Money Laundering is moving illegally cash through financial systems so that it appears to be legally acquired.

There are three common stages of money laundering

Placement - the physical disposal of cash proceeds derived from illegal activity;

Layering –

separating illicit proceeds from their source by creating complex layers of financial transactions designed to disguise the source of money, subvert the audit trail and provide anonymity; and

Integration –

Making the impression of apparent legitimacy to criminally derived wealth.

AML Master Circular IRDA


Financial institutions such as Life Insurers are therefore placed with a statutory duty to make a disclosure to the authorized officer when knowing or suspecting that any property, in whole or in part, directly or indirectly, representing the proceeds of a predicated offence, or was or is intended to be used in that connection is passing through the Life Insurer.

The Prevention of Money Laundering Act (PMLA), 2002 (the Act) brought into force with effect from 1st July 2005, is applicable to all the financial institutions which include Life Insurers.

Such disclosures are protected by law, enabling the person with information to be able to disclose the same without any fear.

Life Insurers likewise need not fear breach of their duty of confidentiality owed to customers.

Establishment of anti money laundering programs by financial institutions is one of the central recommendations of the Financial Action Task Force and also forms part of the Insurance Core Principles of the International Association of Insurance Supervisors (IAIS).