Money Laundering, Terrorism and Financial Institutions - USA Patriot Act Monitor

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12/14/2006 Bank Selling Insurance as Agent Does Not Open Account for CIP Purposes

When a bank serves as an agent for an insurance company by selling insurance products issued or underwritten by the company, and the company is neither a subsidiary or otherwise affiliated with the bank, an account is not established with the bank for purposes of the bank’s customer identification program according to interagency guidance posted on the FinCEN and other websites. Under the facts analyzed by the guidance, “the purchaser is purchasing insurance from the insurance company through a bank, and the bank's only role is to effect that sales transaction; no account agreements are executed with the bank, and all future transactions relating to the insurance product are handled directly between the purchaser and the insurance company. Under these circumstances, the purchaser has not established a ‘formal banking relationship’ with the bank.” The recent mutual evaluation of the U.S. anti-money laundering system by the Financial Action Task Force was not convinced that excusing the insurance sector from CIP rules was appropriate despite the argument of U.S. authorities that this was done based on a risk assessment. Under 31 CFR 103.16(b)(3)(i), an insurance company is responsible for reporting suspicious transactions conducted through its insurance agents and insurance brokers. Thus, the insurance company should assure that bank personnel dealing with insurance products are aware of “red flags” involving insurance products. Insurance companies have been targets of money laundering schemes. In one case, a Colombian drug cartel bought 250 life insurance policies and cashed out most of them prematurely, in some cases after only a year, paying penalties of 25% or more. Such activities should be the subject of SARs filed by the bank or the insurance company, or of a joint filing by both. The bank is most likely to note suspicious activity at the point of sale, but the insurance company may be more likely to notice suspicious activity during the ongoing administration of a policy. This development has been added to Money Laundering, Terrorism and Financial Institutions, by Raymond Banoun and John Ensminger, as well as to related checklists at

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