The Treasury issued final regulations requiring insurance companies to have an anti-money-laundering (AML) program and to report suspicious activities by filing Suspicious Activity Reports (SARs). By May 2, 2006, insurance companies were required to implement risk-based compliance programs applicable to "covered products" (page 45) that are reason-ably designed to prevent companies from being used to facilitate money laundering and terrorist financing activities.
Insurance agents and brokers are not required to have separate AML programs and do not have to file SARs. However, in order to prevent money laundering, companies must rely on agents who gain knowledge of the source of funds as a result of meeting with clients and engaging in sales operations.
Companies must provide agents with a "producer's guide" that outlines their responsibilities with respect to AML. Failure to comply with these responsibilities is grounds for discipline, including termination and cancellation of the agents' appointments. Further, violations of AML laws may result in substantial penalties under federal law.
The regulations require companies to integrate their agents into the AML program and to monitor compliance with the programs. This integration, also effective as of May 2, 2006, makes agents responsible in four principal areas.
1. Information gathering: Agents must obtain effective customer due diligence by gathering appropriate and accurate information about clients at the point of sale. Agents, in cooperation with compliance officers who are responsible for AML programs, must perform due diligence as necessitated by the presence of any red flags involving a covered product. Companies will determine the specific information and due diligence that are required with respect to their products. Red flags will be defined in each company's producer's guide and might include the following.
o The purchase of insurance products appearing to be inconsistent with the clients' needs.
o The transfer of the benefits of insurance products to apparently unrelated third parties.
o Little or no concern by clients for the investment performance of insurance products.
o Concern focused on early termination features of the products.
o Reluctance by clients to provide identifying information when purchasing insurance products, or the provision of minimal or seemingly fictitious information.
2. Methods of payment: Agents must follow appropriate payment guidelines and report attempts of inappropriate payment behavior to the companies. Companies will establish such guidelines based on standards for acceptable and unacceptable forms of payment. The producer's guide provided by each company will detail what is meant by acceptable and unacceptable forms of payment.
3. Communication: Agents must advise the company of potentially suspicious behavior noted in the course of client reviews or other interactions. Agents will be notified by a producer's guide and in training when red flags warrant consideration of a suspicious activity. Only companies file SARs, but agents may learn that SARs were filed. Filing of SARs is strictly confidential, and the AML compliance office has the sole responsibility for responding to any inquiry with respect to SARs. Violations of this confidentiality by an agent or broker may result in civil or criminal penalties.
4. Training: Agents who sell covered products must receive appropriate AML training, either from the companies or third parties, in accordance with the guidelines of the companies they work with. Companies will conduct independent testing with respect to the effectiveness of their AML programs, and agents are required to cooperate with such testing.
J. Richard Duke, J.D., LL.M. in Taxation, is the principal of Duke Law Firm, P. C. He can be reached at 205-823-3900 or richard@assetlaw.com. Dr. Robert J. Munro, J.D., Ph.D., is the president of the Royal Society of Fellows. He can be reached at 352-246-9790. Leslie N. Bailey, BA, CFE, is the current president of the Alabama chapter of Alabama Certified Fraud Examiners. She can be reached at 205-903-2886 or lnbailey@tgfas.com. The three authors are faculty members of the Association of Certified Compliance and Insurance AML Experts. For more information, visit www.insuranceaml.com.
|
