New Reg Requires Insurers To Report Suspicious Cash Deals

The U.S. Treasury Department will expand the scope of existing anti-money-laundering rules to include life insurers and annuity issuers by June 2006.[@@]

Insurers will have to file a form when cash of $5,000 or more is provided in connection with the purchase of an insurance policy subject to the reporting requirements, according to a copy of the regulation that appears on the Treasury Department Web site.

The new rule exempts agents and brokers, but it will apply whether the purchaser uses $5,000 to buy one policy or $5,000 to buy a total of 2 or more policies.

"This threshold amount is not limited to insurance policies whose premiums meet or exceed $5,000; rather, it includes a policy in which the premium or potential payout meets the threshold," the regulation says.

The Financial Crimes Enforcement Network, or FinCEN, a Treasury Department agency, started the rulemaking process that produced the final rule in September 2002.

In addition to publishing the final rule, FinCEN has published a draft of a form that insurers can use to comply with the new rule. Insurers will have 60 days to comment on the proposed form before it is approved for use.

The rule will apply to most life insurance products that have a cash value or investment features.

The rule will not apply to the sale of term life, group annuities, group life insurance, health insurance or other products that appear to be less useful to money launderers.

FinCEN says insurance agents and brokers will not be required to have separate anti-money-laundering programs.

"However, as an integral part of the insurance industry, given their direct contact with customers, insurance agents and brokers must be integrated into an insurance company's anti-money-laundering program and monitored for compliance," FinCEN says in a preamble to the new rule. "An insurance company's anti-money laundering program also must include procedures for obtaining relevant customer-related information for an effective program, either from its agents and brokers, or otherwise."

At minimum, insurance companies subject to the reporting requirements must name an anti-money-laundering compliance officer; establish written policies and internal controls to control money-laundering risks; train "appropriate persons" about their responsibilities; and obtain independent tests of the effectiveness of the program.

FinCEN says authorities have received a number of reports of suspicious life and annuity transactions conducted over the past 5 years.

In one case, drug traffickers are said to have laundered $475 million by buying 250 life insurance policies on the Isle of Man, FinCEN says.

A copy of the final rule appears on the FinCEN Web site, at //www.fincen.gov/amlforinsurancecompany.pdf