Anti-Money Laundering Programs for Insurance Companies

1Regulations implementing the BSA appear at 31 CFR Part 103. The authority of the Secretary to administer the BSA and its implementing regulations has been delegated to the Director of FinCEN. 2Lee R. Rus & Thomas F. Segalla, Couch on Insurance § 1:6, at 1–11 (3d ed.). 3 In 2000, the insurance industry in the United States consisted of more than 7000 domestic insurance companies and total gross direct premiums exceeded $956 billion. Net premiums written in both the life and property/casualty sectors grew annually between 1992 and 2000. In 2000, the insurance industry, including insurance companies, agents, brokers, and service personnel, employed approximately 2.3 million people. National Association of Insurance Commissioners, 2000 Insurance Department Resources Report. Date Dated: September 18, 2002. James F. Sloan, Director, Financial Crimes Enforcement Network. [FR Doc. 02–24145 Filed 9–25–02; 8:45 am] BILLING CODE 4810–02–P DEPARTMENT OF THE TREASURY 31 CFR Part 103 RIN 1506–AA28 Financial Crimes Enforcement Network; Anti-Money Laundering Programs for Insurance Companies AGENCY: Financial Crimes Enforcement Network (FinCEN), Treasury. ACTION: Notice of proposed rulemaking. SUMMARY: FinCEN is issuing this proposed rule to prescribe minimum standards applicable to insurance companies pursuant to the revised provision in the Bank Secrecy Act that requires financial institutions to establish anti-money laundering programs. DATES: Written comments may be submitted on or before November 25, 2002. ADDRESSES: Commenters are encouraged to submit comments by electronic mail because paper mail in the Washington, DC, area may be delayed. Comments submitted by electronic mail may be sent to regcomments@fincen.treas.gov with the caption in the body of the text, ‘‘ATTN: Section 352—Insurance Company Regulations.’’ Comments (preferably an original and four copies) also may be submitted by paper mail to FinCEN, P.O. Box 39, Vienna, VA 22183, ATTN: Section 352—Insurance Company Regulations. Comments should be sent by one method only. Comments may be inspected at FinCEN between 10 a.m. and 4 p.m., in the FinCEN Reading Room in Washington, DC. Persons wishing to inspect the comments submitted must request an appointment by telephoning (202) 354– 6400 (not a toll-free number). FOR FURTHER INFORMATION CONTACT:
Office of Chief Counsel, FinCEN, (703) 905–3590; Office of the Assistant General Counsel for Enforcement (Treasury), (202) 622–1927; or the Office of the Assistant General Counsel for Banking and Finance (Treasury), (202) 622–0480 (not toll-free numbers). SUPPLEMENTARY INFORMATION:
I. Background
On October 26, 2001, the President signed into law the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001 (Public Law 107–56) (the Act). Title III of the Act makes a number of amendments to the anti￾money laundering provisions of the Bank Secrecy Act (BSA), which is codified in subchapter II of chapter 53 of title 31, United States Code.1 These amendments are intended to provide additional tools to prevent, detect, and prosecute international money laundering and the financing of terrorism. Section 352(a) of the Act, which became effective on April 24, 2002, amends section 5318(h) of the BSA. As amended, section 5318(h)(1) requires every financial institution to establish an anti-money laundering program that includes, at a minimum, (i) the development of internal policies, procedures, and controls; (ii) the designation of a compliance officer; (iii) an ongoing employee training program; and (iv) an independent audit function to test programs. Section 352(c) of the Act directs the Secretary to prescribe regulations for anti-money laundering programs that are ‘‘commensurate with the size, location, and activities’’ of the financial institutions to which such regulations apply. Section 5318(h)(1) permits the Secretary to exempt from this anti-money laundering program requirement those financial institutions not currently subject to FinCEN’s regulations implementing the BSA.
Section 5318(a)(6) of the BSA further
provides that the Secretary may exempt any financial institution from any BSA requirement. Taken together, these provisions authorize the issuance of anti-money laundering program regulations that may differ with respect to certain kinds of financial institutions, and that may exempt certain financial institutions (and, by extension, certain financial institutions within the same industry) from the requirements of
section 5318(h)(1).
Although insurance companies have long been defined as a financial institution under the BSA, 31 U.S.C. 5312(a)(2)(M), FinCEN has not previously defined the term or issued regulations regarding insurance companies. In April 2002, FinCEN deferred the anti-money laundering program requirement contained in 31 U.S.C. 5318(h) that would have applied to the insurance industry. 67 FR 21110 (April 29, 2002). The purpose of the deferral was to provide Treasury time to study the insurance industry and to consider how anti-money laundering controls could best be applied to that industry, taking into account differences in size, location, and services within the industry. Insurance can generally be described as ‘‘a contract by which one party (the insurer), for a consideration that is usually paid in money, either in a lump sum or at different times during the continuance of the risk, promises to make a certain payment, usually of money, upon the destruction or injury of ‘something’ in which the other party (the insured) has an interest.’’ 2 In other words, the purpose of insurance is to transfer risk from the insured to the insurer. Insurance companies act as financial intermediaries by providing a financial risk transfer service that is funded by the payment of insurance premiums that they receive from policyholders. The insurance industry in the United States can generally be divided into three major sectors based on a company’s line of business: (1) Life; (2) property/casualty; and (3) health.3 Life insurance provides protection against the death of an individual in the form of payment to a beneficiary. Life insurance may also offer ‘‘living benefits’’ in the form of a cash surrender value or income payments. Recently, life insurers have developed products that offer a variety of investment components, such as interest indexed universal life (which has interest credits linked to external factors) and variable life (where the amount and duration of benefits are linked to investment experience), and that offer the insured the ability to overpay the premium for a fixed rate of return. Such products are marketed to investors as part of a diversified portfolio, often with tax benefits. Annuities, which are generally considered part of the life insurance sector, are purchased to provide a stipulated income stream over a period of time, and are frequently used for retirement planning purposes. Property insurance indemnifies an insured whose property is stolen, damaged, or destroyed by a covered peril. Casualty