When you go on holiday next year to France, you won't be buying bottles of Burgundy and Bordeaux with francs. Instead, you will be using euros. This is a shame because, with an exchange rate of ten francs to the pound, working out how quickly you're spending a week's wages is pretty easy – even for the less proficient mathematicians among us.
However, there is a much more sinister angle to the replacement of the franc and other EU currencies with the euro in January 2002. And it could have huge implications for the UK insurance industry.
It is predicted that drug dealers, smugglers and other criminals will embark on a money-laundering frenzy, using insurance as a way of cleaning cash.
Lloyd's is warning brokers and underwriters to keep a lookout for sharp practice. The market says one way in which criminals are attempting to launder cash is to take out a policy, pay a premium and then cancel the policy, demanding reimbursement. When the cash comes back to them, it is effectively clean. It is paid by the broker into a bank account and has a “legitimate” history.
Money laundering is not new and the insurance industry is not the first or only industry that has been used by these criminals. What is new is the growth in activity. Cap Gemini Ernst & Young warns that Third-World dictatorships are laundering money through the UK insurance market.
It can be difficult for brokers to establish whether they are dealing with criminals or not – the frontman will not be wearing a bandana and smoking a cigar through an unwashed beard. But new Financial Services Authority rules mean brokers will have greater responsibility for their actions in respect of money laundering.
This is not a comfortable position to be in. On one side, the frequency of money laundering is rising and, on the other, regulations are ready to pounce. As the poor sap in the middle, all a broker can be is vigilant – always check out new clients offering cash – and hopeful. Good luck.
