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Agents To Meet With Treasury About New Anti-Money-Laundering Rules

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Agents To Meet With Treasury About New Anti-Money-Laundering Rules



Insurance agent groups will be meeting with Treasury Department officials to determine the extent to which agents and brokers may have to comply with new anti-money-laundering rules established in the aftermath of the Sept. 11 terrorist attack.

The issue arises from the USA Patriot Act, which was enacted by Congress following Sept. 11 as a way of better tracking the assets of terrorist groups.

Section 352 of the USA Patriot Act requires all financial institutions to develop anti-money-laundering procedures.

David Winston, vice president of federal affairs for the National Association of Insurance and Financial Advisors, notes that an exemption from the anti-money-laundering provisions of the Bank Secrecy Act exists for agents who sell variable products.

In an earlier Dispatch (see NU, Jan. 21), it was noted that Treasury issued a notice of proposed rulemaking which said that a current exemption from anti-money-laundering statutes applied to limited service broker/dealers that sell variable annuities would likely be revoked.

However, Winston says, most of NAIFAs members who sell variable products also sell mutual funds, and are thus already subject to the act.

NAIFA will be in discussions with Treasury to develop rules that are workable, that make sense and that agents can live with, Winston says.

A recent legal memo produced for agent groups notes that Treasury has broad discretion to implement regulations that could bring all agents and brokers under the scope of federal anti-money-laundering laws.

If Treasury exercises that discretion, the memo says, agents and brokers will have to establish anti-money-laundering programs that include several elements.

Specifically, agents and brokers will have to develop internal policies, procedures and controls, designate a compliance officer, develop an ongoing training program and establish an independent audit function to test the program.

The memo says agents will discuss with Treasury the fact that many agencies are too small to be in a position to implement extensive anti-money-laundering procedures, especially when there is a tangential relationship between insurance activities and anti-money-laundering activities.

Agents will note that insurance products do not lend themselves to money laundering because they require the demonstration of a loss to recover policy proceeds.

The only way to avoid this is to engage in fraud, agents say, and federal and state law enforcement mechanisms are already in place to deter fraud and detect money laundering.

Agents will also urge Treasury to examine what states are doing regarding money laundering and to consult with state regulators before imposing new requirements on the insurance industry.

Meanwhile, legislation introduced by Rep. John J. LaFalce, D-N.Y., to create optional federal chartering of insurance companies is being closely examined by insurance groups.

The legislation, H.R. 3766, contains several controversial provisions, including repeal of the insurance industrys antitrust immunity under the McCarran-Ferguson Act for all insurers, whether state or federally chartered.

Allen Caskie, chief counsel for federal relations with the American Council of Life Insurers, says ACLI needs to examine this carefully.

He notes that repeal of the McCarran-Ferguson antitrust immunity has been one of LaFalces objectives for many years, and the Congressman has introduced repeal bills since the early 1980s.

Caskie says that in general, the antitrust immunty was put in place for reasons related to property-casualty insurance rate-making activities.

Because life insurance rates are not subject to state regulation, he says, ACLI concluded years ago that the immunity was not necessary and probably would not apply to the life insurance business operations.

Nonetheless, Caskie says, this is a significant issue that is totally unrelated to the optional federal charter debate, and one which could be the subject of its own hearings and discussions.

With such a broad repeal under consideration, Caskie says, ACLI undoubtedly would want to give a more careful look at life insurance company operations and determine whether any current activities would require a specific exemption.

Speaking of H.R. 3766, NAIFA’s Winston says agents recognize the need to modernize state insurance regulation and establish greater uniformity and efficiency.

NAIFA, Winston says, is working with the National Association of Insurance Commissioners to that end. In addition, he says, NAIFA looks forward to working with House Financial Services Committee Chairman Mike Oxley, R-Ohio.

In a statement introducing his legislation, LaFalce says the current state-by-state regulatory system does not reflect the reality of the insurance industry today in which many companies sell insurance to a global, national or multistate market.

Insurance companies have testified, he says, that they experience delays of up to 18 months in obtaining new product approval in all jurisdictions.

“One national life insurance company estimates that it loses $50 million per year in lost profits because of these delays,” LaFalce says.

Reproduced from National Underwriter Life & Health/Financial Services Edition, February 25, 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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