The Client Who Wanted to Pay Cash
Broker Georgiev is arranging a single-premium unit-linked life policy for a new client, Mr. Ivanov, who is introduced by an existing client. The premium is EUR 28,000, to be paid in three cash instalments over two weeks, although the product normally accepts bank transfer only. Ivanov is a resident of Bulgaria but says the funds come from "a property sale in Dubai" and declines to provide the sale contract. He insists the policy be issued in his adult daughter's name as policyholder and beneficiary, while he pays. He also asks that correspondence go to a PO box. Georgiev's firm has a risk-based AML procedure and is a registered insurance intermediary.
1. Identify the AML/CFT red flags and explain why this arrangement triggers enhanced scrutiny rather than routine onboarding.
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Red flags present:
- Cash structuring - splitting EUR 28,000 into three cash payments to stay under thresholds and avoid the bank-transfer norm.
- Unusual payment method for a single-premium investment product.
- Unexplained source of funds - a foreign property sale with no documentary support.
- Third-party payer / mismatched parties - payer, policyholder and beneficiary are different people, a classic layering structure.
- Privacy-seeking behaviour - PO box correspondence.
- Introduction by an existing client can be a trust-building device, not a comfort factor.
Why enhanced, not routine: Each factor alone might be explainable; together they indicate possible placement or layering. Under a risk-based approach the intermediary must not simply apply standard measures. Cash above the applicable threshold for life insurance, combined with an opaque source of funds, requires enhanced customer due diligence, senior management sign-off, and consideration of a suspicious transaction report.
2. Set out, step by step, what Georgiev must do before any cover is issued, and what he must not do.
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Must do:
- Identify and verify the customer and, because the payer and beneficiary differ, the beneficial owner behind the arrangement.
- Establish source of funds and source of wealth with independent evidence (e.g. the sale contract, bank records).
- Apply enhanced due diligence and obtain senior management approval before proceeding.
- Document the risk assessment and every step taken.
- If suspicion remains after enquiries, file a suspicious transaction report with the competent authority and refrain from completing the transaction until instructed, where the law permits.
- Confirm the firm's policy on cash acceptance; many firms prohibit cash for investment-type premiums entirely.
Must not do:
- Tip off the client that a report has been or may be made.
- Split or accept the cash merely to keep the client.
- Rely on the introducing client's word as verification.
Outcome: Georgiev should decline the cash arrangement, require a bank transfer from a verified account, and escalate. This is a judgement call: the safe path is to slow down and document, not to accommodate.