Shelby, A Strong Privacy Advocate, To Hold Hearings On GLB Next Year

That, he says, is not in the best interest of business or the economy. “It seems to me that where the very foundation of financial institutions relationships is trust, privacy is good for business,” Shelby says.

In other news, the United States Customs Service says it has cracked a sophisticated scheme that targeted life insurance companies in the United States, the Isle of Man and other locations to launder some $80 million worth of Colombian drug proceeds over the past few years.

The two-year investigation, called “Operation Capstone” found that Colombian drug trafficking organizations, using a small number of insurance brokers, were purchasing investment-grade life insurance policies naming cartel associates as the beneficiaries, Customs says.

These policies, Customs says, were funded with tens of millions of dollars worth of drug proceeds sent in the form of checks and wire transfers to insurance companies by third parties around the world.

The drug cartels, Customs says, routinely liquidated these drug-financed life insurance policies after relatively short periods of time.

Despite penalties for early liquidation, the cartel beneficiaries would receive a check or wire transfer from the insurance company that, on the surface, appeared to be legitimate proceeds, Customs says.

The cartels could then use the laundered funds virtually unquestioned, Customs says.

“This investigation demonstrates that insurance companies, like other financial institutions, are susceptible to abuse by criminal organizations,” says Deputy Treasury Secretary Kenneth Dam.

“The money laundered through insurance companies in this case constituted proceeds from illegal drug operations, but could have just as easily been money to finance terrorism,” he says.

Treasury notes that recently proposed rules would, for the first time, require life insurers and annuity firms to establish anti-money laundering programs.

The rules were promulgated under the USA Patriot Act, which was passed by Congress in the aftermath of the Sept. 11 terrorist attack to upgrade efforts to track funds of terrorist organizations.

The response of the life insurance industry has been overwhelmingly positive, Treasury says.

“While recognizing that instances of money laundering of this magniture may be infrequent, both the industry and state insurance regulators have provided extensive information and expertise on insurance products to ensure that Treasurys regulations are appropriate and tailored to prevent future abuse,” Treasury says.

Carl B. Wilkerson, chief counsel with the American Council of Life Insurers, Washington, says the life insurance industry takes its responsibilities under the USA Patriot Act seriously.

“We are working extensively with Treasury to make sure the regulations accomplish what was intended.”

Reproduced from National Underwriter Life & Health/Financial Services Edition, December 16, 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.