Insurance, annuities companies targeted for SAR requirements

12/01/2002
In the alphabet soup of the laundering field, AML (anti-money laundering) and SARs (suspicious activity reports) are intrinsically linked. The latest rules affecting life insurance and annuities companies exemplify that.

In the alphabet soup of the laundering field, AML (anti-money laundering) and SARs (suspicious activity reports) are intrinsically linked. The latest rules affecting life insurance and annuities companies exemplify that.

On October 11, three weeks after the U.S. Treasury proposed that life insurance and annuities companies be required to maintain AML programs (MLA, Nov. 2002), it issued an SAR proposed rule under the Bank Secrecy Act for the same businesses.

Who’s covered

The proposed rule applies to those companies because their products, which offer investment features, cash build-ups and the ease of transferability of funds, are more vulnerable to laundering and terrorist financing than other types of insurance, says Treasury. Under the proposed rule, qualifying companies would file a new Suspicious Activity Report – Insurance Companies (SAR-IC) form for pertinent cash or non-cash transactions of at least $5,000 and which:

  • Involve funds derived from an illegal activity
  • Are designed to evade Bank Secrecy Act reporting requirements
  • Have no reasonable business purpose
  • Use the insurance company to facilitate criminal activity

Red flags

In the preamble to the regulation, Treasury’s bureau, FinCEN, which enforces the BSA, lists several laundering “red flags” at life insurance and annuities companies:

  • Any unusual method of payment, particularly cash or its equivalents
  • Purchase of a product with monetary instruments in structured amounts
  • Early termination of a product, especially at a loss, or where cash was tendered or the refund check is directed to a third party
  • Little or no concern by a customer about the performance of a product, but much concern about its early termination
  • Borrowing a policy’s maximum cash surrender value soon after full payment of the premium.

Filing an SAR-IC would be the responsibility of the companies, not their agents or brokers, within 30 days after discovering the suspicious activity. If no suspect is known, they would have 60 days. They would be prohibited from disclosing they had filed an SAR to anyone except government agencies.

The documentation pertaining to the SAR-IC would need to be maintained for five years. FinCEN estimates that some 1,200 SAR-ICs would be filed annually. The rule would go into effect 180 days after it becomes final.

The public has until December 16, 2002 to comment on the proposed rule. E-mailed comments should be sent to regcomments@fincen.treas.gov and should state: “ATTN: Section 352 – Insurance Company Regulations.”