Anti-Money Laundering (AML) and Counter-Terrorist Financing

(CFT) Training Material for Insurance Companies in Ethiopia

Introduction

This training material is designed to provide employees of insurance companies

operating under Ethiopian jurisdiction with a comprehensive understanding of
Anti-Money Laundering (AML) and Counter-Terrorist Financing (CFT) regulations and
best practices. Money laundering and terrorist nancing are serious nancial crimes
that can have signi cant negative impacts on the integrity of the nancial system,
national security, and the economy. The insurance sector, like other parts of the
nancial system, can be vulnerable to these illicit activities. Therefore, it is crucial for
all employees to be aware of their responsibilities in preventing and detecting money
laundering and terrorist nancing.

This material will cover the relevant Ethiopian laws and regulations, international
standards, the risks associated with the insurance sector, and the procedures that
must be implemented to ensure compliance.

1. Understanding Money Laundering and Terrorist Financing

● Money Laundering (ML): The process by which criminals a empt to conceal the
true origin and ownership of the proceeds of their illegal activities, making them
appear legitimate.1
● Terrorist Financing (TF): The act of providing nancial support to terrorists or
terrorist organizations to enable them to carry out terrorist acts.[1,1 4, 5, 6] This
can involve funds from both legitimate and illegitimate sources.
● Why is AML/CFT important for Insurance Companies?
○ Protecting the Integrity of the Financial System: Insurance companies are
part of the nancial system and have a responsibility to ensure they are not
used for illicit purposes.1
○ Legal and Regulatory Obligations: Ethiopian law and regulations mandate
that insurance companies implement AML/CFT measures.7
○ Reputational Risk: Involvement in money laundering or terrorist nancing can
severely damage an insurance company's reputation and erode public trust.2
○ Financial Stability: Money laundering and terrorist nancing can destabilize
nancial markets and undermine economic development.1
○ Preventing Financial Crime: Implementing strong AML/CFT controls helps to
prevent and detect other nancial crimes, such as fraud.12
2. The Regulatory Framework in Ethiopia

The Ethiopian insurance industry is regulated by the National Bank of Ethiopia (NBE).13
The NBE issues directives and guidelines that insurance companies must adhere to,
including those related to AML/CFT.7
● Key Regulatory Bodies:
○ National Bank of Ethiopia (NBE): The primary regulatory authority for the
nancial sector, including insurance companies. The NBE sets the rules and
supervises compliance with AML/CFT requirements.7
○ Financial Intelligence Centre (FIC): The central national agency responsible
for receiving, analyzing, and disseminating information on suspected money
laundering and terrorist nancing activities.11 Insurance companies are
required to report suspicious transactions to the FIC.2
● Relevant Laws, Directives, and Guidelines:
○ Insurance Business Proclamation.18
○ National Bank of Ethiopia Directives on AML/CFT for nancial institutions.7
○ Insurance Business Risk Management Guidelines issued by the NBE.20 These
guidelines emphasize the importance of managing various risks, including
nancial crime.
○ Dra Insurance Risk-Based Capital Directive No. SIB/–/2025.27 This directive
focuses on capital adequacy and implicitly supports the need for robust risk
management, including AML/CFT.
○ Insurance Corporate Governance Directive No. SIB/ /2025.13 This directive
emphasizes ethical behavior and compliance with laws, including those
related to AML/CFT.
○ Other relevant directives and guidelines issued by the NBE periodically.
● International Standards: Ethiopia is a member of international bodies and is
expected to adhere to international standards on AML/CFT, primarily those set by
the Financial Action Task Force (FATF).1 The FATF Recommendations provide a
comprehensive framework of measures that countries should implement to
combat money laundering and terrorist nancing.[5,2 30]

3. Money Laundering and Terrorist Financing Risks in the Insurance Sector

The insurance sector can be exploited for money laundering and terrorist nancing
through various means 4:
● Purchase of Insurance Policies with Illicit Funds: Criminals may use the
proceeds of crime to purchase insurance policies, particularly those with
investment components or high cash values.6
● Layering of Funds through Multiple Transactions: Complex insurance
products or multiple transactions involving the same individuals or entities can be
used to obscure the origin of funds.2
● Early Surrender of Policies: Criminals may purchase policies and then surrender
them shortly a er to receive a "clean" payment.12
● Use of Intermediaries: Agents and brokers could be unwi ingly or knowingly
used to facilitate money laundering or terrorist nancing.2
● Claims Fraud: While primarily aimed at nancial gain, fraudulent claims can
sometimes be linked to money laundering activities.12
● Cross-Border Transactions: International insurance transactions can be more
complex and may present opportunities for illicit fund transfers.6

Red Flag Indicators:

Be vigilant for the following red ag indicators that may suggest money laundering or
terrorist nancing 2:
● Customer Behavior:
○ Reluctance to provide necessary information or providing false or misleading
information.12
○ Unusual anxiety or evasiveness during interactions.
○ Frequent changes of address or contact details.
○ Unexplained urgency regarding the purchase or payout of a policy.
○ Lack of concern about policy terms, conditions, or costs.
○ A empts to avoid providing identi cation or providing suspicious
identi cation documents.12
● Transaction Pa erns:
○ Large cash payments for premiums, especially if inconsistent with the
customer's known pro le.10
○ Frequent premium payments from unrelated third parties.10
○ Multiple small policies purchased to avoid reporting thresholds.12
○ Requests for payouts to unrelated third parties or in di erent currencies.12
○ Early surrender of policies with no apparent legitimate reason.12
○ Unusual transaction volumes or pa erns inconsistent with the customer's
pro le.
○ Transactions involving high-risk countries or jurisdictions.
● Policy and Product Related:
○ Purchase of policies with high cash values or investment components that do
not align with the customer's apparent needs.
○ Frequent loans taken against a policy and repaid quickly, especially with
 cash.4
○ Use of complex or unusual policy structures.
○ Requests to assign policy bene ts to unknown or unrelated individuals.
● Agent/Broker Conduct:
○ Unusual or suspicious behavior by an agent or broker.
○ Facilitating transactions that appear suspicious or outside the norm.

4. Key Elements of an AML/CFT Program for Insurance Companies

Insurance companies in Ethiopia are required to establish and maintain a robust

AML/CFT program. Key elements of such a program include 2:
● Risk Assessment: Conduct a thorough assessment of the money laundering and
terrorist nancing risks that the company is exposed to, considering factors such
as customer types, products o ered, distribution channels, and geographic
locations.6 This assessment should be regularly updated.
● Customer Due Diligence (CDD): Implement procedures to identify and verify the
identity of customers before establishing a business relationship or conducting
transactions.2 This includes:
○ Obtaining and verifying the customer's name, address, date of birth, and
other relevant identi cation information using reliable and independent
sources.
○ Identifying the bene cial owner(s) of the customer (the natural person(s) who
ultimately own or control the customer) and taking reasonable measures to
verify their identity.33
● Know Your Customer (KYC): Establish procedures to understand the nature and
purpose of the customer relationship and to gather information about the
customer's business and risk pro le.2
● Enhanced Due Diligence (EDD): Apply enhanced scrutiny to high-risk
customers, including Politically Exposed Persons (PEPs), their family members,
and close associates, as well as customers from high-risk jurisdictions or those
involved in high-risk activities.7
● Ongoing Monitoring: Continuously monitor customer relationships and
transactions to detect any unusual or suspicious activity that may indicate money
laundering or terrorist nancing.7 Transactions should be reviewed against the
customer's pro le and expected activity.
● Reporting Suspicious Transactions (STRs): Establish clear procedures for
employees to identify and report suspicious transactions to the designated
Compliance O cer, who will then report to the FIC.2 All reports should be made in
a timely manner and should include all relevant information.
● Record Keeping: Maintain adequate records of customer identi cation data,
account les, and transaction details for a speci ed period as required by
regulations.2
● Internal Controls: Implement robust internal controls, policies, and procedures to
prevent and detect money laundering and terrorist nancing activities.2 These
should be regularly reviewed and updated.
● Compliance O cer: Designate a senior-level employee as the Compliance
O cer who is responsible for overseeing the implementation and enforcement of
the AML/CFT program.2 The Compliance O cer should have su cient authority,
independence, and resources to carry out their responsibilities.
● Employee Training: Provide regular and comprehensive AML/CFT training to all
relevant employees to ensure they understand the risks, regulations, and the
company's policies and procedures.2 Training should be tailored to the speci c
roles and responsibilities of employees.
● Independent Audit: Conduct periodic independent audits of the AML/CFT
program to assess its e ectiveness and identify any weaknesses.7

5. Roles and Responsibilities of Insurance Company Personnel

All employees play a crucial role in ensuring the e ectiveness of the company's
AML/CFT program:
● Board of Directors: Responsible for overseeing the establishment and
implementation of the AML/CFT program and ensuring its adequacy.26
● Senior Management: Responsible for se ing the tone from the top, developing
and implementing AML/CFT policies and procedures, and ensuring adequate
resources are allocated.26
● Compliance O cer: Responsible for the day-to-day oversight of the AML/CFT
program, including monitoring compliance, handling suspicious transaction
reports, and liaising with regulatory authorities.2
● Insurance Agents and Brokers: Act as the rst line of defense in identifying
customers and detecting suspicious behavior. They must be trained on AML/CFT
requirements and report any concerns to the Compliance O cer.2
● All Employees: Responsible for understanding and adhering to the company's
AML/CFT policies and procedures, being vigilant for red ag indicators, and
reporting any suspicious activities they encounter.

6. Consequences of Non-Compliance

Failure to comply with AML/CFT regulations can have severe consequences for both
the insurance company and its employees 2:
● Financial Penalties: Signi cant nes and other monetary sanctions may be
imposed by regulatory authorities.
● Legal Sanctions: Criminal prosecution and imprisonment may result for
individuals involved in money laundering or terrorist nancing activities or for
failing to comply with regulations.
● Reputational Damage: Negative publicity and loss of customer trust can
severely impact the company's business and long-term viability.
● Regulatory Restrictions: The NBE may impose restrictions on the company's
operations or even revoke its license to operate.

7. Staying Up-to-Date

The landscape of money laundering and terrorist nancing is constantly evolving, and
regulations are updated accordingly. It is crucial for all employees to remain informed
about the latest trends, regulations, and best practices.10
● Participate in regular AML/CFT training sessions provided by the company.
● Stay informed about updates and circulars issued by the National Bank of Ethiopia
and the Financial Intelligence Centre.
● Be aware of international developments and guidance from organizations like the
FATF.
● Seek clari cation from the Compliance O cer on any aspects of AML/CFT
regulations or company policies that are unclear.

Conclusion

Preventing money laundering and terrorist nancing is a collective responsibility. By

understanding the risks, adhering to the regulations, and implementing the
procedures outlined in this training material, all employees of Berhan Insurance
Company can contribute to protecting the company, the nancial system, and the
nation from these serious nancial crimes. Vigilance, awareness, and a commitment to
compliance are essential in maintaining a safe and sound business environment.