Tuesday, May 23, 2023


The advent of effective AI platforms, with machine learning capability, has been a game-changer regarding the ability of compliance officers to uncover information heretofore unavailable to them, regarding unusual and complex money laundering typologies. One of these methods, which has been extremely difficult to expose, is laundering through the secondary market in life insurance, more commonly known as Life Settlements. having served as an outside compliance officer for companies in  this industry, I can personally confirm this dilemma, but AI programs, which can cut through the interference that always defeated compliance officers in the past, and identify the bad actors, are making a difference.

To explain this method, I am reprinting in full, below, my original 2019 article, for the benefit of those compliance officers unfamiliar with the subject.

Due to a question received, concerning our article discussing the recent decision of the New Jersey Supreme Court, holding that Life Settlements are void under state law, for lack of an Insurable Interest*, we will discuss how money launderers use that type of investment to clean the proceeds of crime.
Life Settlements are investments in high value life insurance policies of elderly insureds who generally have chronic health problems, and are selling policies they no longer need or can afford. The investors usually purchase a policy from a broker, at a substantial discount, and receive the payment, as beneficiaries, when the insured passes away, and the policy matures. They are responsible for paying the premiums during the remainder of the insured's lifetime, and companies handling the sale of life settlements to investors escrow sufficient funds to cover that expense, based upon the assessed life expectancy of the insured.

Since many insured pass away, due to illness, in advance of their estimated life expectancy, the profit can be substantial, and far above what are regarded as normal Returns on Investment. Many large German banks and American billionaires are known to have large numbers of life settlements, mainly in the multi-million dollar range. The highest return that I ever saw was 75%.

When US law enforcement boarded a drug-laden vessel in the Pacific Ocean, intercepted before it could reach the United States, they found evidence in the pilot house that the traffickers had purchased a substantial number of life settlements from a Colombia-based broker.

If you were wondering how dodgy individuals seeking to launder the proceeds of can collect from America's largest insurance companies, here how it is done. Most of the high value insurance policies are, for tax, financial planning, or privacy purposes, owned and held in the name of trusts and corporations, who are also the beneficiaries. Money launderers buying the policies for clients simply substitute themselves, or their customers, as beneficiaries of the trusts, or shareholders of the corporations owning the policies. There is no change of ownership of the policies themselves with the insurance companies. Nobody at the insurance company has reason to learn about the sale of the policies.

When the policies mature, the insurance companies pay out to the entity that owns the policies, not knowing that the ultimate beneficiaries are criminal elements, or their nominees. Given the fact that most banks trust that any life insurance benefits check they receive was issued to a beneficiary long ago vetted and approved by the insuror, they never question it. After all, would any insurance company make payment to a beneficiary if there was a question of any sort ?

Of course, the laundryman has already set up an account to receive the insurance proceeds payment. Given its legitimate origin, the money is now clean, and available to be invested in the legitimate economy. Bankers need to look closely at life insurance policy payments, for things are not always what they seem to be.

* New Jersey Supreme Court holds Life Settlements violate State Law

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.