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August 18, 2004 at 08:00 PM
Life Insurers, Agents Gird For Patriot Act Compliance
The life insurance industry is getting signals from the Treasury Department that the industry will have to comply with anti-money laundering and suspicious activity regulations by March 2005 at the latest even though the agency has not disclosed how it will deal with the complex issue of how insurers can be held responsible for the actions of independent agents and financial advisors.
There are 3 provisions with which the industry will have to comply. One provision, called Suspicious Activity Reports, requires insurers to disclose to Treasury on separate forms the name of a person paying for a policy with $5,000 or more in cash. The threshold was formerly $10,000, but it was lowered awhile ago in the wake of information on how the people who participated in the 9/11 attack arranged their finances.
The second provision is an anti-money laundering program. Among its provisions is a requirement that a policy detailing anti-money laundering enforcement mandates be in place, and that they must be adopted and supported by senior managers of each insurance company.
A third provision, mandated by the Patriot Act, requires implementation of customer identification programs (CIP). Rules implementing that provision of the law will likely go into effect later next year, industry sources said.
The law has been interpreted as encompassing primarily life products, those with stored value and transferability, that is, those with investment features.
Therefore, property/casualty companies and agents are deemed as not covered under the law because their products dont have stored value. Workers compensation issuers and agents also are defined as not covered, as are reinsurers.
Banks have had to comply with various anti-money laundering and suspicious activity rules since 1970, and they have presented a minefield. In the latest example, allegations of failure to comply with money laundering rules recently resulted in a huge fine for venerable Riggs Bank in Washington, D.C., and its decision to merge with PNC Bank within weeks of enforcement action by various federal agencies and even a well-publicized Senate hearing.
Aware of the issues and the potential for enforcement action as well as bad publicity for the industry, the American Council of Life Insurers has sought repeatedly to explain, through detailed comment letters and meetings with officials of the Treasury Department and the Financial Crimes Enforcement Network unit of the agency, the complexity of working through the issues.
The American Council of Life Insurers has brought to the attention of the Treasury that there are acute issues regarding the integration of [independent] agents into the companies anti-money laundering programs, said Victoria E. Fimea, ACLI senior counsel for litigation.
