MA Rule Number (8) Eight

The Company, LLC. (AAG)
Membership Agreement Rule No. 8

SUBJECT: Insurance Fraud

Fraud and Deception

Fraud is deception deliberately practiced in order to secure unfair or unlawful gain. It costs insures and consumers billions of dollars every year and is one of the most significant issues facing our industry. Because of this, the federal government and several states have enacted legislation designed to reduce insurance fraud. To aid in compliance with anti-fraud regulations, follow the guidelines listed below:

  1. Maintain appropriate licenses and appointments.
  2. Participate in periodic compliance training and continuing education.
  3. Misappropriating from an insurance entity.
  4. False entries in financial books of an insurance entity.
  5. Obstruction of justice in a proceeding before any insurance regulator.
  6. Promptly submit applications, premiums, claim forms, and policy changes to the appropriate office.
  7. Except where permitted by insurance company procedures, use original documents instead of faxes, email or photocopies.
  8. Instruct clients to make premium checks payable to the insurance company.
  9. Never give direct monetary or indirect “in-kind” rebates.
  10. Avoid inaccuracies or misrepresentations when helping a client complete an application or a claim form requesting benefits.
  11. Use only approved sales materials including illustrations.
  12. Respond in a timely manner to any requests received from The Company Compliance or Supervisory Department and/or State Insurance Department with any investigation or inquiry regarding a client complaint.
  13. Never “fill in” for a colleague so they can avoid licensing in a state.
  14. Federal legislation includes the insurance fraud sections of the Violent Crime Control and Law Enforcement Act of 1994 (18 U.S. Code, Sections 1033 and 1034). Section 1033 of the Act makes insurance fraud a federal crime and specifically prohibits:
    • Producers, agents, directors, employees, or officers of insures who have been convicted of any criminal felony involving dishonesty or breach of trust from participating in the insurance business.
    • Acts of this nature involve “some element of deceit, untruthfulness or falsification” and include bribery, cheating, embezzlement, forgery, misrepresentation, perjury, and theft.
    • An insurer from willfully hiring or contracting with a person convicted of a criminal felony involving dishonesty or breach of trust without written consent of an insurance regulator.
  15. That Section classifies the following as federal criminal felonies:
    • False financial reports to insurance regulators.
    • Willfully permitting certain criminals to participate in the insurance business.
  16. The statute requires that any person convicted of any criminal felony, as described above, obtain written consent from the State Insurance Commissioner before engaging or continuing to engage in the insurance business. The federal government is serious about enforcing anti-fraud regulations, and the penalties provided by section 1034 include:
    • Up to 15 years in prison for each violation.
    • Report suspected fraud by agents or clients to The Company.
    • Document transactions where appropriate
  17. Don’t willfully hire, contract, employ, or appoint persons in the business of insurance without following the procedures, guidelines, and applicable background investigation requirement.
  18. Never impersonate another individual Fines for each violation up to $50,000 or the amount of compensation received, whichever is greater.
  19. Injunction order(s) prohibiting a person from engaging in any illegal conduct.

Identifying Suspicious Activity

If you suspect criminal activity is occurring at or through The Company you should report it immediately to The Company Supervisory or Compliance Departments. To protect yourself and The Company, you should be alert to indicators that could provide circumstantial evidence that criminal activity is in the works and report those concerns to The Company Supervisory or Compliance Departments.

Potential Warning Signs of Fraud

It should be stressed that the presence of one or more of these indicators listed below does not mean that fraud has occurred, or will occur, but should be considered in determining if suspicious activity might be fraudulent in nature.

Life Insurance Fraud Indicators:

  • Policy’s effective date is close to date of death
  • Deceased is not well-known by relatives and lived alone
  • Policies requiring physical examinations are almost never used
  • Numerous life insurance policies were purchased for deceased
  • Different providers were used in securing coverage
  • Coverage amount is not commensurate with the stated employment/income of the deceased
  • Theft of premium or annuity payments
  • Twisting
  • Churning
  • Submission of unauthorized or fictitious policies
  • Fraudulent misrepresentation
  • Forging signatures on applications, amendments, and/or policy delivery receipts
  • Theft of policy values
  • Misrepresenting where application was signed

Application Fraud Indicators:

  • Unsolicited, new walk-in business not referred by existing policyholder
  • Client walks into agent’s office at noon or end of day when agent and staff may be rushed
  • Client neither works nor lives near the agent’s office
  • Client’s given address is inconsistent with stated employment/income
  • Client refuses to provide a telephone number
  • Client cannot provide driver’s license or other identification or has a temporary, recently issued, or out-of-state driver’s license
  • Client tries to pay premium in cash
  • Client suggests price is no object during application process
  • Client is unemployed or self-employed in transient occupation
  • Client asks in-depth questions regarding claims process
  • Client is unusually familiar with insurance terms or procedures
  • Changes to the client’s address, date of birth, tax ID number or health information are requested after the application has been submitted
  • Third party conducts the transactions on behalf of client for no apparent reason
  • Application is not signed with agent present

Anti-Bribery & Corruption Policy:

The Company’s policy requires agents to conduct all business in an honest and ethical manner. The Company takes a zero-tolerance approach to Bribery and Corruption and is committed to acting professionally, fairly and with integrity in all business dealings and relationships. If an agent suspects a member of The Company has violated an anti-corruption law or otherwise engaged in improper conduct in an effort to obtain business, s/he must immediately report such a suspected violation to the Supervision or Compliance Departments.


Agents may not promise, offer, give or authorize, directly or indirectly, a bribe or anything of value to anyone, including any government official, employee, representative of a government (including state-owned enterprises and/or state-controlled entities), private (non-government) officials, or employees of any business (collectively, a “Third Party”) to attempt to improperly influence any act or decision to obtain or retain the business.

Gifts & Entertainment

Agents are not prohibited from giving or receiving gifts or entertainment to and from a Third Party so long as it is reasonable and not frequent to raise ethical concerns. However, agents are prohibited from accepting a gift/entertainment or giving a gift/entertainment to a Third Party in the following situations:

  • It is made with the intention of influencing a Third Party to obtain or retain business, to gain a business advantage, or to reward the provision or retention of business or a business advantage, or in explicit or implicit exchange for favors or benefits.
  • It includes cash or a cash equivalent (such as gift certificates or vouchers).
  • It is of an inappropriate type and value and given at an inappropriate time (e.g. during the sales process).
  • It is given secretly and not openly.

Facilitation Payments & Kickbacks

Agents are also prohibited from making or accepting facilitation payments or kickbacks of any kind to a Third Party. It is not acceptable for an Agent to:

  • Give, promise to give, or offer, a payment, gift or entertainment with the expectation that a business advantage will be received, or to reward a business advantage already given.
  • Give, promise to give, or offer, a payment, gift or entertainment to a Third Party to ‘facilitate’ or expedite business.
  • Accept payment from a Third Party that you know, or suspect is offered with the expectation that it will obtain a business advantage for them.
  • Accept a gift or entertainment from a Third Party if you know or suspect that it is offered or provided with an expectation that a business advantage will be provided by the agent in return.

 Anti-Money Laundering and the USA PATRIOT Act

Congress enacted the USA PATRIOT Act, which strengthened the anti-money laundering laws, particularly in the areas of enhanced due diligence for crimes by foreign nationals and foreign financial institutions. In addition, the U.S. Treasury Department has adopted anti-money laundering (AML) program regulations and regulations for required reporting of suspicious activity for insurance companies. The regulations apply to insurance companies that offer “covered products,” which include a permanent life insurance policy other than a group life insurance policy, any annuity contract other than group, and any other insurance product with features of cash value or investment, which includes variable universal life insurance and variable annuities.

Money Laundering and Terrorist Financing Defined

Money laundering is the illegal conversion of criminal proceeds into seemingly legitimate funds or the use of legitimate earnings for illegal activity. Financial institutions are required to monitor accounts under the Bank Secrecy Act, the Money laundering Control Act of 1986, and the USA PATRIOT Act. Terrorist financing involves the use of money, which may be lawfully obtained, to fund illegal activities. Because the transactions often have a legitimate origin and can involve small amounts of money, terrorist financing can be more difficult to identify than money laundering activities.

Client Identification Program (CIP) or “Know Your Client”

AML regulations require that insurance companies obtain all relevant client-related information necessary for an effective program. It is important that all client information requested on the application or any supplemental form be obtained at the time of sale. NOTE: Agents who are also registered representatives should utilize INTERVEST INTERNATIONAL, INC.’s CIP procedures.

Red Flags

While it is impossible to list every potential situation that may be deemed suspicious, the activities can be generally thought of as falling into two categories—client information and client activity. You should be aware of suspicious activity and report this activity to the insurance company. Examples of suspicious activity include:

  • The client seems unusually concerned about providing, or seems reluctant to provide, personal financial information. The client is reluctant to provide routine information about identity, source of funds, business activities, and bank references that you would expect the client to provide.
  • Payments are made via multiple cash equivalents (i.e. money orders or cashier’s checks).
  • The client is from, or has accounts in, a country or territory identified as non-cooperative by the Financial Action Task Force, which is an international organization made up of several countries, including the United States, Committed to combating international money laundering.
  • The client is introduced by an overseas agent, affiliate, or other company that’s based in a country known for drug trafficking, terrorism, or money laundering.
  • The client provides information that turns out to be false or suspicious—for example, the client’s Social Security number or date of birth does not match that provided on other documents, the phone number provided by the client is disconnected, or the business address is for a vacant building or an office space that seems inconsistent with the description of the business.
  • The client is concerned about currency reprinting or client identification requirements.
  • The client withholds information necessary to complete required transaction reports
  • The client’s appearance or demeanor is suspiciously unusual, or the client is excessively nervous.
  • The client doesn’t seem to care about returns on an investment, but instead focuses on restrictions relating to withdrawal or cancellation.
  • The client is named in news reports, or rumors circulate that the client is engaged in illegal activities.
  • The client claims to be an agent (such as a lawyer or accountant) for someone else but does not reveal the identity of the principal or permit you to speak to him or her.

Awareness Alert

The Financial Action Task Force (FATF) and the Financial Crimes Enforcement network (FinCEN) have advised financial institutions and their agents, producers, distributors, and employees to scrutinize and be aware of possible suspicious activity for accounts domiciled in countries identified by the FATF as non-cooperative. The list of countries changes, but a current list can be obtained by visiting: or

AML and Know Your Client

Verification of identification is a section under the USA PATRIOT Act and requires that producers, agents’ distributors, and employees to “know your client.” At a minimum, be certain to request full identification of the client, his/her business entities, and his/her source of funds. Also determine if product requests are in line with his/her business entities and his/her source of funds.

Willful Blindness

‘Willful blindness” is a violation of the AML regulations. This means it’s against the law for you to “look the other way” if you know of, or reasonably should have known of, red flags indicating suspicious activity. As an agent, you have a legal duty to “know your client,” detect such suspicious activity and report it.

 The Company Anti-Money Laundering Requirement

The Company agents are required to complete Anti-Money Launder Training (AML), annually. If you don’t meet the annual requirement, you can be placed on an AML suspension and your commissions can be held. You can access some of The Company’s preferred education providers through the Continuing Education page on your The Company back office. The Company will accept any AML course offered through a third-party education provider as long as they are approved for your resident state’s continuing education. However, if you use ExamFX or a provider other than Kaplan, A.D. Banker, or Success CE you’re responsible for certifying your AML course through the Back-Office System. Certification.” Simply locate your certificate in the INTERVEST INTERNATIONAL, INC. Training Center under the “Reports” tab, print it out and sign and date it and make certain to include your code number on it. Then you can scan it into your computer as a PDF and upload it to your BACK-OFFICE SYSTEM.