurance sectors deal with offering risk transfers, investment products to people as well as savings. When compared to other sectors, the insurance sector is more likely to be affected by cases of money laundering activities.
This has been so since this sector is believed to provide cleans returns on invested funds which are also considered reliable (Shanmugam, 2008). In 2005, FATF detailed out a number of money laundering cases connected to the insurance sector all over the world. Within a period of one year, there were more than 94 reported cases linked to the insurance and out of the 94 cases, almost 65 percent of these were associated with life insurance products whereas the other 30 per cent were associated with general insurance (Shanmugam, 2008).
On the other hand, the remaining 5 per cent of the fraud cases were associated with reinsurance schemes. Therefore, money laundering that takes part in the insurance sectors is directly linked to insurance fraud. Moreover, there are some activities that pose a threat to the insurance sector. They include; permanent life insurance and annuity contracts to name a few. These activities can pose serious threats to this sector since they tend to permit money launderers to interchange their illegal funds for an immediate income stream.
They also pose a threat since the money launderers can over-fund the policies and thus allocate them in and out of the policy at the rate of prior withdrawal penalties (Shanmugam, 2008).
Al Mulla, H. (2011). Combating Fraud and Money Laundering in the UAE, Article Review, Retrieved from http://www.inhouselawyer.co.uk/index.php/united-arab-emirates/8350-combating-fraud-and-money-laundering-in-the-uae
Shanmugam, H.T. (2008). "Exploitation of the insurance industry for money laundering: the Malaysian perspective", Journal of Money Laundering Control, Vol. 11, Iss. 2, 135 – 145
Zakiah M. K. A., (2012). "Investigation and prosecution of money laundering cases in Malaysia", Journal of Money Laundering Control, Vol. 15, Iss 4, pp. 421-429 http:// dx.doi.org/10.1108/13685201211266006