Anti-Money Laundering Rule Needs Changes On Life Products, Agents

Passed in the aftermath of the terrorist attacks of Sept. 11, 2001, the USA Patriot Act had a worthwhile aim: to combat the laundering of money that could be used to finance terrorist activities through financial institutions.

In its haste to pass the bill, Congress did with the Patriot Act what it has done increasingly with legislation of broad scope: It created the canvas and left a government agency, in this case the Treasury Department, to propose and implement the actual painting, so to speak.

Continuing the analogy, the painters have used a very broad brush in their inclusion of financial institutions and products under the regulation proposed by Treasury.

Recognizing this, the American Council of Life Insurers has correctly told Treasury in formal comments that certain products–including life reinsurance, group life, term life and credit life insurance–should be exempt from the proposed rule because they do not lend themselves to being used as money-laundering vehicles.

The ACLI is also asking Treasury to revise its proposed rule to clarify its application to independent agents and to broker-dealers already subject to anti-money laundering requirements.

The National Association of Insurance and Financial Advisors is also seeking clarification of the rule as it applies to agents and brokers.

Both organizations make strong points in support of their arguments.

In terms of the products that should be exempted, ACLI very clearly described how little possibility for money laundering each of them offers.

In the case of reinsurance, for example, ACLI said the reinsurance business does not allow for a seamless transfer of funds to disguise their true origin. “On the contrary, the transactions of reinsurance typically involve two corporate entities heavily regulated by the states,” ACLI said.

Additionally, according to ACLI, reinsurance does not possess the elements of “stored value” and “transferability” described in the proposed rule as features of money laundering vehicles.

The situation regarding life insurers and agents and brokers would create an administrative nightmare if the rule were implemented as proposed, particularly as it pertains to independent agents.

The proposed rule requires insurers to provide for ongoing training, but as NAIFA points out, many agents and brokers sell policies for several companies. Imagine the amount of duplicative effort involved–for both insurers and agents–if each insurer had to provide training for every agent who sells its policies.

The situation obviously calls for some kind of streamlining and both associations have made suggestions. For its part, NAIFA says Treasury should encourage the insurance industry to work together to design acceptable training programs and indicate that outside vendors, including trade associations, can offer training.

ACLI says the regulation should allow independent agents to meet the training requirements through certification. Thus, instead of having to train with each life insurer the independent agent represents, the agent would be able to certify that he or she has completed a program that covers the core elements of an acceptable program.

ACLI also wants Treasury to establish a central registry of agents who are certified.

These arguments have merit for anyone even remotely familiar with how the industry works. Nonetheless, getting an agency like Treasury to make exceptions, especially broad ones like these, is dicey at best. This is one case where the famous powers of persuasion of ACLI and NAIFA must be employed to their fullest.


Reproduced from National Underwriter Life & Health/Financial Services Edition, December 8, 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.