Since 2006, when insurers were required to develop AML Programs, FinCEN has charged the IRS with conducting examinations to determine the sufficiency of those programs. Now, FinCEN and the various state insurance commissioners are reaching agreements to incorporate the primary AML examination of insurers into their regular financial examinations with the stated goal of helping insurance companies better identify, deter, and interdict financial crime.
The scope of these state examinations is evolving as some states (all states are anticipated to sign the memorandum of understanding by the end of 2013) are preparing to conduct these examinations. A state examiner who finds problems or deficiencies in an insurer’s AML Program refers the company to FinCEN and the IRS for further examination.
Connecticut has included a review of the AML Program in Examinations of non-domiciled Life and Annuity Providers.
In the wake of huge bank money-laundering scandals, regulators are becoming more aggressive about requiring financial institutions to implement policies, procedures, technologies, and internal controls to help interdict money laundering and terrorist financing.
For example, the $100M fine in November 2012 against MoneyGram for fraud and money laundering is said by Reuters to be “one of the first big cases from a new crackdown against money laundering by … other financial institutions” by the Department of Justice.
HSBC has agreed to pay $1.9B to settle charges regarding violation of US anti-money laundering laws and sanctions. ING Bank forfeited $619M in June 2012. Standard Chartered was fined $327M December 2012.
To date no insurers have been fined.
Faced with increasing compliance costs, insurance companies are seeking efficiencies in operations and technology, so as to lower these rising expenses. The need to achieve efficiencies is driving insurers towards centralizing AML and OFAC operations across lines of business.
Companies are also trending towards integrating AML with anti-fraud programs and resources, tapping into a traditionally well-funded operation with a proven return on investment. Insurers are recognizing that both AML and anti-fraud initiatives use similar data and processes, and many of not most cases of fraud involve money laundering.
In addition, some companies are also viewing elder abuse and suitability programs as excellent candidates for integration with AML programs, recognizing the similar use of data and processes.
Such integration can drive improvements in program efficacy, customer-level view of business, monitoring of agent behavior, and automation, driving benefits in cost savings, public perception, and avoidance of legal actions.
This is happening as Life and Annuity Providers express a lack of confidence in the AML knowledge and skills in their Internal Audit departments, and as recent regulatory actions have been critical of companies' independent audits and the ability of their Internal Audit departments to conduct effective AML audits.
Most large penalties were previously assessed against banks, but the Nov. 2012 MoneyGram case for $100,000,000 was called “one of the first big cases from a new crackdown against money laundering by banks and other financial institutions” by the Justice Department’s new Money Laundering and Bank Integrity unit.