- 35 years experience in insurance company process and compliance consulting, including 10 years of dedicated AML services.
- Specializing in anti-money laundering, combating the financing of terrorism and fraud in the insurance industry.
- Applying hands-on experience with insurance-related technology and operations, business architecture, and business process reengineering
- Customizing federal law compliance to clients' risk profiles an d cost structures
- Implemented Transaction Monitoring Systems or conducted Independent Reviews for 4 of the top 20 insurers
- All 7 Best Practices
- Pre-Meeting Discovery Process
- One-on-One Call with Expert
- Meeting Summary Report
- Post-Meeting Engagement
Anti-Money Laundering - Insurance Companies
- AML Compliance Officer
The AML Compliance Officer is the person or persons designated by the insurer to be responsible for carrying out all aspects of the insurer’s AML Program and ensuring that:
- Agents and employees are trained,
- Company’s AML policies and procedures are appropriate for the company’s risk and that they are followed
- BSA reports are properly filed
- Program is independently tested periodically to ensure its effectiveness
The AML Compliance Officer must be knowledgeable of BSA and USA PATRIOT Act requirements as well as with the insurer’s business and products.
The AML Compliance Officer should remain current with AML laws and practices through continuing education, attendance at AML conferences, and/or membership in associations such as the Association of Certified Anti-Money Laundering Specialists (ACAMS).
The AML Compliance Officer should have strong management and analytical skills. Depending on the structure and size of the company, this person might report to the Chief Counsel, Chief Risk Officer, or Chief Compliance Officer; reporting through the business leads could result in conflicts of interest.
Because the AML Compliance Officer is personally responsible for the company’s AML Program, this person could be subject to criminal or civil penalties for failure of the program.
The Bank Secrecy Act of 1970 (or BSA, or otherwise known as the Currency and Foreign Transactions Reporting Act) requires financial institutions in the United States to assist U.S. government agencies to detect and prevent money laundering.
Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, and file reports of cash purchases of these negotiable instruments of more than $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities.
Many banks will no longer sell negotiable instruments when they are purchased with cash, requiring the purchase to be withdrawn from an account at that institution.
The BSA was originally passed by the Congress of the United States in 1970, and amended several times since then, including provisions in title III of the USA PATRIOT Act. (See 31 USC 5311-5330 and 31 CFR Chapter X.)
The BSA is sometimes referred to as an "anti-money laundering" law ("AML") or jointly as “BSA/AML." (Source: Wikipedia - http://en.wikipedia.org/wiki/Bank_Secrecy_Act)
- Covered Products
Insurance products that accrue cash value for the owner - such as annuities, whole life, universal life, and variable universal life.
Excludes: term life; property and casualty; commercial products; health insurance.
- Financial Condition Examination
Each U.S. state’s Department of Insurance periodically examines life and annuity insurance companies domiciled in that state as part of the state’s responsibilities for regulation of insurers.
This process is guided by the Financial Condition Examiner’s Handbook published by the National Association of Insurance Commissioners (NAIC).
The Financial Crimes Enforcement Network (or FinCEN) is a bureau of the United States Department of the Treasury that collects and analyzes information about financial transactions in order to combat money laundering, terrorist financiers, and other financial crimes. As reflected in its name, the Financial Crimes Enforcement Network (FinCEN) is a network, a means of bringing people and information together to fight money laundering.
Since its creation in 1990, FinCEN has coordinated the sharing of information with law enforcement agencies and its other partners in the regulatory and financial communities.
FinCEN uses cooperation and partnerships in a network approach to combat money laundering domestically and internationally. (Source: Wikipedia - http://en.wikipedia.org/wiki/Fincen)
FinCEN delegates the authority to examine financial institutions for compliance with AML regulations to the institution’s federal regulator. For the insurance industry, this duty is assigned to the IRS.
Additionally, the domiciliary state of each insurer will conduct processes to determine whether that company’s AML program is deficient, as part of the state’s periodic Financial Condition Examination.
Fellow, Life Management Institute is a professional management designation earned by passing 10 national examinations on life and health insurance subjects including insurance, finance, marketing, law, information systems, accounting, management, and employee benefits.
Examinations and course materials are prepared and administered by the Life Office Management Association.
- Governance Council
The Board of Directors and senior management of all financial institutions have responsibilities for the insurance company’s compliance with applicable regulations. To make sure these responsibilities are satisfied, the Board often appoints an AML Governance Council that is usually comprised of senior management, the AML Compliance Officer, and directors with insight and responsibility into AML and fraud areas.
This group might also be called the AML Committee.
This Governance Council can monitor the processes to change parameters of the AML Program, discuss policies, discuss certain filings of Suspicious Activity Reports (SARs), and other AML issues, and can keep the Board of Directors apprised of the AML Program.
(See Best Practice #2)
- IRS Form 8300
The general rule is that you must file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, if your business receives more than $10,000 in cash from one buyer as a result of a single transaction or two or more related transactions.
The information provided by Form 8300 provides valuable information to the Internal Revenue Service (IRS) and the Financial Crimes Enforcement Network (FinCEN) in their efforts to combat money laundering. This is an important effort, since money laundering is a tool that assists many individuals who participate in various criminal activities, ranging from tax evasion to terrorist financing to drug dealing, to hide the proceeds from their illegal activities.
A Money Services Business (MSB) is a non-bank entity doing business, whether or not on a regular basis or as an organized business concern, in one or more of the following capacities:
(1) Currency dealer or exchanger.
(2) Check casher.
(3) Issuer of traveler's checks, money orders or stored value.
(4) Seller or redeemer of traveler's checks, money orders or stored value.
(5) Money transmitter.
(6) U.S. Postal Service.
An activity threshold of greater than $1,000 per person per day in one or more transactions applies to the definitions of: currency dealer or exchanger; check casher; issuer of traveler's checks, money orders or stored value; and seller or redeemer of travelers' checks, money orders or stored value.
The threshold applies separately to each activity -- if the threshold is not met for the specific activity, the person engaged in that activity is not an MSB on the basis of that activity. No activity threshold applies to the definition of money transmitter. Thus, a person who engages as a business in the transfer of funds is an MSB as a money transmitter, regardless of the amount of money transmission activity. (Source: FinCEN http://www.fincen.gov/financial_institutions/msb/definitions/msb.html)
The Office of Foreign Assets Control (OFAC) is an agency of the United States Department of the Treasury under the auspices of the Under Secretary of the Treasury for Terrorism and Financial Intelligence.
OFAC administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign states, organizations, and individuals. (Source: Wikipedia - http://en.wikipedia.org/wiki/OFAC)
- Red Flags
Red Flags are potentially suspicious activities may help banks and examiners recognize possible money laundering and terrorist financing schemes.
Management’s primary focus should be on reporting suspicious activities, rather than on determining whether the transactions are in fact linked to money laundering, terrorist financing, or a particular crime. Many activities or patterns of activity are unusual and potentially suspicious, and are used as indicators or Red Flags of potential money laundering or terrorist financing.
Red Flags, when encountered, may warrant additional scrutiny. The mere presence of a red flag is not by itself evidence of criminal activity. Closer scrutiny should help to determine whether the activity is suspicious or one for which there does not appear to be a reasonable business or legal purpose. (source: APPENDIX F: MONEY LAUNDERING AND TERRORIST FINANCING "RED FLAGS" - FFIEC - Federal Financial Institutions Examination Counsel)Examples of Insurance related "Red Flags":
- A customer purchases products with termination features without concern for the product’s investment performance.
- A customer purchases insurance products using a single, large premium payment, particularly when payment is made through unusual methods such as currency or currency equivalents.
- A customer purchases a product that appears outside the customer’s normal range of financial wealth or estate planning needs.
- A customer borrows against the cash surrender value of permanent life insurance policies, particularly when payments are made to apparently unrelated third parties.
- Policies are purchased that allow for the transfer of beneficial ownership interests without the knowledge and consent of the insurance issuer. This would include secondhand endowment and bearer insurance policies.
- A customer is known to purchase several insurance products and uses the proceeds from an early policy surrender to purchase other financial assets.
- A customer uses multiple currency equivalents (e.g., cashier’s checks and money orders) from different banks and money services businesses to make insurance policy or annuity payments.
Specially Designated Nationals List. As part of its enforcement efforts, OFAC publishes a list of individuals and companies owned or controlled by, or acting for or on behalf of, targeted countries. It also lists individuals, groups, and entities, such as terrorists and narcotics traffickers designated under programs that are not country-specific.
Collectively, such individuals and companies are called "Specially Designated Nationals" or "SDNs." Their assets are blocked and U.S. persons are generally prohibited from dealing with them.
- Three Phases of Money Laundering
- Placement- illegally-obtained money is introduced into the financial system;
- Layering - the illegally-obtained money is separated from its criminal source by layering it through a series of financial transactions, such as transferring money among policies, funds, or other financial institutions, making it difficult to track the money back to its original source; and
- Integration - the movement of illegally-obtained proceeds into a seemingly legitimate form, such as a company check.
- Transaction Monitoring System (TMS)
The BSA requires that companies monitor transactions for signs of money laundering and terrorist financing. Companies can monitor transactions using both manual and automated systems. But regulators do insist that each company choose its methods of monitoring transactions based on the risk presented by the number and complexity of its transactions and products.
Vendors and some financial institutions have developed automated transaction monitoring systems (TMSs) to receive transactions from source IT systems (for example, New Business, Client, Agent, Payment, Inforce, and Payout systems), and to monitor these transactions based on rules or “scenarios” and thresholds to identify potentially suspicious patterns of transactions. These rules should be based on the “red flags” of money laundering, to which the company’s business is vulnerable.
For example, a TMS for a provider of life and annuity products should monitor for such patterns as:
- Customer repays a policy loan then takes out another loan;
- Customer deposits into a flexible premium product, then withdraws a large amount, then deposits a large amount, then withdraws a large amount;
- Many of an agent’s customers are the subject of AML alerts;
- Potential structuring using cash-equivalent vehicles;
- Overpayment of premiums; and
- Excessive free looks by one customer.
An effective TMS is invaluable in safeguarding the company’s products and services from being used to launder cash, perpetrate fraud, or fund terrorism.
- USA PATRIOT Act
The USA PATRIOT Act (commonly known as the Patriot Act) is an Act of the U.S. Congress that was signed into law by President George W. Bush on October 26, 2001. The title of the act is a ten letter acronym (USA PATRIOT) that stands for Uniting (and) Strengthening America (by) Providing Appropriate Tools Required (to) Intercept (and) Obstruct Terrorism Act of 2001.
The act, as a response to the terrorist attacks of September 11th, significantly reduced restrictions in law enforcement agencies' gathering of intelligence within the United States; expanded the Secretary of the Treasury’s authority to regulate financial transactions, particularly those involving foreign individuals and entities; and broadened the discretion of law enforcement and immigration authorities in detaining and deporting immigrants suspected of terrorism-related acts.
The act also expanded the definition of terrorism to include domestic terrorism, thus enlarging the number of activities to which the USA PATRIOT Act’s expanded law enforcement powers can be applied. (Source: Wikipedia - http://en.wikipedia.org/wiki/Patriot_Act)