Shelby, A Strong Privacy Advocate, To Hold Hearings On GLB Next Year
Individuals should have greater control and choice in how their financial information is shared and sold than what is provided in the Gramm-Leach-Bliley Act, says the incoming chairman of the Senate Banking Committee.
“I continue to believe that the balance struck in Gramm-Leach-Bliley was insufficient,” says Sen. Richard Shelby, R-Ala., who spoke at a recent meeting of the Consumer Federation of America, Washington.
As chairman of the Banking Committee, Shelby says he will hold hearings next year on the privacy provisions of GLB.
Under GLB, consumers can opt out of information sharing between their financial institutions and unaffiliated third parties in certain circumstances.
Shelby, a strong privacy advocate, has expressed support for requiring financial institutions to acquire the affirmative consent of consumers (called opt-in) before any information sharing, both with affiliated and unaffiliated parties.
Shelby dismisses comments by opponents of strong privacy protection that the real issue is dinnertime telemarketing calls.
“I believe most Americans may find these calls annoying, but what upsets them is not the rudeness of the interruption, but the feeling of insecurity,” Shelby says.
People are upset, he says, because strangers, those who do not even have a business relationship with the targets of the calls, know details of the private finances of individuals.
“It is the fact that they have access to this personal information about you that is unsettling,” Shelby says. “People feel less secure.”
He says it is interesting that when discussing individuals desire to protect personal information about themselves, it is called “privacy.”
But when discussing safeguarding institutions and business information, Shelby notes, it is called “security.”
In fact, he says, many of the same interests are protected. It just comes down to who has the power and control to gain access to the information, share it and use it.
Shelby says privacy is an important issue facing the financial markets. “If individuals do not feel that their information is secure, that they do not have the ability to control how their information is shared, and that there are not sufficient safeguards to protect against harm, they will ultimately lose trust in the market and seek to minimize their exposure in it where possible,” he says.
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.