Life insurance policies exposed as money laundering vehicles _ business crime bureau

The U.S. Money laundering hsbc Treasury recently proposed, for the first time, to bring insurance and annuities industries under the Bank Secrecy Act regulatory ambit.

The U.S. Money laundering fatf Treasury took a historic step on September 18 by proposing, for the first time, to bring the nation’s huge life insurance and annuities industries under the Bank Secrecy Act regulatory ambit for the purpose of creating better controls on money laundering and terrorist financing opportunities through their businesses.

The proposed rule from Treasury’s Financial Crimes Enforcement Network would require an estimated 1,200 life insurance companies and “any insurance company that offers products with investment features or features of stored value and transferability” to establish an “anti-money laundering program.”

FinCEN’s failure to define “stored value” has caused confusion in the insurance circles. About money laundering One industry member speculates that the phrase refers to an accumulation of money that can be cashed out or transferred to another fund. Money laundering investigation Others say the term is also used for electronic “smart cards” that contain monetary value in the form of microchips.

The proposed rule implements Section 352 of the USA Patriot Act which requires that all the wide range of businesses that are defined as “financial institutions” under the BSA “shall establish” an AML program (Title 31, USC Sec. Risk of money laundering 5318(h)). Anti money laundering india Initially, those AML programs were to be in place by July 24, 2002.


Money laundering effects Shortly before the deadline, Treasury temporarily exempted several industries, including insurance, until October, so it could sort out difficult definitional questions and further examine their laundering risks (MLA, May 2002).• Who’s responsible?

Issuing, underwriting or reinsuring of a life insurance policy; · Issuing, granting, purchasing or disposing of any annuity contract; or · Issuing, underwriting or reinsuring of any insurance product with investment features similar to those of a life insurance policy or an annuity contract.

The definition does not cover insurance agents or brokers, even those who operate as “independent” agents. What does laundering money mean FinCEN justifies this gap by saying that the company that actually develops the products, rather than just sells them, is in the best position to determine laundering risks and defenses.

Because many companies sell products through agents and brokers, FinCEN says they may delegate elements of their AML programs to the brokers and agents. Purpose of money laundering But the insurance companies are ultimately responsible for the effectiveness of the programs.• What insurers would be required to do

Be in writing and be approved by senior management · Incorporate internal policies, procedures and controls based on its assessment of money laundering and terrorist financing risks · Designate a compliance officer · Establish and maintain an ongoing employee training program · Periodically conduct independent audits of the program’s effectiveness. Is money laundering illegal A company employee may perform the audit, but it cannot be the compliance officer or anyone who helps administer the program.

The proposed rule says that when a company assesses laundering and terrorist financing risks, it must consider whether it permits customers to: · Use cash or cash equivalents to purchase insurance products · Purchase an insurance product with a single premium or lump-sum payment · Make loans against an insurance product’s value.

It must also consider whether it conducts transactions involving a jurisdiction, which has been identified by the U.S. Money laundering in the uk State Department as a sponsor of international terrorism.• Overseas affiliates

The proposed regulation does not mention if it applies to international affiliates of U.S. Miami money laundering companies. Money laundering certification One Washington source confirmed that the rule is not clear about its scope over overseas offices.

The U.S. Money laundering texas branches and affiliates of non-U.S. Federal money laundering companies would be required to comply with the rule under the definition of “insurance company.”• Who’s covered, who’s not

FinCEN says the most significant laundering and terrorist financing risks are found in life insurance and annuities products. Insurance money laundering For that reason, it has decided to leave outside the reach of the proposed regulation companies that provide property, casualty, title or health insurance. Laundering of money They typically do not offer investment features, cash build-ups, the option of transferring funds from one to another, or other means of hiding or moving money, Treasury says.

It warns that if those insurance lines develop products with those features, the proposed rule’s definition is flexible enough to include them in the future.

With a whole or term life insurance policy, a money launderer can invest dirty money in a fund, roll it over to another fund or cash out the policy before its due date. What does placement mean in money laundering Either way, he has muddied the money’s trail.

Annuity contracts may allow criminals to exchange illicit funds for an immediate or deferred income stream, which usually arrives in the form of monthly payments starting on a specified date.• Real-life examples

FinCEN describes real-life examples connecting laundering and the insurance industry. Anti money laundering identification requirements In one instance, federal enforcement agents discovered Colombian drug lords were hiding drug proceeds by purchasing life insurance policies with cash surrender values in an offshore jurisdiction. What do you understand by money laundering Their associates were named as the beneficiaries who later liquidated the policies for their cash surrender value. Money laundering uk sentences While they suffered substantial financial losses, their money was effectively laundered.

In another case, the U.S. Anti money laundering definition Customs Service obtained the forfeiture of drug money paid to purchase three term life insurance policies in Austin, Texas. Money laundering detection The purchase had been made with several structured monetary instruments, followed shortly by an attempted redemption of the policies.

Agents have seen similar attempts to launder funds through variable annuity contracts. Layering definition money laundering Financial institutions have also reported suspicious activity involving the structured purchase of life insurance policies and annuities, followed by pay-outs and the wiring of funds to foreign accounts.• Fraud is not laundering

Insurance companies have long maintained anti-fraud programs. Report money laundering uk FinCEN says the measures presently used to detect and combat fraud for the most part can be applied or adapted to an AML program. What is meant by money laundering It stresses that the risks associated with fraud and laundering are not the same.

Insurance companies should note that even the best AML program will not exempt them from prosecution for money laundering under the criminal code of the U.S. Ofac money laundering (Title 18, USC Sec. Money laundering layering means 1956 & 1957) The U.S. Money laundering process Department of Justice enforces those laws, and a battery of agencies, including the IRS, U.S. Belize money laundering Customs, the FBI and the DEA investigate possible money laundering violations.

Those agencies are not impressed with an AML program or BSA compliance. Money laundering refers to Full compliance is irrelevant to the question of whether a company or its employees laundered money. Reasons for money laundering (Title 18, USC Secs. Money laundering layering 1956 and 1957.) And there have been cases in which employees of an insurance company were prosecuted for money laundering. Types of money laundering activities (MLA, Sept. Money laundering regulations ireland 1995.)• The beauty in the beast

“One of the really important things that came out of the proposed regulations is the flexibility that Treasury has with regard to each insurance company’s AML program,” said Marty Neverla, Director of the Fraud Investigation Division of the Arkansas Insurance Department and chair of the Anti-Fraud Task Force of the National Association of Insurance Commissioners.

“If you’re a very small domestic life insurance company… with a relatively small book of business… you’re going to be able to put together a reasonable compliance program with the help of perhaps some consultants or attorneys,” said Neverla. 2007 money laundering regulations “And there wouldn’t be a problem with tacking money laundering compliance responsibilities onto someone who presently has fraud unit responsibilities.”

Victoria Fimea, Senior Counsel, Litigation for the ACLI, agrees. I hate money laundering “I don’t know that all insurance companies will have to have radically different programs from their existing fraud programs,” she told Money Laundering Alert. Money laundering regulations uk “Each company can tailor a program that best serves their processes as well as protect their customers.”

Both Neverla and Fimea said larger companies would incur significantly more costs due to increased workloads on their compliance, legal and fraud personnel and the purchase of software.• No duplication, please

Mike DeGeorge, General Counsel for the National Association for Variable Annuities, said his organization will probably request Treasury to review the stipulation that insurance companies be responsible for any laundering-related activities that take place at the point-of-sale. Tipping off money laundering definition He contends that any money laundering risks that occur at that time should be addressed by the registered brokers who sell the contracts, not the insurance company.

“Variable contracts are considered securities and are sold by brokers who are registered with the Securities and Exchange Commission,” said DeGeorge. Why is money laundering bad “Registered brokers are required to have AML programs in place, as well as a customer identification program. Gambling money laundering It would not be productive to duplicate the processes that brokers have done with regard to money laundering and suspicious activities at the point of sale.”

FinCEN will accept comments on the proposed ruling until Nov. Money laundering placement means 25. What is money laundering definition Comments can be e-mailed to regcomments@fincen.treas.gov, with the caption written as “ATTN: Section 352 – Insurance Company Regulations.”

On Oct. Money laundering id 11, the U.S. Explain money laundering Treasury proposed another regulation that would require insurance companies to file Suspicious Activity Reports, just like banks and money services businesses already do and securities dealers will do starting January 1, 2003.

If the rule becomes final, insurance companies would have to file the new Suspicious Activity Report – Insurance Companies (SAR-IC) form if the suspicious transaction involves at least $5,000 (cash or non-cash).

Filing the SAR-IC would be the responsibility of the insurance companies, not their agents or brokers. International money laundering Companies would have 30 days after detecting the suspicious activity to file the form and may not disclose that they filed the form with anyone except appropriate government agencies.

The public has until December 16, 2002 to file comments about the proposed rule. Examples money laundering E-mail comments may be sent to regcomments@fincen.treas.gov and should contain this phrase within the body of the e-mail: “ATTN: Section 352 – Insurance Company Regulations.” (Full details and analysis in the December issue of Money Laundering Alert.)