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Anti-Money Laundering Rule Proposed

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Life insurance agents are tentatively praising the Treasury Department for excluding agents from those who will have to directly comply with a proposed rule aimed at combatting money laundering by terrorists.

“We advocated a common sense approach to Treasury based on how life insurance agents do business,” says David Winston, vice president of government affairs for the National Association of Insurance and Financial Advisors, Falls Church, Va.

Nonetheless, Winston says, he is reviewing the proposal and may file comments.

He notes that while agents are excluded from direct responsibility under the proposed rule, it also says that life insurance companies will be required to integrate their agents and brokers into their own anti-money laundering programs.

Winston says he needs to review that language.

Carl Wilkerson, chief counsel with the American Council of Life Insurers, praises Treasury for issuing a sensible proposal that avoids a one-size-fits-all approach.

The framework, Wilkerson says, is conceptual rather than a list of dos and donts. He adds that it closely tracks previous proposals aimed at mutual funds and broker/dealers.

Regarding the role of agents, Victoria Fimea, senior counsel with ACLI, says that in its discussions with Treasury, ACLI discussed the differences between captive agents and independent agents and how each could be folded into the requirements.

In terms of independent agents, Fimea said, the proposal will require a substantial investment of time between companies and agents to determine the best approach. She adds that some contract provisions may have to be renegotiated.

The proposed rule was mandated by Congress under the USA Patriot Act, which was enacted in the wake of the Sept. 11 terrorist attacks as a means to upgrade the ability of law enforcement authorities to track the funds of terrorist organizations.

The proposed rule, issued last week, applies only to life insurance companies. The rule says that permanent life insurance policies that have a cash surrender value are particularly inviting money laundering vehicles.

The rule cites taking loans against the cash value as one means of money laundering.

Annuity contracts also pose a significant risk of money laundering because they allow the exchange of illicit funds for an immediate or deferred income stream, the rule says.

Although life agents are not included directly in the rule, it says they play an important role in the effort to combat money laundering.

“Because of their direct contact with customers, insurance agents are in a unique position to observe the kind of activity that may be indicative of money laundering,” the rule says.

As examples, the rule cites the lump-sum purchase of a policy using multiple money orders or the purchase of an annuity by a customer who expresses little or no interest in the details.

These are items that may not be known by the insurer, the rule says, and thus, each company must develop and implement an anti-money laundering program that integrates its agents.

At a minimum, the rule says, the program must be based on an assessment of the risks associated with its products, customers, distribution channels and geographic locations. Issues such as means of payment are a key component of this assessment, the rule says.

Insurance companies must obtain all the information needed to make their programs effective, including information maintained by their agents and brokers, according to the rule.

Thus, it continues, some insurers may need to amend their existing agreements with their agents and brokers in order to comply.

The rule adds that insurance companies typically conduct operations through agents and third-party service providers. Despite this, the rule says, companies remain fully responsible for the effectiveness of their anti-money laundering programs.

Insurers, the rule says, must ensure that federal examiners are able to obtain information and records relating to their programs and to inspect their affiliated agents or third parties.

In addition to developing a program, insurers must designate a compliance officer responsible for administration.

This person, the rule says, must be someone competent and knowledgeable regarding the legal requirements and money laundering issues. In addition, this person must have full responsibility and authority to enforce the procedures.

In addition, insurers must provide for education and training of their employees and establish and provide for independent testing of the program on a periodic basis.

Comments on the proposed rule are due within 60 days after it is published in the Federal Register. Treasury is inviting comments on several issues.

These include whether the rule should be limited to life insurers or expanded to other insurers, including health, whether producers should be required to establish anti-money laundering programs, and what factors should be considered as part of an insurance companys risk assessment responsibilities.

Reproduced from National Underwriter Life & Health/Financial Services Edition, September 23, 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.