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Combating money laundering

Matt Pais

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Advisors face increased compliance mandates to follow the money trail.
In a perfect world, you could take every client at their word. Every transaction involved in your practice, without any attention to detail, would be guaranteed to be spotless. It goes without saying that we do not live in that world.

Chee Hong Gan, ChFC, CLU an eight-year MDRT member from Singapore, saw government regulations change after the 2008 financial crisis.

Before, as unusual as it may seem today, he could take a client’s identity on faith; after, he needed a photocopy of the person’s ID to confirm their identity.

Moving forward, Gan, who focuses on comprehensive financial planning for executives and small- and medium-sized business owners, was required to know more about a client’s income statement and make declarations about policies over a certain amount to ensure that no money laundering was taking place.

As of the beginning of 2017, Gan now must ask about clients’ countries of tax residency and document if they are taxable in any other countries. Though this rule is new, Gan has already lost business: a client from overseas working in Singapore who believed he didn’t need to address his tax identification and didn’t see a reason for so much disclosure.

“If we are speaking to somebody who is not a citizen of Singapore, we are a bit more conscientious of that requirement now.”
—Chee Hong Gan

The lesson was to be extremely clear upfront about what information is required from clients. “If we are speaking to somebody who is not a citizen of Singapore, we are a bit more conscientious of that requirement now,” he said. “We will tell them during the discussion rather than leaving it to the very end.”

Gan noted that Singapore, one of 37 members of the Financial Action Task Force, is unique because of its role as a hub for money moving in and out in the region, yet these issues are not limited to that location. In 2010 the United States Congress created the Foreign Account Tax Compliance Act (FATCA) to monitor the foreign accounts of U.S. taxpayers.

Around the world similar regulations, particularly the Common Reporting Standard originated by the Organization for Economic Cooperation and Development and embraced by dozens of countries, have been instituted to establish financial transparency and fight money laundering and terrorism.

At the beginning of every calendar year, Sherry Lee Ong and her colleagues are required by her company to review the relevant anti-money laundering regulations. If the six-year MDRT member from Manila, Philippines, does not retake the exam, her commission will be put on hold.

“The question is how much of a detective does an advisor want to be to ensure they truly know the source of the funds?”
—Michael Bibb

“It is a very positive trend. Clients can buy with peace of mind, and we close business with peace of mind as well.” —Pu Chen

She said clients are aware of the Anti-Money Laundering Act of 2001 due to the 2016 incident in which hackers attempted to launder nearly $1 billion from Bangladesh’s primary bank account at the Federal Reserve Bank of New York through the Philippines and Sri Lanka. Like Gan, Ong must complete additional disclosures about transactions of a certain amount.

Based in Cebu City, Philippines, seven-year MDRT member Katrina Louise L. Yap noted the government’s emphasis on knowing where a client’s money comes from. Specializing in critical illness insurance and wealth accumulation for professionals and their families, she has declined some clients and rescinded some policies because of anti-money laundering regulations, which also result in longer underwriting timeframes and prevent some clients from pursuing policies.

“Many clients in the Philippines under-declare their income to avoid paying the correct taxes,” she said, adding, “We also have refused business from clients who have legitimate businesses due to them coming from sanctioned countries, even after documents have been provided. These policies are in place to make sure money going into the company comes from legitimate sources.”

Thousands of miles away in the United Kingdom, the problem is such that some believe money laundering has artificially inflated London housing prices. Jayne Elizabeth White, Dip PFS, Cert CII, a 12-year MDRT member from Cardiff, Wales, specializing in retirement and pre-retirement, makes sure clients understand the documentation they’re being asked for is standard procedure, not a personal request. That said, the insurance carrier does extra checks on clients with certain opportunity or influence, such as one who is a member of Parliament.

Michael Bibb, Dip PFS, BA, experiences similar levels of documentation and awareness. The four-year MDRT member from Warwick, England, works with business owners and high-net-worth individuals in the pre- and post-retirement market and uses a system that cross-references client information submitted with other available data about them. If any areas don’t match up, a report is generated for further investigation.

“An advisor must not only be mindful of the authenticity of the identification provided but also what the client hopes to achieve with their transaction,” he said. “Does it stack up? Does it make sense? Cash businesses are used a lot in the money laundering process, and tax evasion is also a form of money laundering.

“The question is how much of a detective does an advisor want to be to ensure they truly know the source of the funds? They have a choice of simply ticking a box that states savings or digging deeper, but are they willing to lose a client to get a clear audit trail?”

Politically exposed people and certain high-density, high-risk areas in the U.K. are flagged for in-depth due diligence, he said, and part of annual training involves videos identifying real-life situations to help advisors recognize the gravity of the anti-money-laundering efforts.

Fortunately, most members contacted had no interaction with any instances of suspected money laundering. They said that these regulations do not have a significant impact on their business and serve a clear purpose in their countries, even if the additional paperwork is tedious and has the potential to alienate some clients.

For Pu Chen, a four-year MDRT member from Shanghai, China, working with middle and high-net-worth clients, payment can only be received from the personal bank account of the policyholder, and the company will not accept a wire transfer from a third party. As in many other countries, large policies undergo additional review.

“It is a very positive trend,” she said. “Clients can buy with peace of mind, and we close business with peace of mind as well.”

Chee Hong Gan
Sherry Lee Ong
Katrina Louise L. Yap
Jayne Elizabeth White
Michael Bibb
Pu Chen
In Singapore, part of the way advisors are held accountable is through a balanced approach to remuneration, introduced in 2015. As it relates to anti-money laundering regulations, if an advisor fails to include certain required info on a policy, it would be considered a non-disclosure, resulting in an investigation about why that item was not declared and a lower rating on the advisor’s Balanced Scorecard.

Before the implementation of the scorecard, Gan said, advisors were paid only based on the business they generated, not the quality of the advice and fact-finding. Now, the company makes calls to clients to ask about their experience with their advisor and ensure the client’s input matches what was done and reported by the advisor. A low scorecard means part of the advisor’s payment is taken away.

If a client insists on not declaring a piece of information, Gan said, advisors can make a note to indicate that the client was asked and they declined.

“It doesn’t mean the end of the business,” he said. “You can still protect your interests and say this was done and the client still wants to proceed with the business.” At that point, the company will take over to request the necessary disclosures. If the client still believes it is not necessary even when receiving an official letter, business would likely have to stop.


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