Exploitation of the insurance
industry for money laundering:
the Malaysian perspective
Haemala Thanasegaran and Bala Shanmugam
Monash University Malaysia, Bandar Sunway, Malaysia
Abstract
Purpose – Owing to the vital role played by the insurance sector in the economic growth of a
country, the purpose of this paper is to highlight the serious threat posed by money laundering
activities in exploiting the insurance industry, from the Malaysian perspective.
Design/methodology/approach – Provides a description of the risks posed by money laundering
in the insurance sector, along with some useful case examples as illustration. Highlights the measures
developed and adopted to control money laundering in the Malaysian insurance sector, with some
thoughts on the importance of staying vigilant, as it is the only way in which to effectively counter the
menace of money laundering in the sector.
Findings – Research shows that two-thirds of the cases worldwide associated with money
laundering in the insurance sector, related to life insurance products, with general insurance
accounting for most of the remaining third of the cases reported. Apart from this, insurance
intermediaries like agents and brokers, who are an important direct distribution channel for the sector,
are easily subject to exploitation by money launderers.
Practical implications – The practical implication of this paper is to stress the importance of
detecting signs of money laundering activities, as early prevention is the best alternative for insurance
companies in countering money laundering in the industry.
Originality/value – The formal reporting measures put in place by the Anti-Money Laundering Act
2001 are a step in the right direction by the Malaysian Government. However, this paper serves as a
reminder that in spite of such measures, the insurance sector is particularly vulnerable to money
laundering activities, owing to the sector’s rapid growth in offering innovative and sophisticated
products and services worldwide. Thus, this paper makes for a useful read for practitioners,
academics, policymakers and students alike.
Keywords Money laundering, Insurance companies, Terrorism, Malaysia, Intermediaries
Paper type Research paper
1. Introduction
The insurance sector plays a crucial role in enhancing the economic growth of a
country. This sector plays an important role as both institutional investors and
providers of loans to various industries. Furthermore, insurance also affects the
aggregate consumption level in an economy. For example, to purchase a life insurance
policy, consumers have to forgo consumption of other products. So, decisions made by
households to choose life insurance will reduce the current consumption level, which
translates into an increase in the aggregate savings in a country. This will in turn be
channeled to productive investments and lead to better economic expansion. Despite
playing such an important role, it is unfortunate that this sector is not adept at
implementing protective measures against money laundering – a type of financial
crime in which money obtained through illegal proceeds is converted into legitimate
money.
The current issue and full text archive of this journal is available at
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Exploitation of
the insurance
industry
135
Journal of Money Laundering Control
Vol. 11 No. 2, 2008
pp. 135-145
q Emerald Group Publishing Limited
1368-5201
DOI 10.1108/13685200810867465