Training Material PEP Year 1 - M2 (eModule)

PEP Year 1 – M2 (eModule)

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Part 2: PEP Year 1 M2 (eModule)


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The eModule will cover the following topic

Topic 1: Anti Money Laundering/ Counter Financing

of Terrorism

Topic 2: Code of Ethics and conduct

Topic 3: Replacement of Policies

Topic 4: Fraud Awareness and Agency Conduct


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After completing this module, participants will be able:

• To identify and list the importance of anti-money laundering (AML) and counter financing of terrorism (CFT), code of ethics and conduct (COE) , replacement of policies (ROP) and Fraud Awareness and agency conduct.

• To observe and follow the guidelines of AML/CFT, COE, ROP and Fraud Awareness and agency conduct.

• To appreciate the existence of AML/CFT, COE, ROP and Fraud Awareness and agency conduct in upholding the professionalism of Life Planning Advisor.


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AML/CFT Reading Material

Disclaimer

“This power-point presentation is purely a training tool for the internal agency training programmes of Great Eastern Life Assurance (Malaysia) Berhad. All or any part of the contents of this presentation shall not be used directly or indirectly for soliciting insurance business, policyholder services and/or facilitating any other form of communications with any external party whatsoever. This information is correct as at 29112010”

Topic 1:


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Understanding Anti Money Laundering

(AMLA)


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To create awareness amongst agents on anti-money

laundering (AML) and counter financing of terrorism (CFT) and

appreciate its importance

To understand the relevant regulations and laws governing

AML & CFT

COURSE OBJECTIVESCOURSE OBJECTIVES


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1. Definition

2. BNM Guidelines & Governing Regulations

3. AML/CFT Framework

4. Reporting Structure

5. Suspicious Cases - Modus Operandi

6. Other Developments On AML

7. Q&A

TODAYTODAY’’S OVERVIEWS OVERVIEW


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MONEY LAUNDERING DEFINED UNDER AMLA

Money laundering is the act of a person who:

a. Engages, directly or indirectly, in a transaction that involvesproceeds from any unlawful activity.

b. Acquires, receives, possesses, disguises, transfers, converts, exchanges, carries, disposes, uses, removes from or brings into Malaysia proceeds of any unlawful activity.

b. Conceals, disguises or impedes the establishment of the true nature, origin, location, movement, disposition, title of, rights with respect to, or ownership of, proceeds of any unlawful activity.


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WHAT IS MONEY LAUNDERING

Money laundering is the “whitewashing” of proceeds derived from illegal/unlawful activities or the processing of criminal proceeds to disguise their illegal origin.

This process enables the criminals to enjoy these profits without jeopardizing their source.

Vigilant – not expected to be

“willfully blind”


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WHAT IS SERIOUS OFFENCE

Serious offence = unlawful activity = illegal activity = predicate offence.

Define as activity which is related, directly or indirectly to� Offense specify in the 2nd Schedule of AMLA 2001, or� An attempt to commit any of those offences, or� Abetment of any of those offences.

Cover serious offences committed in Malaysia and offence committed in a foreign country which would also constitute a serious offence in Malaysia.

Currently there are 248 serious offences as set out in the 2nd schedule of AMLA.


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WHAT IS SERIOUS OFFENCE2nd Schedule of AMLA = An excerpt of offences from 36 Legislations:

1) Anti-Corruption Act,

2) BAFIA Act,

3) Betting Act,

4) Child Act,

5) Common Gaming House Act,

6) Companies Act,

7) Copyright Act,

8) Corrosive & Explosive Substances &

Offence Weapons Act,

9) Customs Act,

10) Dangerous Drugs Act,

11) Dangerous Drugs (Forfeiture of

Property) Act,

12) Development Financial Institutions

Act,

13) Explosive Act,

14) Firearms Act,

15) Futures Industry Act,

16) Insurance Act,

17) Internal Security Act,

18) Kidnapping Act,

19) Money Changing Act,

20) Optical Disc Act,

21) Penal Code,

22) Security Industry Act,

23) Takaful Act.

24) Labuan Offshore Securities Industry Act

25) Labuan Trust Companies Act

26) Islamic Banking Act

27) Offshore Banking Act

28) Payment Systems Act

29) Securities Commission Act

30) Offshore Insurance Act

31) Anti-Money Laundering Act

32) Trade Description Act

33) Malaysian Timber Industry Board

(Incorporation) Act

34) Moneylenders Act

35) Pawnbrokers Act

36) Income Tax Act 1976 (Act 53)


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Some examples of serious offences include :

� Corruption/ bribery.

� Smuggling offences.

� Trafficking in firearms/ drugs.

� Unlawful gambling, deposit taking or investment schemes.

� Robbery/ murder/ theft/ extortion/ kidnapping/ abduction.

� Infringement of copyright.

� Person living on or trading in prostitution.

� Criminal breach of trust (CBT)/ cheating/ forgery.

� Insider trading/ market manipulation.

� Carrying on banking/FI/merchant banking/discount house/ money-broking, insurance, insurance broking, adjusting business, Takaful business without valid license.



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Whilst you are not required to have extensive knowledge of serious offences listed in the 2nd schedule, you are required to have the knowledge that a reasonable person in your position would have about such offences.

You are expected to recognize the major offences that are likely to generate illegal proceeds, such as drug trafficking, theft, corruption etc.

However you are not expected to be sure that a serious offence has been committed or whether or not something is actually an unlawful activity for the purpose of AMLA.

It is sufficient that you suspect.


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MONEY LAUNDERERS

Typical Characteristics - Money Launderers are:

* Focused on Intent

* Innovative

* Rich

* Prepared to lose some money


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MONEY LAUNDERING PROCESS

Placement – the physical disposal of the initial proceeds, eg: Smuggle over borders, depositing into many bank accounts, payment of premiums (generous policies for self or related parties), purchasing of hefty investment linked policies or top ups for single premium policies

Layering (whitewashing) – series of conversions or creating complex layer to distant from the source to disguise the audit trial and provide anonymity, eg: borrowing against insurance policies, premature termination of policies and liquidating investment linked policies

Integration – returning the criminally derived wealth into legitimate funds, eg: funds reinvested into assets, real estate, stocks, business ventures


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HOW IS MONEY

LAUNDERED?

�� LAYERINGLAYERING

Conversion / movements to separate the illicit proceeds from thConversion / movements to separate the illicit proceeds from their sourceeir source

* To disguise audit trail* To disguise audit trail

* Provide an appearance of legitimacy* Provide an appearance of legitimacy

* Provide anonymity* Provide anonymity

�� PLACEMENT PLACEMENT

Introducing illegal profits into the Introducing illegal profits into the financial systemfinancial system

�� INTERGATION INTERGATION

After the Layering process, the After the Layering process, the

money are then reintroduced into the money are then reintroduced into the

financial / business system financial / business system -- for for

example: investments in business, example: investments in business,

purchase of assetspurchase of assets


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DEFINITION OF FINANCING OF TERRORISM

Financing of terrorism generally refers to carrying out of transaction involving funds that may or may not be owned by terrorists, or have been or intended to be used to assist the commission of terrorism

Financing of terrorism includes:

1) providing or collecting of property for carrying out an act of terrorism

2) providing services for terrorism purposes

3) arranging for retention or control of terrorist property or� dealing with terrorist property

In the financing of terrorism, the focus is on the determination or use of funds, which may have been derived from legitimate sources


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GOVERNING GUIDELINES

� Purpose : To ensure that insurance industry is not a weak linkin money laundering.

� Current Governing Guidelines on AML for insurance industry includes :

1) The Anti-Money Laundering Act (AMLA) 2001 - effective on January 15, 2002.

2) UPW/GP1 : Standard Guidelines on Anti Money Laundering and Counter Financing of Terrorism (AML/CFT) dated 3 November 2006 UPW/GP1[2] amended February 2009

3) UPW/GP1 [2]: Sectoral Guidelines 2 for Insurance and Takaful Industries dated 3 November 2006 amended February 2009

� Note: UPW/GP1 & UPW/GP1[2] – Issued in accordance with the AMLA 2001 and FATF’s 40 Recommendations & 9 Special Recommendations for Implementation wef 15/11/06


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GOVERNING GUIDELINES

� Previous Guidelines On AML By BNM Which Had Been Superceded By The Issuance Of The Standard & Sectoral Guidelines:

1) Guidelines on Anti-Money Laundering Measures for the Insurance Industry JPI/GPI 27 - issued on April 25, 2001

2) JPI 20/2004 – AMLA 2001 Verification Procedures – issued on August 21, 2004

� BNM is the Competent Authority appointed for the purpose of AMLA 2001 and Great Eastern is a Reporting Institution

� BNM established the National Co-ordination Committee - comprising of 12 other government agencies - to combat money laundering. They include the MACC, Inland Revenue Board, AG’s Chambers, Royal Malaysian Police, Security Commissions, SSM, LOFSA, Anti Narcotics , Ministry Of Finance, Ministry Of Foreign Affairs, Ministry of Home Affairs and Royal Malaysian Customs


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Reporting Institutions (RI) – 1st Schedule of AMLA

� Banks & FI, � Insurance, Financial Advisers� Takaful, � Islamic Banking, � Securities Industries, � Money Changers, � Offshore Financial Services� Offshore Securities Industries� Genting Casino� Licensed Gaming Outlets/Pool

Betting� Accountants� Lawyers� Company Secretaries� Notaries Public� Bank Pertanian Malaysia Berhad� Moneylender� Pawnbroker� Real Estate Agents, Valuers

� Racing Clubs/ Totalizators Agency� Trust Companies� Non-Bank Remittance Operators� Non-Bank Affiliated Issuers of

Designated Payment Instruments� Unit Trust Management Companies� Fund Management And Future Fund

Managers� Malaysia Buiding Society Berhad� Moneylenders in East Malaysia� Sabah Credit Corporation� Borneo Housing Mortgage Finance

Berhad� Leasing & Factoring Businesses� Eletronic Money Issuers� SME Bank� Dealers In Precious Metals/ Precious

Stones� Lembaga Tabung Haji


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PROVISIONS IN AMLA 2001

OFFENCE OF MONEY LAUNDERING

Section 4

States that any person who engages in or attempts to engage in, or abets the commission of money laundering, commits an offence and shall on conviction be liable to a fine not exceeding RM5 million or imprisonment for a term not exceeding 5 years or both.


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PROVISIONS IN AMLA 2001

OFFENCE OF MONEY LAUNDERING

Section 20 – Secrecy Obligation

The provision overrides any obligation as to secrecy or other restriction on the disclosure of information imposed by any written law or otherwise.

Section 24 – Protection Of Person Reporting

No civil, criminal or disciplinary proceedings shall be brought against a person who discloses or supplies any information unless it is done in bad faith.


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POWER TO SEIZE OF

PROPERTY, RECORD OR DOCUMENT

Section 38

An investigation officer may seize, take possession of and retain for such duration as he deems necessary, any property, record, report or document produced before him in the course of an examination.


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TIPPING OFFSection 35

a. Any person who knows or has reason to suspect that an investigating officer is acting or proposing to act, in connection with an investigation which is being, or is about to be, conducted under or for the purposes of this Act or any subsidiary legislation made under it and discloses to any other person information of any other matter which is likely to prejudice that investigation or proposed investigation; or

b. Any person who knows or has reason to suspect that a disclosure has been made to an investigation officer under this Act and discloses to any other person information or any other matter which is likely to prejudice any investigation which might be conducted following the disclosure.

Upon conviction, a person shall be liable to a fine not exceeding RM 1 million or to imprisonment not exceeding one year or both.


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FAILURE TO DELIVER

PROPERTY, RECORD, REPORT OR DOCUMENT

Section 37 (3)

A person who fails to deliver any property, record, report or document that is required by an investigating officer while exercising any of his powers under subsection 1 commits an offence and shall on conviction be liable to a fine not exceeding RM1 million or imprisonment for a term not exceeding 1 year or both and in he case of continuing offence, to a further fine but not exceeding RM1K for each day during which the offence continues after conviction.

Section 41- Arrest

Investigating officer may arrest without warrant a person whom he reasonably suspects to have committed or to be committing any offence under this Act.


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KEY PROVISIONS FOR

OFFENCES & PENALTY OF MONEY LAUNDERING

Section 22

Officer of a Reporting Institution shall take all reasonable steps to ensure compliance with AMLA. Fine ranges from ≤ RM100,000 or Jail term that ranges from ≤ 6 months or both for failure to comply with S22.

Section 86

If no penalty is expressly provided for the offence under AMLA, Fine ≤ RM250,000

Section 92

Further empowers BNM to compound in cases of continuing offence Compound ≤ 50% of the maximum fine amount


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BNM’s GUIDELINES

Minimum training requirement of Key Staff include :

� New employees

� Frontline staff (including agents)

� Administrative/operations supervisors, managers (including senior management) and Board of Directors

� Compliance officers


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AML FRAMEWORK

AS REQUIRED IN UPW/GP1 AND UPW/GP1[2]

� Customer Acceptance Policy

� Customer Due Diligence

� Record Keeping

� On-Going Monitoring

� Suspicious Transaction Reporting

� Combating The Financing Of Terrorism


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CUSTOMER ACCEPTANCE POLICY

Reporting Institution to develop policy and procedures to address the establishment of business relationship with the customer.

Internal policies and procedures, including customer due diligence, to address different risks posed by each type of customer.

Risk profiling - factors to consider:� the origin of the customers and location of business� background or profile of the customer� nature of the customer’s business� structure of ownership for a corporate customer� any other information suggesting that the customer is of higher risk

Continuously monitor the customers’ transaction activity pattern to ensure it is in line with the customer profile


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CUSTOMER DUE DILIGENCE

– IDENTIFICATION & VERIFICATION

Know Your Customer (KYC) PolicyDetermination true identity of prospect, to verify and be satisfied that : � Identity of customer is genuine � Insurance transaction to be undertaken is legitimate

Conduct Customer Due Diligence (CDD) When:Establishing a business relationship with the customer� Suspicion of money laundering or financing of terrorism� There are doubts about the reliability or adequacy of previously obtained

information

Unwillingness of customer to cooperate may itself be a factor of suspicion.

Great Eastern’s PolicyThe Company shall not underwrite unless sufficient identification evidence is provided.


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Generally verification should be performed at the point of sale and via face-to-face contact.

However the verification may be done at or before the time of benefits are paid out if the followings are met :

� Policies sold with premium not exceeding RM5k or RM10k for single premium (in aggregate per annum) - also applicable for policies sold via direct marketing, internet, call centre, direct mailing etc (non-face-to-face).

� Verification of Beneficiary.� Verification of individual members covered under group policies. (verification of the

group policy owner should be done at the point of sale).

Apart from the above, in certain special circumstances where the risks of money

laundering and financing of terrorism are low, delay verification is allowed whereby

CDD needs to be completed not later than 14 days after the business relationship has

been established. (Currently, only group insurance business has such practice of

delayed verification, not applicable to individual business)




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INDIVIDUAL CUSTOMERSObtain at least the following information:� Full name� NRIC/passport number� Permanent and mailing address

Substantiate by/ Verify Against :� NRIC for Malaysians/permanent residents� Passport for foreigners� Where there is doubt, produce other supporting identification documents

(with photograph) issued by an official authority

A copy of the verified documents should be retained by the insurer for insurance policy with premium> RM50k p.a. (Currently being reviewed to comply with Group AML Policy – retain all verified documents regardless of amount)

� Date and place of birth� Nationality




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CORPORATE CUSTOMERSUnderstand the ownership and control structure in order to detect any unusual

circumstances concerning the changes to the company/business structure or ownership

or the payment profile of its account

Furnish the following documents:� Memorandum/Article/Certificate of Incorporation/Partnership (certified true copies/duly

notarised copies, may be accepted)

� Identification document of Directors/Shareholders/Partners (certified true copies/duly notarised copies, may be accepted)

� Board of Directors’/Directors’ Resolution� Authorisation for any person to represent the company/business� Identification document of authorised person

However, item (1) & (2) are not required if the corporate customer is PLC, GLC, State-

owned companies or financial institutions under BAFIA, IA, TA, LOFSA and DFIA

Where there is doubt: � Conduct a basic search or enquiry on the background.� Verify with the Companies Commission of Malaysia.A copy of the verified documents should be retained by the insurer for insurance policy with premium> RM100k p.a. for group policy premium> RM50k p.a for individual policy (e.g. key man)



Group AML Policy – retain all

verified documents


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CLUBS, SOCIETIES AND CHARITIESFurnish the following documents:� relevant constituent documents (or other similar documents) � the identification of the office bearer� authorisation for any person to represent the club, society or charity

LEGAL ARRANGEMENTTake reasonable measures to:� Understand the relationship among the relevant parties � Obtain satisfactory evidence of its legal status the identity of the

relevant parties Require a written undertaking from the trustees or

nominee that identification documents of the beneficiaries have

been retained and be made available upon request

� The nature of their capacity and duties as trustee or nominee (in GELM, we generally do not deal with Power of Attorney)




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BENEFICIAL OWNERSHIP AND CONTROL� Conduct customer due diligence on the person who ultimately owns or

controls the customer’s transaction (individual or corporate customer) if there is any suspicions that the transaction is conducted on someone’s behalf.




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POLITICALLY EXPOSED PERSON (PEP)

� PEPs are foreign / domestic individuals being, or who have been, entrusted with prominent public functions. E.g. heads of state or government, senior politicians, senior government officials, judicial or military officials and senior executives of public organisations

� The concern placed in dealing with PEPs lies with the possibility of such PEPs abusing their public powers for their own illicit enrichment, especially in countries where corruption is widespread

� Agents are to inform/ disclose to the Company if the current or new customers are PEPs or related to PEPs in the proposal form/agent’s confidential report

� Company is required to take appropriate measures to establish the source of wealth and funds of such person

� Approval from SMT is required for case acceptance




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HIGHER RISK CUSTOMERSCompany is required to conduct enhance due diligence when dealings with higher risk customers.� Enhanced due diligence includes at least:

� Obtained more detailed information from customer and publicly available information on the purpose of transaction and source of funds.

� Approval from Head of NB is required for case acceptance.Example of Higher Risk Customers� High net worth individuals� Non-Resident customers, PEP� Customers from locations known for high rates of crime (e.g. drug producing,

trafficking, smuggling)� Countries/Jurisdictions with inadequate AML/CFT laws and regulations as

highlighted by FATF (e.g. NCCT countries).� Businesses/activities identified by FATF as of higher risk, e.g. remittance houses,

currency exchange houses, money transfer agents, casinos, Non-Profit

Organisations, precious metal/stone dealer, etc

� Cash based business and unregulated industries.� Legal arrangements that are complex (e.g. trust, nominee)




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RECORD KEEPING (Section 13 & 17)

� Records should be kept for a period of NOT LESS THAN 6 years from the date an account has been closed or transaction has been completed or terminated.

� Failing to comply, a fine not exceeding RM 1.0 mil or 1 year’s imprisonment would be imposed.

� Agents are encouraged to inform the Company to update the customer’s records when there are changes in their employment or nature of business.


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RECOGNISING & REPORTING

SUSPICIOUS TRANSACTIONS (Section 14 AMLA)

What is Suspicion?

� Subjective and there is no specific provision or definition in AMLA

� Mere speculation but falls short of actual proof or knowledge

� Built on some factual or objective foundation with a degree of satisfaction of suspicion, even if does not amount to belief

� Inconsistent with a customer’s known, legitimate business or personal activities or with the normal business for that type of customer

� The first key to recognition is knowing enough about the customer and his business/profession to recognize that a transaction or series of transaction is unusual

� With effect from 9/3/2007, Reporting Institutions is also required to report any ATTEMPTED transaction(s) that are suspicious (apart from reporting the completed transaction(s) that are suspicious)


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EXAMPLES OF SUSPICIOUS TRANSACTIONS

Suspicious Transaction? What to Look Out For……………..

Transactions That Do Not Make Economic SenseTransactions in which the nature, size or frequency appears

unusual.

Transactions which are incompatible with the customer’s normal activity

or beyond the customer’s financial means.

Transactions Involving Unusual receipts or payment of fundsTransactions whereby large or unusual premium payment in cash is

received from customer.

Transactions which funds are paid or received through unrelated third

party.


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Suspicious Transaction? What to Look Out For……………..

Free Look Provision & OthersFree look provision (15 days) of policy offers a readily available

route for laundering money

Use of Address – Using agent’s address instead of Customer’s own

address

Abnormal patterns of top-ups and withdrawals for investment linked

policies

EXAMPLES OF SUSPICIOUS TRANSACTIONS


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COMBATING THE FINANCING OF TERRORISM

Maintain a database of names and particulars of terrorist in the UN Consolidated List and Gazette Orders issued under section 66C of the AMLA.

Information contained in the database are to be updated and relevant, and made easily accessible to its employees.

Regularly checks on the names of new and existing customers against the names in the database.

If there is a match, take reasonable and appropriate measures to verify and confirm the identity of its customer.

Upon confirmation, immediately inform Bank Negara Malaysia and other relevant authorities and freeze or reject the customer’s transaction.

Part IVA – Suppression Of Terrorism Financing Offences And Freezing, Seizure & Forfeiture of Terrorist Property – Gazetted On 9/3/2007


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Freezing of Property Or Entities Listed On The UN Consolidated List

AGENCIES

7. Check 8. Match? 9. Inform (RSA)

9. No further

action

Regulatory &

Supervisory

Authority (RSA)

6. Circulate

Order

13. Unfreeze

Funds

10. RSA To

Verify Identity

* BNM

* Securities

Commission

12. Notify RI To

Unfreese

Immediately

11. Correct ?

13. Inform MOIS

(Name &

Amount)

12. Account

Remains

Frozen

Ministry Of

Internal Security

(MOIS)

4. Issue

Order

5. Forward

Order

14. Take Note

& Forward To

MOFA

Ministry Of

Foreign Affairs

(MOFA)

2. Received

List

3. Circulate

List

15. MOFA To

Forward

Details To UN

United Nation

Security Council

(UNSC)

1. Circulate

List

WORKFLOW

------------------------------------------------------------------------------------------------------------------------------

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------------------------------------------------------------------------------------------------------------------------------

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Relevant

Reporting

Institutions (RI)

* Labuan

Offshore

Financial

Services

Authority

Yes

Yes

No

No


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Anti-money laundering mechanism has extended to include :

� Reporting of suspected terrorism financing activities.

� Measures for the detection and prevention of terrorism financing.

� Freeze, seize and forfeiture of terrorist property.

LEGAL PROVISIONS TO ADDRESS

TERRORISM FINANCING OFFENCE


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AMLA INITIATIVES IN GREAT EASTERN

11 June 2002 BOD approved and adopted:

� AML Framework

� Corporate Statement

� Appointment of Compliance Officer

� Setting up of AML Committee and

� Reporting structure of Suspicious Transaction


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YOUR RESPONSIBILITY

All Agents, department officers and staff, in particular, the front line staff, should be alert and note any unusual proposal/transaction that is inconsistent with the client’s financial flow or transaction pattern.


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REPORTING SUSPICIOUS TRANSACTION TO

COMPLIANCE SECRETARIAT

BANK NEGARA MALAYSIA

Financial Intelligence Unit (FIU)

COMPLIANCE SECRETARIAT

KEY OPERATING DEPTS,

AGENTS & OTHER INTERMEDIARIES

Head Office or Branch Offices

via AML Form

Sent to:

Email : [email protected]

Fax: 03-4813 3798

Mail: Compliance Department, Level 7, Menara Great Eastern, No. 303, JalanAmpang, 50450 KL.


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SUSPICIOUS CASES – MODUS OPERANDI

� Request for refund to be paid to unrelated 3rd party.

� Change payment mode when requested to complete financial questionnaire.

� Use of funds from 3rdparty (seemingly related) for Investment

Linked top-up and subsequently early cancellation/withdrawal.

� Series of application of policy loans and repayments within a short time period.

� Unrealistic wealth compare with customer’s financial profile.

� Staggered policies surrender (with small amount of surrender value per policy, cumulatively, the surrender amount are huge) within several months, with reason not satisfied with agent's services, which could have been done in one occasion.

� Large sum of cash premium payment.


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PROSECUTED MONEY LAUNDERING CASES IN MALAYSIA

AMLA cases in Malaysia as at 25/6/08 (Source: BNM):

� 35 individuals has been brought to court for 876 charges under AMLA.

� 5 offenders were slapped with order for forfeiture of property without prosecution under Section 56(1) & Section 61 (2) of the AMLA.

Concluded cases as at 25/6/08 (Source: BNM):

� In 2005, a snatch thief pleaded guilty to 5 counts of money laundering charges. Sentenced to 3 years jail on each of the charges.

� In Jan 2007, a bank officer was convicted for CBT, forgery and money laundering. Sentenced to 13 years jail and fined RM19.3 million.

� In Aug 2007, an illegal bookies convicted of money laundering. Sentenced to 2 years jail and fined RM1 million.

� In Jan 2008, a politician was acquitted of 2 counts of money laundering charges against him for receiving proceed earned through illegal activities.

� In May 2008, an bank executive was found guilty of CBT, forgery and money laundering. Sentenced to to 11 years 6 months jail for money laundering, 15 years for CBT and 4 years 9 months for forgery and fined RM939,255.21.


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Recent Court Cases Reported In The Media:

� On 10/6/2008, a businessman was hauled to the Sessions Court to face 20 charges of money-laundering involving a total of RM1.69 million & 2 charges for violating the Banking and Financial Institutions Act 1989 (BAFIA) - accepting a deposit without license.

He was alleged to have:� transferred RM876,389.91 into his savings account at 3 different banks on 5

occasions; � spent RM200,000 to purchase shares on 2 days; � spent RM500,000 to purchase 2 life investment insurance policies; and � paid RM114,138.76 to settle a car loan for a Mercedes Benz.

� On 26/6//2008, a couple was charged at the Sessions Court to face 189 charges of money-laundering involving a total of RM170 million & 2 charges for violating the Banking and Financial Institutions Act 1989 (BAFIA) - accepting a deposit (RM222 million) without license.

They were alleged to have used the money gained from illegal means to purchase several houses, shop lots, a factory lot, vehicles, including luxury cars and getting exclusive distributorship rights for hydrogen fuel.



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Recent Court Cases Reported In The Media:

� On 12/8/2008, a company director was charged in the sessions court for 296 charges of money-laundering involving a total of RM57 million.

His co-partner was earlier charged on 23/6/08 for 94 counts of money-laundering involving a total of RM23.3 million. 3 days later, he was being charged a further 296 charges of money laundering in the same sessions court.

They were charged with transferring the proceeds of unlawful activities ranging between RM897 and RM2 million on each occasion from the company's bank accounts to those of security firms, companies and banks.

Both of them also claimed trial for violating the Banking and Financial Institutions Act 1989 (BAFIA) – illegal deposit taking of more than RM10 million.



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�Structuring life insurance transactions to launder proceeds of

corruption (Indonesia)

Insurance Company

Mrs. A’s Saving A/Cs

BBB Bank

CCC Bank

ZZZ Bank

Through multiple

intermediaries in various locations

Through multiple

intermediaries in various locations

Mr.A (Police) and Mrs. A’s Joint Saving A/Cs

JJJ Bank

Other partiesOther parties

Cash Deposits

Cash Withdrawals

Purchase IL policies

Placement

Layering

EXAMPLE OF MONEY LAUNDRER AT WORK


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� Structuring life insurance transactions to launder proceeds of corruption

(Indonesia)

� During various periods in 2005/2006 Mrs. A bought more than 20 investment-related life insurance policies with insurance premium value mostly of over USD40,000 each in cash, purchased using multiple intermediaries in different areas

� The life insurance company filed an STR in respect of the large cash transactions moving through the company accounts

� Transaction history showed that to pay for the policies Mrs. A used cash withdrawn from her savings account in BBB Bank, CCC Bank and ZZZ Bank and a joint account with her husband Mr. A in JJJ Bank

� The source of funds in the JJJ Bank account had been transferred in from several parties accounts during 2005 totaling about USD620,000 and from Mrs. A’s account in CCC Bank within 2005 for a total amount more than USD250,000

� There were also several amounts deposited in cash by others parties between 2005 estimated at over USD120,000. As Mr. A was a high ranking police officer the STR referral was submitted to law enforcement agency for action and identification of possible corruption and money laundering activities

(Source: APG Typologies Report)


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�Children of a government official investing in life insurance

(Indonesia):

Insurance Company

A’s Account

XXX BankFormer High Government Official

IL top-up

Integration

Layering

A’s Sister’s Account

XXX BankPurchase single premium IL policy and early surrender within

1 month

Children of

CV GOODCV GOOD

Set up a mining company

Purchase policy under company

Under investigation for corruption



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� Children of a government official investing in life insurance (Indonesia):

� From March – July 2004 there were several additional premium payments (top ups) to a life insurance policy for a total amount more than USD500,000 funded from a man’s account in XXX Bank Ltd.

� In June 2006 that person’s older sister bought a single premium of investment related life insurance product estimated USD200,000. She terminated this insurance policy by July 2006 due to urgently needed for funding a real estate investment. The life insurance company disclosed the early termination insurance policy to law enforcement agency.

� She then established and registered company named “CV GOOD” in September 2006 with capital of approx. USD50,000 to engage in the mining business, with herself assigned as owner/director.

� The woman then bought another life insurance policy in October 2006 with CV GOOD acting as policyholder.

� An exchange of information within the law enforcement agencies revealed that they were the children of a former high government official. The father was under investigation for corruption.




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�Purchased of Valuable Assets (Malaysia)

Mr. Y’s Bank A/CMultiple A/Cs

– including A/Cs

maintained by relatives

Multiple A/Cs – including A/Cs

maintained by relatives

Various sources – illegal gambling

operators, prostitution-related biz and illegitimate VCD-selling activities

Various sources – illegal gambling

operators, prostitution-related biz and illegitimate VCD-selling activities

Cash Deposits

Placement

Layering

Transfer

Investment Portfolios

Unit trust

IL policies

InvestmentFixed

Deposit A/C

Place with bank for credit

facilities

Place with bank for credit

facilities

Purchase assets with overdraft and term loans

In his or his family

Members’ names

Repaid loans within a short period of time

Integration



57

�Purchased of Valuable Assets (Malaysia)� Mr. Y, a senior government official, elicited corrupt money from various illegal businesses, such as illegal gambling operators, prostitution-related businesses and illegitimate VCD/CD-selling activities

� Mr. Y frequently received large amounts of cash deposits from various sources. The funds were deposited by third parties into his bank account

� The money was immediately transferred to multiple accounts maintained with various financial institutions, including to the accounts held by his immediate family members and friends

� It was then layered into other forms by acquiring local investment portfolios, unit trusts and multiple investment scheme insurance policies

� Some of the funds were also withdrawn to open fixed deposit accounts, which were in turn placed with commercial banks to secure credit facilities. These commercial banks granted him personal overdrafts and term loans or hire purchase facilities to part finance purchase of several properties and vehicles either in his or his family member’s names

� Mr. Y fully repaid most of his loans within a short period. The financial transactions carried out by Mr. Y did not fit his profile as a salaried government official. The financial intelligence gathered from the STR was disclosed to the relevant enforcement agency. To date, approximately RM4.0 million (US$1.1 million) has been seized



58

�Stock Manipulation And Use Of Nominees (Malaysia)

Mr. T – controlling shareholder of XYZ Co.

12 Investors –20 A/Cs with 8 SBCs

12 Investors –20 A/Cs with 8 SBCs

Placement

Layerin

g

Manipulate share price of XYZ Co. – from RM1 to RM6

XYZ Co.

Bank A/C of 12 investors

ABC BankProfit from market

manipulation

AAA Company

MMM Company

ZZZ Company

Members of Mr. T’s family

Members of Mr. T’s family

Owned by

Buying and selling of shares without change of change of BO



59

�Stock Manipulation And Use Of Nominees (Malaysia)� Mr. T, a controlling shareholder of a company listed on the Kuala Lumpur Stock Exchange (KLSE) used 12 investors as a front for him to manipulate stock.

� Between March and May 2002, the price of XYZ had increased significantly from a low of RM1.00 to a high of RM6.00.

� The group of 12 investors had traded heavily on XYZ shares via 20 accounts maintained at 8 different stock broking firms.

� Investigation revealed that 80% of the total volumes done for XYZ during the relevant period were carried out by these 12 investors with high instances of NCBO (no-change-in-beneficial-ownership) trades. (Note: NCBO: if a person, or a person’s associate, has an interest in the Product before the transaction and has an interest on the same Product after the transaction”)

� Proceeds of approximately RM50 million (USD14.5 million) were generated and deposited into the respective bank accounts of the 12 investors maintained at ABC Bank.

� In order to layer the illicit funds they were then immediately transferred to AAA Company before moving to MMM Company and finally to ZZZ Company (ZZZ later revealed to be owned by members of Mr. T’s family). The accounts of AAA, MMM and ZZZ were also maintained at the same ABC Bank and branch.




60

�Use Of Nominees For Bank Fraud (Malaysia)

Customers’fixed

deposits

Customers’fixed

deposits

Mr. Z – branch manager of local bank

Liquidate customers’ fixed

deposits

Placement # 2

Layering

5 customers’bank a/cs

5 customers’bank a/cs

Bank A/Cs

Mr. L

Mr. N

Mr. T

Transfer to

Transfer to

Other A/Cs in other banks

Other A/Cs in other banks

Withdrawn

Illegal gambling activities

Illegal gambling activities

Payments for his bets

Involved in

Placement #1



61

�Use Of Nominees For Bank Fraud (Malaysia)� Mr. Z was a branch manager of a local bank. He manipulates his position as a branch manager to commit criminal breach of trust by liquidating fixed deposit savings of his branch’s customers.

� Mr. Z liquidated approximately RM19 million (USD 5 million) over a period of three years.

� Mr. Z transferred the monies to five accounts belonging to five different customers at his branch. Subsequently, RM18million was transferred out of these five accounts to three other major accounts that belong to three different individuals, Mr. L, Mr. N and Mr. T.

� Investigations also revealed that Mr L, Mr. N and Mr. T were involved in illegal gambling activities (illegal 4 Digits betting). These three individuals claimed that all the monies transferred into their accounts by Mr. Z were payments from Mr. Z for his bets. However, investigation further revealed that the funds were transferred to other accounts in different banks and eventually withdrawn.

� These three individuals were later found to be collaborating with Mr. Z in his scam. Mr. Z was arrested and charged for criminal breach of trust while Mr. L, Mr. N and Mr. T were charged for committing money laundering under Section 4 (1) of the AMLA.




62

Computers and components

�Card Skimming And Cash Sales Of Goods (Malaysia)

Ms. A –Sales Rep in boutique

Placement

Customers’ Credit Card Info

Colleagues & Friends

Colleagues & Friends

Steal

Purchase via internet Sold to

Bank A/C

Payments for purchase – via cash deposit machine



63

�Card Skimming And Cash Sales Of Goods (Malaysia)� The suspect, Ms. A, worked as a Sales Representative in a boutique in Kuala Lumpur.

� She stole pertinent credit card information from customers who made purchases in the boutique, holders of gold and platinum credit cards.

� Ms. A recorded the credit card number, its expiry date as well as the 3 digits Card Verification Value (CVV) number listed behind the credit card.

� Using the credit card information, Ms. A purchased computers andcomputers components via the internet, impersonating as the actual credit card holders.

� The computers were subsequently sold at attractive prices to her fellow colleagues and friends. Those who purchased the computers from Ms. A were required to make the payment in cash into Ms A’s account via the cash deposit machine.




64

The Financial Action Task Force (FATF) (established in 1989) is an inter-

governmental body whose purpose is the development and promotion of policies,

both at national and international levels, to combat money laundering and

terrorist financing.

The Task Force is therefore a "policy-making body" which works to generate the

necessary political will to bring about national legislative and regulatory reforms

in these areas.

The FATF monitors members' progress in implementing necessary measures,

reviews money laundering and terrorist financing techniques and counter-

measures, and promotes the adoption and implementation of appropriate

measures globally. Currently has 34 country members.

AML WORLD BODY (FATF & APG)


65

� Malaysia is not a member of FATF but is a member of Asia Pacific Group (APG) on money laundering. APG plays similar role as FATF but at a regional level.

� FATF has established and revised 40 recommendations in 1996 for combating AML worldwide.

� It has further introduced 9 special recommendations in 2001 to address financing of terrorism activities following Sept 11 incident.

AML WORLD BODY (FATF & APG)


66

Briefly 40 Recommendations by FATF involve:

Legal Systems

Make money laundering an offence & confiscate proceeds of crime

Financial and Regulatory

Customer due diligence, record keeping, report suspicious transaction and supervision

Law Enforcement

Competent authorities, international cooperation, prosecution and extradition

FATF 40 RECOMMENDATIONS ON

ANTI MONEY LAUNDERING


67

Currently there is no country being listed as Non Cooperative Countries and Territories

Countries previously in the NCCT list include:Myanmar, Nigeria, Nauru, Philippine, Indonesia & Cook Islands

Myanmar being the last country to be delisted wef October 2006

NON COOPERATIVE COUNTRIES AND TERRITORIES

(NCCTs)


68

Following terrorists attacks on September 11, 2001, the world communities are increasingly concerned with the widespread of terrorism activities.

FATF has further introduced 9 special recommendations to address terrorism financing. The 9 special recommendations are:

1. Ratification and Implementation of UN resolution made in 1999 onsuppression of terrorism financing.

2. Criminalizing the financing of terrorism and associated money laundering.

3. Freezing and confiscating terrorist assets.

4. Reporting Suspicious transaction related to terrorism

FATF – 9 SPECIAL RECOMMENDATIONS ON SUPRESSION

OF TERRORISM FINANCING


69

5. International cooperation and exchange of information

6. Alternative Remittance – Countries should ensure that persons or legal entities that carry out such services illegally are subject to administrative, civil or criminal sanctions.

7. Wire Transfer – Banks are to ensure adequate info are available before executing.

8. Non profit organizations – Countries must ensure that such entities are not used for terrorist activities.

9. Cash Couriers – countries should put in place measures for the declaration of cash above a specified threshold when it is taken into or out of a country.

FATF – 9 SPECIAL RECOMMENDATIONS ON SUPRESSION

OF TERRORISM FINANCING


70

APG MUTUAL EVALUATION PROCESS

� Asia Pacific Group (APG) adopted the Mutual Evaluation Process to evaluate & monitor the progress made by its members in implementing the FATF 40 + 9 Recommendations on anti-money laundering (AML) & counter-financial terrorism (CFT) measures.

� Objective of mutual evaluation (Peer Review) is to assess:

(1) The standard benchmark for AML/CFT measures are met.

(2) Identify weaknesses.

(3) Make recommendations for improvement.

� Evaluation technique is based on detailed questionnaire and a subsequent on-site visit conducted by a team of at least 3 selected experts from the legal, financial and law enforcement fields of other APG members.

MALAYSIA’S 2ND MUTUAL EVALUATION


71

� The findings of the APG assessment team will be compiled in a Mutual Evaluation Report, which describes in detail the system in place and the effectiveness ratings plus the recommendations on areas which requires further progress/ improvement.

� The mutual evaluation reports remain confidential documents unless the Country being evaluated decides or agrees to release its own report. However, short summaries of the mutual evaluation report can be found in the APG Annual Report. (Effective 23/7/07, automatic publication of MER in APG Website)

� Major non-observance/ deficiencies in AML/CFT measures may cause the country being de-listed from the APG membership.



72

� Malaysia has undergone the 2nd Mutual Evaluation in February 2007.

� Evaluation team consist of 5 experts:

1) Legal expert from Australia – Ms Elizabeth Ryan, Senior Asst

Director, Commonwealth Director Of Public Prosecutions.

2) Financial expert from UK – Mr Richard Chalmers, Adviser,

International Strategy And Police Co-ordination, Financial Service

Authority.

3) Financial expert from NZ – Mr Peter Dench, Adviser, Financial

System Oversight, Financial Stability Department, Reserve Bank of

New Zealand.

4) Law enforcement expert from Indonesia – Mr Yusfidli Adhyaksana ,

Prosecutor, Attorney General’s Office

5) APG Secretariat – Mr. David Shanon, Executive Secretary (Australia)



73

� The experts had visited BNM, the NCC (SSM, LOFSA, Immigration, RMP etc) and several reporting institutions (Genting Casino, CIMB, HSBC, POS M’sia, Maybank Takaful, Takaful Ikhlas, Great Eastern, Money Changer, RHB Islamic Bank, Bank Simpanan, Bank Rakyat etc) to review the AML/CFT compliance programme in place.

� Review report on the country’s AML/CFT framework was published in the APG website on 20/8/07.



74

THE AML/CFT ASSESSMENT METHODOLOGY

There are 5 possible levels of compliance as follows:

Compliant (C): The Recommendation is fully observed with respect to all essential criteria.

Largely compliant (LC): There are only minor shortcomings, with a large majority of the essential criteria being fully met.

Partially compliant (PC): The country has taken some substantive action and complies with some of the essential criteria.

Non-compliant (NC): There are major shortcomings, with a large majority of the essential criteria not being met.

Not applicable (NA): A requirement or part of a requirement does not apply, due to the structural, legal or institutional features of a country e.g. a particular type of financial institution does not exist in that country.


75

The APG Mutual Evaluation On Malaysia

Malaysia has obtained a good ratings for the mutual evaluation (as BNM has benchmarked Australia) with the following results:

� 9 Compliant

� 24 Largely Compliant

� 15 Partially Compliant

� 1 Non-Compliant Non-compliance is in relation to the Special Recommendation 9 on cash courier - the assessors were of the view that the declaration imposed by M'sia for cross border cash courier is more for exchange control purposes rather than for AML.

Malaysia has obtained 67% (33 out of 49) compliant of 70% (Compliant & Largely Compliant) and above.

12

9

1514

24

28

13

15

2

10

1

4

0

5

10

15

20

25

30

Australia Malaysia United

States

No. Of Recommendations

Compliant

Largely Compliant

Partially Compliant

Non-Compliant

53% compliant

of 70% and above

67% compliant

of 70% and above

88% compliant

of 70% and above


76

HOW AML AFFECTS ME AS AN AGENT?

� Need to be more vigilant

� Know my customer well

� Report to Compliance Secretariat if any of my customers are suspected to be involved in money laundering activities


77

All rights reserved. No part of this publication may be produced ,translated, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying and recording without the prior written permission of the copyright the developer and owner.

End of Topic 1

AMLA/ CFT Reading Material


Code of Ethics and Conduct

Reading Material

Topic 2:


Statement of Philosophy

1. The Life Insurance Business is based n the philosophy of risk sharing. It is

ubiquitous that such business be operated and administered with the

highest degree of Integrity and Ethics.

2. It is a business based on trust and honesty, requiring high degree of

responsibility and professionalism.

3. The confidence of policy owners and members of the public in the integrity

and honesty of life insurers shall be safeguarded and enhanced.

4. Life Insurers shall at all times see that their business is soundly managed

to ensure the safety of policy owners’ savings and the credibility of their

companies.

5. Life insurers shall maintain a policy of efficient and prompt service to

policy owners and, to assist and advise them where necessary, with the

aim of promoting goodwill



Life Insurance Selling

• General sales principles

• Explanation of the contract

• Disclosure of underwriting information

• Accounts and financial aspects



Life Insurance Selling: General Sales Principles

The Agents SHALL:

i. Identify himself that he is an agents of Great Eastern Life Assurance (M) Berhad and produce his Registered Intermediary Authorisation Card.

ii. Policy Proposed is suitable to the needs of the prospect.

iii. Give advice only on matters in which he/she is competent to deal with.

iv. Treat all prospect’s information completely confidential.

v. When making comparison, make it clear the different characteristics of each policy/investment.

vi. Render continuous services to Policyholder.



Life Insurance Selling: General Sales Principles

The Agents SHALL NOT:

i. Make inaccurate or unfair criticisms of any insurers.

ii. Persuade prospect to cancel any existing policy.



Life Insurance Selling: Explanation of the Contract

The Agents SHALL:

i. Explain the essential provisions of the contract which he/she is recommending.

ii. Draw attention to any restrictions including exclusions.

iii. Draw attention to the consequent effects of early discontinuance and surrender.

iv. Draw attention to whether the policy qualify for tax relief.



Life Insurance Selling: Explanation of the Contract

The Agents SHALL:

• Where policy offers participating in profits, descriptions of the benefits shall distinguish between fixed and projected benefits.

• Where projected benefits are illustrated, it should be made clear that they are based on certain assumption. In the case of IL policies, it should be made clear that unit values may fluctuate up or down depending on the value of the underlying investments.

• Use ONLY the whole and latest Sales Illustration (GELSIS) supplied by Great Eastern Life Assurance (M) Berhad. He shall use the whole sales illustration when he is discussing with the prospect and shall not add to itor select only the most favorable aspects of it.



Life Insurance Selling: Disclosure of Underwriting Information

The Agents SHALL:

i. Ensure that the consequences of non disclosure and inaccuracies are pointed out to the proposer.

The Agents SHALL NOT:

i. Influence the proposer and make it clear that all the answers or statements are the client’s own responsibility.



Life Insurance Selling: Accounts and Financial Aspects

The Agents SHALL:

i. Acknowledge receipt and maintain a proper account of all the money received in connection with an insurance policy. Shall distinguish the premium from any other payment.

ii. Forward to the company without delay any moneys received.



87


End of Topic 2


Reading Material


Replacement of Life Insurance

Policies

Topic 3:

DISCLAIMER

This presentation is was prepared with much of the complex details simplified to ease your

understanding. Inevitably, some of the details describing the contents herein has been generalized or

simplified. Whilst every care and diligence been taken to ensure accuracy and comprehensiveness,

should there be any discrepancy between the contents herein and that of the agency contract, agency

rules & regulations and e-circulars issued the latter collectively shall prevail. For the avoidance of doubt

this proposal presentation has no legally binding force and shall not be deemed as an offer or invitation

to treat by any parties hereto or being presented the proposal presentation.


This session will cover the following:

• What is ROP & Frequently Asked Questions on

ROP?

• A flow chart of the ROP appeal process• Brief background and circulars issued on ROP

Replacement of Policies:


What is Replacement of policies (ROP)?

Any transaction involving the purchase of life insurance policy is construed as a replacement of policy if within 12 months before or after a new policy is effected, an existing life insurance policy has been replaced on the same life assured as per Category A or Category B.



What is meant by 12 months before a new policy is affected?

This is illustrated in the next slide….


PEP Year 1 – M2 (eModule)At New Business stage…

12 months backwardfrom registration date

Transactions on old policy with same Life AssuredCategory A:• Surrender/Full Withdrawal (ILP)

• Partial surrender (exclude ILP)

• Lapse, APL lapsedCategory B• Extended Tem Assurance (ETA)

• Reduced Paid Up (RPU)

• 1st APL raised with no repayment within 6 months

• Reduce premium

New Proposal RegistrationCONSIDERED AS ROP WHEN:


What is meant by 12 months after a new policy is affected?

This is illustrated in the next slide….


PEP Year 1 – M2 (eModule)At Customer Service…..

12 months backwardsfrom CS transaction date

New policy issued CONSIDERED AS ROP WHEN:

Transactions on old policy with same Life AssuredCategory A• Surrender/Full Withdrawal (ILP)

• Partial surrender (exclude ILP)

• Lapse, APL lapsed

Category B• Extended Tem Assurance (ETA)

• Reduced Paid Up (RPU)

• 1st APL raised with no repayment within 6 months

• Reduce premium


What happens when a Policy is identified as under ROPCategory A ?

Basic Commission and Overriding Commission will not be paid on the new policy when an existing policy is replaced under Category A.

NOTE:

1. As long as the ROP is classified as ROP Cat A, Basic Commission & OR will not be paid even if the RP Letter is signed and returned to NB / CS.

2. All Basic Commission & all OR will be not paid I.e the Agent will get zero commission and any paid will be clawed back



What happens when a Policy is identified as under ROP Category B ?

If the RP letter is not signed and returned:• At NB stage: the policy will not be made inforce• At CSD stage: the commission and OR paid will be clawed back and the agent will get zero commission and OR on all subsequent premiums received.

NOTE:

• For Category B ROP, All commissions & OR not paid previously will be paid back once the RP letter is signed and returned to CS.



What are the types of policies affected by ROP?

1. Traditional policies (Whole Life & Endowment)

2. Term policies (Regular Premium)

3. Investment Link policies (Regular Premium)Note: Please refer to our circular dated 19th October 2009 on ROP for Smart Invest Premier Insurance



What are the types of policies NOT affected by ROP?

• Single Premium Traditional Policies

• Single Premium Investment Link policies

• Medical policies (e.g Great Medicare)

Note: Medical policies are not affected by ROP when they replace a nonMedical policy.

However ROMP applies where a medical policy replaces another medical policy- pl refer to our circular dated 10th July 2009 Ref CAD/0742/JULY2009 titled” REPLACEMENT OF MEDICAL POLICIES (ROMP)



What is meant by same life assured?

Ans: The life assured must be the same for the main plan.

What will happen once a policy is identified as ROP?

Ans: A Replacement of policy (RP) letter will be issued by NB or CSwhere the policyholder is required to sign and return the letter within 14 days.

What will happen if the RP letter is not signed and returned to NB Dept?

Ans: The NB will not be made in force

Replacement of Policies: FAQ


What will happen if the RP letter is not returned to CS?

Ans: For category B:The commission and OR will be clawed back and no subsequent commission and OR will be paid on any further premiums received on the NB policy.NOTE: For category A: The commission & OR will be clawed back even if the RP letter is signed and returned.

What will happen if a policy holder who receives the RP letter opts for option 2 in the RP letter where he does not want to continue with the new policy but retain his existing policy?

Ans: Then GELM will consider allowing the policyholder to revive / reinstate the existing policy and will refund all premiums paid on the NB and claw back the respective commissions/OR/production etc on the new policy once the policy is revived / reinstated.



What will happen if the policyholder who receives the RP letter opts for option 3 in the RP letter where he is willing to reinstate the lapsed policy or is willing to refund back the surrender cheque plus interest to reinstate back his surrendered policy and also to retain his new policy.

Ans: The new business will be made inforce and the commission and OR will be held back until the existing policy is reinstated. When this occurs, the agent concerned has to inform Agency Admin to credit back the commission and OR.



If either the existing or the NB is a Keyman policy, will the NB be considered as a ROP?

Ans: No

Is policy loan considered as a replacement of policy transaction?

Ans: No

When an existing investment link policy is fully withdrawn, will the NB secured within 12 months be considered as ROP?

Ans: Yes



If the policyholder cancels the policy within the cooling-off period, and subsequently decides to buy the same policy again within 12 months, will the NB submitted be considered as a ROP?

Ans: No, the NB will not be considered as a ROP

When the installment premium paid is not reduced but the sum assured is reduced for an investment link policy, will a NB secured within 12 months be considered as a ROP?

Ans: No



What happens when a NB is submitted and an existing policy with another Insurer has a Category A or B transaction?

Ans: No action will be taken on the NB unless there is a complain from the other insurer /agent through LIAM.

What happens if a NB is submitted and an existing policy under OAC (Life Asia System) has a category A or B transaction?

Ans: The NB will fall under ROP and the respective RP letters will be sent out and action will be taken accordingly.



What will happen if an existing policy that has lapsed resulting in a NB on the same life to be penalised, is reinstated / revived?

Ans: The Agent for the New Policy must inform Agency Admin through their Business Development Staff and the full basic commission and OR clawed back will be paid and all monies clawed back will be paid back.

Can an agent submit a “consent letter” / RP letter” together with a new proposal?

Ans: This will only be accepted for replacements of external policies i.e. issued by other Insurers. All replacement of internal polices (i.e. polices issued by GE inclusive of OAC policies) must wait for our RP letter which will be issued together with our SQL.



How will an agent know that his NB has been identified as a ROP?

Ans:

At NB stage:The Agent for the NB will be given a copy of the SQL, & also a RP letter & an ROP Notification letter from Agency Administration Dept.

At CS stage: The agent will get a copy of the RP letter & an ROP Notification letter from Agency Administration Dept



How will the agent be given his copy of the RP letter?

Ans: The Agent’s copy of the RP letter will be sent to him through his GSM’s box in his respective Branch

How will the policyholder get their RP letter?

Ans: The policyholder’s RP letter will be posted to his last known address by CS and at NB stage, letter is passed through the agent

Will the Company accept it if the signed and returned copy of the RP letter is returned by the Agent?

Ans: Yes



Can an agent get a copy of the RP letter if the original copy has been misplaced?Ans: Yes, he can get a copy from his Branch.The Branch administrator can get it from EDMS as the copy of RP letter is not available in ePartner.

When will commission be affected if a new policy is identified as replaced?Ans: a) When the policy is replaced under Category A

b) When the policy is replaced under Category B but the RP letter sent out by CSD is not signed and returned to the Company.



How will the commission be penalised?

Ans: All basic commission and overriding commission paid on the new policy will be fully clawed back and no commission and OR will be paid on any subsequent premiums received on the policy.

However, the following will still be paid upon meeting the respective requirements:

– Production bonus

– PR bonus &

– Deferred benefit



Will premiums received on a policy identified as ROP and penalisedwith zero commission and OR be considered for maintenance, promotion, supremacy and AOM?

Ans: Yes

Can an Agent submit a request for exemption from being penalisedunder the BNM’s ROP under Category A ?

Ans: Yes

Is there a need to submit ROP Appeals for Category B ROP?

Ans: No as commission & OR will be credited back automatically oncethe RP letter is signed and returned to CS (Customer Service Dept at your Branch and CS informs Agency Admin.



ROP Appeal Flow Chart

PEP Year 1 – M2 (eModule)ROP Appeal process:

1. NEW BUSINESS DEPT / CUSTOMER SERVICE:

a) identifies proposal as ROPb) sends out Query (if at NB stage)c) sends our RP letters to Policyholder & cc agentd) At NB Dept: Upon receipt of signed RP letter, makes policy in force

and informs AAD for Category A cases only.e) At CSD:Sends Monthly report of all category A polices to agency

admin NOTE: CSD also informs AAD of category B cases where RP letter is not

returned

2. AGENCY ADMIN:

a) Zerorise basic commission for all such policiesb) Send ROP Notification letter to agents affected stating that:

� Their commission has been held back� The ROP might be exempted from ROP if the policyholder is

aware of the advantages & disadvantages of the ROP� Attach with the ROP Notification letter:

� ROP Exemption Application Form� ROP Comparison worksheet� Policyholder Justification Form

NOTE:If the Agent is convinced that the replacement is to the benefit of the policyholder, the Agent to …..

4. ROLE OF AGENT

Discusses the findings from the comparison worksheet with the policyholder and ensures the P/H understands the positive and negative features of the new and existing polices and gets the signed acknowledgement from the policyholder. Obtains contact details and time for interview.. Passes the signed comparison worksheet, ROP application form and the Justification Form to their respective BDMs who will pass them to Agency Admin

Continued next slide….

NOTE:

BDM / AAD to reject application with incomplete documents required

Moving forth, RP letter to be uploaded to

ePartnerePartner

PEP Year 1 – M2 (eModule)ROP Appeal process: ROP at NB

10. APPEAL COMMITTEE: for recommendation

11. CEO/Appointed Actuary: for decision

12. AGENCY ADMIN

�Replies to respective agents, advises RM/BDM of decision made�Takes action on all appeal policies not exempted and credits back all commissions on appeals approved and where commissions had been clawed back.

7. AGENCY ADMIN

Upon receipt of the signed comparison worksheet & other documents from the agents passes the worksheets to CSD:

8. CSD

Calls and interviews the policyholder and signs acknowledgement that the policyholder is aware of the advantages and disadvantages of ROP

9. AGENCY ADMIN

�Prepares worksheet.�Checks & verifies findings for presentation to Appeal committee

END

Continued

CS calls 3 times

Thereafter will inform agent to revert with contact details within 2 weeks. Appeal will be closed if no response.

STATUS

Latest by end of

3rd month

from Submission Date…


ROP Appeal Process:

ROP Appeal Forms

Policyhold

er Justific

ation

Policyhold

er Justific

ation

Comparis

on Works

heet

Comparis

on Works

heet

ROP Exem

ption App

s

ROP Exem

ption App

s

Note: To rejectreject application if submission of documents are not completed


Fraud Awareness & Agency Conduct

Reading Material

Topic 4:


116

To create awareness amongst agents on Company

Fraud Awareness Policy & Agency conduct and

appreciate its importance

COURSE OBJECTIVESCOURSE OBJECTIVES


Training Agenda

1. Definition of Fraud

2. Types of Fraud

3. Handling of Agency Fraud

4. Guidelines & Procedures governing Fraud investigation Process

5. Our Responsibilities

6. Common Agency Misconduct & its implications


What is Fraud?

An act or omission intended to gain dishonest

or unlawful advantage for the party committing

the fraud or for other related parties

.…From GELM Fraud Control Policy

Definition of FraudDefinition of Fraud


Types of Fraud

• Internal Fraud

• Intermediary/Agency Fraud

• Policyholder & Claims Fraud

• External Fraud

For the purpose of this policy, intermediary includes tied agents, financial advisory firms and insurance brokers (where applicable)

Types of FraudTypes of Fraud


Fraud allegations (commonly known as agency misconduct

cases) are investigated by an independent unit within

GELM –The Market Conduct Enforcement (MCE) unit.

The MCE unit (previously known as the Centralized

Investigation Unit (CIU) was set up in year 2003 and is now

part of the Risk Management & Compliance Department.

Handling of Agency Fraud Handling of Agency Fraud


Cases that are typically investigated by Market Conduct

Enforcement (MCE) unit originate from the following sources:

• Complaints from policyholders/agents/external parties• Feedback from policyholders via Replacement of Policy

confirmation• Feedback from policyholders via Claims application• Referral from line departments • Enquiry from authorities, e.g. BNM, LIAM

Note: Not all agent misconduct cases are investigated by MCE.



The following are the categories of major misconduct

(fraudulent in nature) that will be investigated by Market

Conduct Enforcement (MCE) unit :

• Misappropriation of premium• Forgery• Misrepresentation of facts• Others (e.g., misuse of Easipay Form, use of pre-signed form,

non-disclosure, use of unauthorized sales materials, professionalism & integrity)



The Company shall be entitled to automatically terminate this agreement by

giving 7 days’ notice in writing to the agent if the agent:-

20.1 – is in breach of any circular or directive issued by the Company pursuant to any government directive, regulation, rule or statute

20.2 – is in breach of any term or condition of this agreement and/or the prevailing agency rules and regulations

20.3 – by any act or omission including any breach of law brings discredit to the reputation and integrity of the company or is guilty of any conduct which in the opinion of the company is prejudicial to the company’s interest

Typical agency agreement clauses used in our investigation process

Continue on next page….

Guidelines & Procedures governing Fraud Guidelines & Procedures governing Fraud

investigation Processinvestigation Process


The Company shall be entitled to automatically terminate this agreement

by giving 7 days’ notice in writing to the agent if the agent:-

20.6 – misappropriates any money or payment in any form made in respect of premium or if he pays or offers to pay as an inducement or otherwise to any proposer for life insurance any rebate or any other form of payment is such rebate of payment is not specified in the policy or if the agent attempts to do any of the above mentioned acts

20.7 – makes a misrepresentation to any person for the purpose of inducing a policyholder of the company or any other insurance company to convert, lapse or surrender his policy or for any other purpose

Typical agency agreement clauses used in our investigation process

Guidelines & Procedures governing Fraud Guidelines & Procedures governing Fraud

investigation Processinvestigation Process


D

O

N

O

T

DO NOT share customers’ information with external parties.

DO NOT under any circumstances, forge signatures in

order to expedite the process.

DO NOT under any circumstances, use policyholder’s

cheque to pay for 3rd party or agent’s own policy.

DO NOT induce a policyholder to convert, lapse or

surrender his policy.

DO NOT use unauthorised sales materials.

DO NOT commit or abet in any fraud activities

Our Responsibility Our Responsibility –– Do or DonDo or Don’’tt


DO explain clearly to the customers on guaranteed and non-

guaranteed features of any insurance plan.

DO remit cash payment collected from the policyholder to

the company as soon as possible.

DO report any suspicions of fraud in accordance with the

reporting requirements

DO be vigilant to prevent and detect fraud

Our Responsibility Our Responsibility –– Do and DonDo and Don’’tt


127

Common Agency Misconduct

& its implications

PEP Year 1 – M2 (eModule)Misappropriation of PremiumMisappropriation of Premium

Examples1. Policyholder pays premium in cash to the agent but the cash

payment was not remitted to the Company.

2. Policyholder’s cheque was used to pay 3rd party or agent’s own policy.

What is Misappropriation of PremiumMisappropriation of Premium?In insurance context, misappropriation of premium is committed when a person dishonestly misappropriates money that has been entrusted to him, or converts to his own use that money in violation of that trust.


No of Cases Registered from January 2008 to December 2010

Misappropriation of Premium Misappropriation of Premium -- StatisticStatistic

45%142652009

45%2431102010

47%511240Total

51%126652008

%Total No. of ComplaintsNo. of cases receivedYear

Penalties imposed on agents upon completion of investigation.

90

26

37

27

No case

28

-

1

27

Pending

Investigation

240

65

65

110

No. of cases

received

87Total

392008

272009

212010

Terminated/

Warning

Year


Based on our experience, some of the common explanations given by our agents when the policyholder filed a complaint against them for not remitting their cash to the company to pay for the premium include the following:-

“I have paid on behalf of the policyholder, which is why when he issued the

cheque, I used it to pay for my other policyholder’s policy.”,

“I was busy or overlooked, forgot to remit the premium.”,

“I had used the policyholder’s premium as I was facing financial difficulty.

Will pay the money back to policyholder.”

Important Note: Any agent who misappropriates any money or

payment in any form made in respect of premium, is in breach of the

Agency Agreement, and if found guilty will be terminated even if the

policyholder withdraws the complaint.

Misappropriation of Premium Misappropriation of Premium –– Actual InstancesActual Instances

PEP Year 1 – M2 (eModule)Signature ForgerySignature Forgery

Examples1. Forging on a form or document pertaining to a life assured who

may be the proposer, an existing policyholder, a fictitious / bogus person, irrespective of whether consent was obtained from the proposer or the existing policyholder.

2. Forging on other documents such as application for policy loans,surrender discharge voucher, with or without the consent of the policyholder.

What is Signature ForgerySignature Forgery?A person who forge a policyholder’s or proposer’s signature with the intention of causing the Company to believe that the document was signed by the policyholder or proposer.



23%142332009

27%243662010

26%511133Total

26%126342008



49

9

11

29

No case

13

-

-

13

Pending

Investigation

133

34

33

66

No. of cases

received

59Total

252008

222009

122010

Terminated/

Warning

Year

Signature Forgery Signature Forgery -- StatisticStatistic


We received a complaint from a policyholder alleging that some one had

forged her signature on Surrender Discharge Voucher.

Our Company had received a request for surrender of policy and had proceeded to process the request. When the policyholder received the surrender value, she was dissatisfied with the amount and had claimed that she was entitled to full refund as policy was still under free look period. That was when she had discovered that her signature was forged on the Surrender Discharge Voucher.

Our investigation revealed that the surrender voucher was both signed and witnessed by the agent’s Immediate Officer (IO). The IO reverted claiming that his agent was new and both the agent and policyholder were not in town, the servicing agent had authorized the IO to proceed with the cancellation of the policy. To quicken the process, the IO had then forged the policyholder’s signature on the surrender voucher. The IO has misunderstood the refund and had submitted the request for surrender, not realizing that the request could be done under the Free Look period.

The consequence of the IO’s action had led to termination of his Agency

Agreement due to signature forgery, even though the IO had not benefited

money wise from his actions.

Signature Forgery Signature Forgery -- Actual InstancesActual Instances



17%142252009

12%243292010

13%51168Total

11%126142008



37

9

14

14

No case

5

-

-

5

Pending

Investigation

68

14

25

29

No. of cases

received

24Total

52008

112009

82010

Terminated/

Warning

Year

Misrepresentation of Facts Misrepresentation of Facts -- StatisticStatistic

PEP Year 1 – M2 (eModule)Misrepresentation of FactsMisrepresentation of Facts

Examples1. Telling policyholder that an investment-linked policy has

guaranteed returns with no risks.

2. Informing policyholder that Company will reimburse their claims before the Company assesses the claims.

What is Misrepresentation of FactsMisrepresentation of Facts?Providing false or misleading information or omits to provide material information during sales presentation, thereby inducing the prospect to take up the policy.


136


End of Topic 4

Fraud Awareness & Agency

Conduct


•–

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Product Helpdesk (Chung Moun Hor) : 03-4259 8672

Chan Chye Mun

03-4259 [email protected]

Franco Wong Wai Keong


Tutu Foong


Email: [email protected]

Training Material PEP Year 1 - M2 (eModule)

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