Suspicious Activity Reports filed by Institutions Using the Depository Institution Form

Research of depository institution SAR (Form TD F 90-22.47) narratives that included the designated search terms retrieved 8,166 reports filed by 1,045 filers. The filers comprised depository institutions, securities and futures industries, money services businesses, and insurance companies.

Exhibit 1 depicts the number of depository institution SARs originating from the top ten filing states (based on overall SAR volume) that reported suspected money laundering and other financial crimes involving insurance companies or covered insurance products.

Exhibit 1

Depository Institution SAR Narrative Sampling

FinCEN analysts reviewed a sample of 944 depository institution SAR narratives for discernable trends and patterns. This report summarizes SARs that identified a number of suspicious transactions involving persons employed in the insurance field; insurance agencies and brokers; annuities; payments from or to insurance companies; and other possible money laundering and fraudulent activities.

Filers reported suspicious activities involving subjects employed in the insurance field in 254 (26.91%) of the sampled reports. In every case, the activity occurred in the subject?s personal account. Examples of the reported activity follow:

Structuring. Filers most frequently reported subjects structuring cash transactions (deposits and withdrawals).
Unknown source of funds.Filers reported they were unable to verify the source of large cash amounts or negotiable instruments deposited into, or wire transfers credited to, the subjects? personal accounts. Narratives frequently described these transactions as inconsistent with the subjects? normal or expected account activity.
Money laundering. Filers reported activities that could indicate the layering stage in a money laundering scheme, i.e., funds transferred among several institutions with no apparent legitimate purpose; funds deposited in the United States being withdrawn through ATMs in a foreign jurisdiction; and funds transferred through several U.S. banks and then wired offshore.

Filers reported that suspicious activity involved accounts of insurance agencies or insurance brokers in 218 (23.09%) reports. The transactions appeared to be conducted to avoid Bank Secrecy Act (BSA) reporting requirements. Some examples follow:

Cash deposit and withdrawal structuring. This activity was reported in 159 reports. The reports involved cash transactions, aggregating to $15,972,025, used to purchase insurance products. Some filers reported that the insurance agency/broker served clients who did not have bank accounts and paid premiums in cash. None of the 159 SARs disclosed the types of insurance products purchased; it is unknown if the products involved would have been ?covered products? pursuant to the rule.
Transactions inconsistent with business type. Filers reported transactions that were inconsistent with the types expected in an insurance agency, such as deposits of funds for which the companies were unable to discern the source or purpose; unusually large cash deposits; operating a loan service; and wire transfers with no apparent business purpose.
Unregistered money services business. Filers reported that account transactions caused them to suspect that insurance agencies were operating check cashing services. The filers noted that the businesses were not registered with FinCEN as money services businesses to operate check-cashing services.
Money laundering. Filers reported wire transfers to foreign jurisdictions with no apparent business purpose. One filer reported that its customer was a subject of news reports of insurance agencies used in money laundering schemes.
Unknown source of funds. A depository institution reported that affiliated insurance agencies were depositing approximately $1 million in cash each month. The source of funds was unverifiable.

Suspicious transactions involved insurance annuities in 48 (5%) of the sampled narratives. Filers characterized all of the suspicious activity in these reports as BSA/Structuring/Money Laundering.

Unknown source of funds. Filers reported unknown or unverifiable sources of funds, such as cash, official checks, or sequential money orders, used to fund annuity purchases.
Structuring.Filers reported structured withdrawals of funds following deposits of annuity checks. This type of activity could indicate an effort to avoid BSA reporting requirements.
Rapid Fund Withdrawal.Filers reported rapid withdrawals of funds shortly after deposits of large insurance checks. The filers deemed this activity suspicious because the purpose of the large fund withdrawals could not be determined.
Free look period.11Two filers reported the cancellation of annuity products and requests for refunds within the free look period. Although this activity may be a legitimate exercise of consumer rights, it also could represent a money laundering method, particularly if accompanied by other indicia of suspicion.
Investment fraud. One filer reported a client?s pattern of closing accounts with one known insurance company and reopening new accounts shortly afterwards with the same company, each time with new ownership information.
Money laundering. Filers reported activities they believed could represent money laundering involving annuities such as: a non-resident alien attempted to purchase a multi-million dollar, single premium, immediate annuity product with a monthly payout of over $10,000; a report of an indictment for money laundering involving some annuity accounts; and a report of the circular movement of cash between a subject?s personal and business accounts and an annuity account opened with another institution.

Suspicious activity involved deposits of checks issued from insurance companies or checks used as payments to insurance companies in 192 (20.34%) reports.

Structuring. Subjects structured cash withdrawals after deposits of checks drawn by insurance companies. This could represent an effort to avoid the BSA reporting requirements.
Funding insurance policies with cash. Filers reported that insurance premiums were funded with cash or negotiable instruments such as money orders or official checks. This could represent a money laundering method.

Other types of reported activities included:

Viatical settlements. Four filers reported suspicious activities involving viatical settlements. In a viatical settlement, a person purchases the life insurance policy (or part of a policy) from the seller (often someone with a terminal or chronic illness) at a price that is less than the death benefit of the policy. The purchaser becomes the new owner or beneficiary of the life insurance policy, pays all future premiums, and collects the death benefit when the seller dies. Viatical settlements are legitimate investment products that can be abused to commit fraud against the insurance company and legitimate investors, as well as for money laundering. One subject guaranteed investment returns up to 80%. Another filer reported that the policy beneficiaries were primarily located in a foreign jurisdiction.
Advance fee fraud. Between May 2002 and March 2004, two insurance companies filed 30 reports regarding e-mails requesting assistance in moving large sums of money. The insurance companies recognized that these e-mails were likely advance fee fraud12 schemes and did not respond to the emails.
Insurance loans. A credit union reported a pattern of structured cash withdrawals and repayments involving a loan on an insurance policy. The subject withdrew just under $10,000 from the policy, replaced the funds within a few days, and then repeated the process a few days later.
Insurance fraud. A depository institution reported applications for life insurance policies by three individuals from a foreign jurisdiction. The filer suspected something was wrong because the individuals obtained identification and opened bank accounts on the same dates that they submitted the insurance applications. The subjects were upset that the policies would not be issued on the day of the application.
Terrorist financing. A depository institution reported an incident it believed could be terrorism related. A foreign national applied for a life insurance policy. During the application process, the subject asked if the policy would pay if the insured committed suicide.
Money laundering. A depository institution suspected that cash deposited to a customer?s account originated from illegal drug sales proceeds. Funds from five debits from the customer?s account, totaling over $250,000, were sent to an insurance company.
Pre-Paid insurance policies. Insurance filers reported possible methods of money laundering using pre-paid insurance policies. One report described the deposit of over $10,000 into a pre-paid insurance policy. The policy owner then requested a loan against that policy in an amount under $10,000. Another report described multiple subjects paying advance insurance premiums and then requesting refunds of the pre-paid amounts. A third report described a subject who sent 21 checks from different businesses (all with the same address) totaling over $40,000 to pre-pay premiums on his life insurance policy. The annual premium was over $10,000.

11 Variable annuity contracts typically have a ?free look? period of ten or more days during which a purchaser may terminate his contract and receive a refund without paying surrender charges. The amount of the refund may be the account value when the contract is terminated or the purchase price, depending on the terms of the contract and applicable state law.

12 In the ?Advance Fee Fraud? or 4-1-9 schemes, victims may receive emails and letters from groups of con artists, often located in Nigeria, who claim to have access to a very large sum of money and want to use the victim?s bank account to transfer the funds. In exchange for the victim?s services, they claim they will give the recipient of the email/letter a large percentage of the funds. These schemes have a common denominator - eventually the target of the scheme will be required to pay up-front (advance) fees (licensing fees, taxes, attorney fees, transaction fees, bribes, etc.) to receive the percentage of funds promised. The con artists usually request that they be furnished with blank company letterhead and/or bank account information.

Excerpted from SAR Activity Review Issue 11, page 14