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New Money Laundering Rule Would Include Insurer Broker-Dealers

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New Money Laundering Rule Would Include Insurer Broker-Dealers



Under a proposed Treasury Department rule, limited service insurance company broker-dealers will be subject to suspicious transactions reporting requirements.

The proposed rule, which comes in the aftermath of the Sept. 11 terrorist attacks, would eliminate a current exemption from these reporting requirements applied to limited service broker-dealers.

In its notice of proposed rulemaking, Treasury notes that limited service broker-dealers–those which exist solely to sell variable annuity contracts issued by life insurers–have been exempted from the suspicious transactions reporting requirements of the Bank Secrecy Act (BSA) since 1972.

However, Treasury says, following Sept. 11, Congress passed the USA Patriot Act, which requires Treasury to propose new rules on b-d reporting requirements.

Treasury says it anticipates that in the final rule, the exemption will be withdrawn.

“Once the exemption is withdrawn, persons required to register as broker-dealers in order to offer and sell variable annuity contracts issued by life insurance companies will be required to comply with all applicable BSA requirements,” Treasury says.

Carl Wilkerson, chief counsel for securities with the American Council of Life Insurers, says ACLI takes the responsibilities contained in the proposed rules seriously.

He says ACLI will have to devote a lot of attention to it.

ACLI is examining the proposal to determine whether to file comments with Treasury, he says.

Wilkerson adds that there has been no suggestion or evidence to ACLIs knowledge that limited purpose broker-dealers have been a source of alleged money laundering.

David Winston, vice president of government affairs with the National Association of Insurance and Financial Advisors, says NAIFA supported the spirit of the USA Patriot Act when it was introduced.

“We feel the law is necessary,” he says, adding NAIFA is also examining the proposed rules to determine whether to file comments.

Comments must be submitted to Treasury by March, 1, 2002. Under the act, Treasury must issue a final rule by July 2, 2002.

Specifically, the rule requires broker-dealers to report two categories of suspicious transactions involving at least $5,000 in assets.

The first category involves any known or suspected federal criminal violation committed or attempted against, or through, a b-d.

The second category involves one of three classes of transactions in which the broker-dealer “knows, suspects or has reason to suspect” require reporting.

The first class under the second category includes transactions involving funds derived from illegal activity or intended in order to hide or disguise funds derived from illegal activity.

The second class involves transactions structured to evade BSA requirements.

The third class involves transactions that appear to serve no business or lawful purpose.

Treasury says the “knows, suspects or has reason to suspect” standard incorporates a due diligence concept.

The proposed rule notes that the act provides liability protection for those reporting suspicious transactions.

In addition to the reporting requirements, the rule notes broker-dealers will have to develop and implement programs designed to guard against money laundering.

The particular contents and size of a program can vary to reflect the size and nature of a particular broker-dealers operations, the rule says.

However, the program involves a risk-based approach, it adds, that can be “reasonably expected” to promote detection and reporting of suspicious activity.

“A compliance program that captures for review only those transactions that are above a threshold set at a mechanically high level, regardless of the money laundering or other risks such transactions may involve, and regardless of the money laundering or other risks that transactions at a lower dollar level may involve, would likely not be a satisfactory program,” the rule says.

Reproduced from National Underwriter Life & Health/Financial Services Edition, January 14, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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