As stipulated by the Patriot Act, many life insurance companies in the United States are now required provide anti-money laundering training to their agents and brokers. This training is meant to curtail the funding of terrorist and other illicit activities such as drug trafficking, illicit gambling, and extortion.
Companies that are covered by this requirement include those whose products involve:
Permanent life insurance policies, other than a group life insurance policy
An annuity contract, other than a group annuity contract
- Any other insurance product with features of cash value or investment
What is Money Laundering?
At its simplest, money laundering is any procedure that takes money gained through illegal activity and, through a series of transactions, turns it into what appears to be legitimately earned money.
A common way of using life insurance policies as a method of money laundering is to invest large amounts of money into a policy that allows early withdrawal, and then use the early withdrawal option to regain the money. While they have to pay penalties for early withdrawal, they end up with considerable funds that come from a legitimate source – their insurance policy – even though they paid for it with illegally gained money.
What do these training programs entail?
Anti-money laundering training programs are written-based programs that have been approved by the company’s senior management and which can be made available to the Financial Crimes Enforcement Network (FinCEN) upon request.
Programs must include:
Procedures which integrate agents and brokers into the company’s anti-money laundering program
Risk assessment in order to identify and address issues unique to the company’s individual products
Designation of a compliance officer
- Independent testing of the program
These stipulations have been developed with the expectation that they will provide suitable guidance for the creation of anti-money laundering programs while including the maximum amount of flexibility for companies. This is done with the understanding that agents and brokers are often the people who have the most opportunity to detect potential illegal activity in the insurance sector. It also acknowledges that each company will have different needs and risks that should be addressed on a case-by-case basis by those in the best position to do so.
Protection for Insurance Agents and Brokers
Training is meant to facilitate communication between insurance companies and agents and brokers as well as to assist those agents and brokers in identifying potential illegal activity. The ultimate requirements for the reporting of such activity, however, are on the company, not the agent or broker. In addition, agents and brokers cannot be held liable for disclosing such information. Moreover, all reports concerning potential illegal activity are confidential, including the fact that such a report was submitted at all.