Captive Insurance

Captive insurance structures enable criminals to move funds in and out through inflated premiums, fabricated claims, and reinsurance arrangements across offshore jurisdictions. This effectively adds transaction complexity to obscure the illicit origin of proceeds.

Criminals exploit captive insurance as a specialized financial product by controlling both the insurer and the insured, funneling illicit proceeds through inflated premiums or fabricated claims. This self-contained structure inherently obscures the origin of funds and facilitates layering and integration steps, making the product's complexity the primary vulnerability.

These captive insurers are often established in offshore or lightly regulated jurisdictions, such as Bermuda or The Bahamas, where they exploit secrecy laws and weak AML enforcement to hinder oversight. The offshore location further obscures beneficial ownership and transactions, enhancing the technique's effectiveness.

• Rates countries and regions based on AML/CFT enforcement levels, revealing captive insurance entities registered in minimal-oversight or secrecy jurisdictions.
• Enables risk-based analysis of cross-border premium payments or claim settlements.

• Confirm legitimate insurance or risk management credentials for individuals controlling or operating the captive insurer.
• Highlight discrepancies between stated qualifications and actual professional affiliations, supporting suspicion of sham insurers.

• Review audited financials, tax returns, and reported revenue to validate the insurer’s legitimate business scale.
• Detect discrepancies or unusually rapid growth in assets, mismatched premiums versus claims, and large tax write-offs suggesting laundering via inflated premiums or bogus claims.

• Verify the physical presence, staff, and operational legitimacy of the captive insurer.
• Uncover external media or public records revealing nonexistent offices, fake claim events, or questionable business backgrounds of key personnel.

• Capture all premium payments to the captive insurer and subsequent claim or refund disbursements to help identify circular flows of funds tied to potential laundering.
• Reveal unusual payment patterns, such as inflated premiums or rapid and frequent claim paybacks, that exceed legitimate coverage or risk profiles.

• Store and organize insurance policies, claim documents, and supporting evidence.
• Facilitate the review of policy terms, risk coverage justification, and the validity of claim documentation, aiding in the detection of fabricated or inflated insurance claims.

• Reveal the end beneficiaries of claims disbursements or refunds, detecting funds diverted to unrelated parties with no legitimate insurance rationale.
• Provide insight into account balances, transaction patterns, and potential funneling of illicit proceeds through captive insurance accounts.

• Examine the captive insurer’s operational footprint, including workforce size, operational sites, and actual insurance coverage volumes.
• Compare basic operating metrics (policy count, claims ratio) to industry norms, detecting anomalies such as high premiums with negligible claims or fictitious risk coverage.

• Identify and verify beneficial owners, shareholders, and controllers of the captive insurer.
• Flag owners lacking relevant insurance expertise, high-risk profiles, or frequent changes in controlling parties, which may indicate possible shell structures or hidden ownership.

• Highlights fund movements originating from or destined for high-risk or offshore jurisdictions.
• Identifies questionable premium payments or claim disbursements linked to secrecy locations, aiding in the detection of disguised cross-border layering.

• Document legal incorporation details, layered ownership structures, and registration histories of the captive or associated reinsurance intermediaries.
• Reveal hidden shell or offshore entities used to obscure illicit fund flows.

Conduct targeted jurisdictional risk analyses for captive insurance operations in regions known for secrecy or minimal regulatory oversight. Assign higher risk ratings and impose additional monitoring or enhanced due diligence (EDD) protocols for these jurisdictions to address vulnerabilities such as inflated premiums or fictitious claims.

Apply specialized Enhanced Due Diligence (EDD) measures to captive insurers in high-risk or lightly regulated jurisdictions. Thoroughly verify beneficial owners, regulatory licensing, premium and claim histories, and ensure alignment with legitimate business operations. Identify inflated or fictitious claims and suspect layering structures designed to obscure the true origin of funds.

Establish specialized monitoring rules for captive insurance transactions to detect inflated premiums, suspiciously timed claims, and circular flows of funds that revert to the same beneficial owners. Focus on repeated high-value transactions, unusual claim frequencies, and layering activities involving reinsurance with shell entities.

Assess and continuously monitor the credibility and AML posture of third-party entities associated with captive insurers, such as reinsurance intermediaries or claims processors. Validate their operational presence, require contractually binding AML clauses, and perform regular reviews of business relationships to expose hidden ownership or shell arrangements.

Cross-check captive insurers, reinsurance partners, and parent companies with public registries, media sources, and industry databases to confirm their operations and legitimacy. Investigate the backgrounds of beneficial owners and verify claim events to uncover shell operations or fabricated coverage used to launder illicit proceeds.

Perform regular reviews of captive insurance entities by updating beneficial ownership data, verifying reinsurance arrangements, and scrutinizing claim histories. Investigate sudden changes in coverage terms, abrupt ownership transfers, or large claim spikes to detect layering or integration attempts within the captive.

• The captive insurer maintains one or more bank accounts, receiving incoming premium payments that often originate from illegitimate sources or exceed industry benchmarks.
• Funds are then dispersed in the form of claim payouts, refunds, or other insurance-related transactions, effectively layering illicit funds under the cover of normal insurance operations.
• The use of offshore or secrecy-friendly banks further obscures transactional trails, hindering financial transparency and AML monitoring.

• Criminals establish or control a captive insurer and issue policies to related parties, allowing illicit funds to enter as inflated premiums under the guise of standard insurance coverage.
• By controlling both sides of the transaction (insurer and insured), they can file fabricated or exaggerated claims, funneling funds back out as supposedly legitimate insurance payouts.
• This cycle of premium payments and claim settlements adds layering complexity, particularly when conducted through offshore jurisdictions, making the illicit origin of funds appear as genuine insurance activity.

• Criminals introduce shell reinsurers or bogus reinsurance deals to convolute the flow of funds, further distancing them from their illicit origins.
• This layering tactic involves multiple risk transfers and claim settlements, obscuring transaction trails and complicating AML investigations.

Captive insurance services are exploited by criminals who channel illicit funds through self-owned insurance companies. By inflating premiums or fabricating claims, they are able to mask the true origin of the funds and integrate them into the financial system. FIs find it challenging to detect such activities due to the legitimate appearance of these entities and the complexity of their ownership structures. Enhancing scrutiny on premium payments and claims, as well as understanding the ownership and control of captive entities, can help mitigate these risks.

• Criminals establish the captive insurer in lightly regulated or offshore jurisdictions, reducing regulatory scrutiny.
• Incorporation in secrecy-friendly locales obscures true beneficial ownership, facilitating inflated premium flows and suspicious claim payouts that are harder for authorities to detect.

Criminals form or exploit a self-owned insurance company (captive insurer) to:

• Inflate premiums or fabricate claims, creating complex layers of transactions that hinder AML scrutiny.
• Facilitate the final integration of illicit funds as seemingly legitimate insurance reimbursements.

Captive insurance managers establish or administer captive insurers that criminals use to:

• Funnel illicit proceeds through premium payments or fabricated claims in setups where criminal parties control both the insurer and the insured.
• Leverage offshore or lightly regulated jurisdictions, reducing transparency and complicating financial institutions’ oversight of premium payments or claim inflows.

By helping form self-contained insurance structures, they further mask ownership and obscure the origin of funds within otherwise legitimate insurance arrangements.

Illicit operators knowingly establish or control captive insurance entities to:

• Disguise illicit funds as premium payments, then orchestrate payouts or claim settlements.
• Obscure the true source of funds by portraying them as legitimate insurance proceeds, challenging financial institutions' ability to detect the underlying criminal activity.

Shell or front companies pose as reinsurers or intermediaries in captive insurance arrangements to:

• Funnel premiums and claims through multiple bogus transactions, adding complexity to the financial trail.
• Conceal the criminal origin of funds by introducing additional layers of offshore or lightly regulated entities.