AML quiz chapter 1
the AML Policy Document contains
A statement of policy and principles, scope, covered products, Customer identification program, Monitoring and reporting, Investigation and Record-keeping
Products that do not provide the liquidity that is essential to money laundering are not covered by the
PATRIOT Act (even as specified in FinCEN's final rules).
WHat must a form 8300 be filed in conjunction with?
All cash or cash equivalent receipts exceeding $10,000 ( A form SAR-INCis required to report all transactions exceeding $5,000 that have also raised one or more red flags)
Products Not Considered "Covered Products"
roducts offered by charitable organizations, such as charitable annuities term, credit life, property, casualty, liability, health, and title insurance reinsurance and retrocession contracts contracts of indemnity and structured settlements (including workers' compensation payments)
What is the opening statement in the AML Policy Document
A statement of policy and principles
What is the 2nd step of money laundering?
Layering
Transactions exceeding the $5,000 threshold shuld be reported to
FinCEN
At a minimum, companies must identify the following customer information:
full legal name date of birth residential address (no P.O. boxes) Social Security number or tax identification number
What is included in covered products?
individual permanent life insurance (including whole life, universal life, variable life, and any other product that builds cash value) individual annuities (fixed or variable, immediate as well as deferred) any other insurance product that includes a cash value or investment component
The US patriot act oversees what designations?
nonbank financial institutions, including insurance companies and brokerage firms
Insurance companies are required to maintain copies of SAR-ICs and the original or business record equivalent (such as scanned copies) of any supporting documentation for a minimum
of five years from the date of filing.
Cash value life insurance and deferred annuity contracts provide owners access to funds through?
policy loans, partial withdrawals, or outright surrenders
Insurance companies must establish and implement a _____program?
risk-based anti-money laundering program.
the PATRIOT Act gave rise to the
Financial Crimes Enforcement Network (FinCEN) rules that dictate insurance company AML requirements and responsibilities.
What are covered products?
are those whose features and designs include a cash value or investment component, and thus, are considered more likely to be used for money-laundering
A producer or employee who detects a red flag or any other suspicious activity is only required to report the suspicion to
a manager or designated compliance principal.He or she should never discuss the concerns with the customer.
During which stage of the money laundering process are laundered or cleansed funds circulated back into the hands of the criminal and ultimately into the financial system? A)Closet B) Placement C) Layering D) Integration
Integration
What laundering technique looks appealing to those who launder because it avoids surrender charges?
Free-look surrenders
Companies must determine, within a reasonable period after an account is opened or a policy is purchased, whether the applicant's name appears on a list of known or suspected money launderers, terrorist organizations, and other criminals maintained by the Treasury Department's Office of Foreign Assets Control (OFAC),
Specially Designated Nationals and Blocked Persons list.
One of the most important AML rules is
Know Your Customer
. Under the BSA, financial institutions are required to
"identify, assess, and mitigate" the money laundering risks they face.
companies are required to report all cash receipts exceeding
$10,000 without red flags
Company AML programs are the subject of Chapter
2
What is the 3rd and final step in money laundering?
Integration
What is the goal of the statement of policy and principles
It may define money laundering and terrorist financing.
What is Form 8300?
Report of Cash Payments Over $10,000 Received in a Trade or Business") within 15 days of receipt of either of the following: individual cash (or cash equivalent) payments exceeding $10,000 two or more related transactions totaling cash (or cash equivalent) payments exceeding $10,000
What patriot act title has significance to the insurance industry?
Title III of the PATRIOT Act
What is The law most impacting insurance companies?
USA PATRIOT Act,
, transactions below the $5,000 threshold may be—and should be—reported if
they are suspicious or if they appear to violate the law.
What is The purpose of a Notice to Customer
to disclose the company's intent to verify the customer's name and personal information
What does placement mean?
brings the illicit cash into the legal financial system
What is integration?
cleansed money is circulated back into the hands of the criminal and ultimately into the financial system
What is the Bank Secrecy Act (BSA) of 1970
initially directed only at banks, the law requires financial institutions to help create an audit trail by keeping records and reporting cash (or cash equivalent) transactions exceeding $10,000.
he $5,000 FinCEN threshold should not be confused with the
longstanding requirement, from the BSA of 1970, that financial institutions report all cash payments exceeding $10,000.
What is a policy document
a company's AML program is published in a written policy document that must be made available to the Treasury Department or FinCEN upon request.
Tom and Dru
Raul made substantial donations to the cultural center, mostly through wire transfers from off-shore bank accounts owned by obscurely named business entities.There the funds were available to clients with international connections.
What is scope of statement of policy and principles
it identifys company associates who are subject to the policy. Typically, its scope includes all employees, officers, and appointed producers. Presumably the AML policy does not apply to company shareholders or policyholders.
FinCEN's final rules prohibit an insurance company from disclosing the fact that it has filed a Suspicious Activity Report
to even the consumer
An agent knows that her insurance company has an AML policy in affect, but the $100,000 in money orders her customer is using to fund the purchase of a single premium whole life insurance policy would help her meet her sales goal for the year. consequently, she overlooks the source of funds and submits the application to her company. From an AML perspective, the agent has?
Commited the crime of willful bliss
OFAC compiles and updates the list of
high-risk countries It also maintains a list of known or suspected money launderers and other criminals, known as the Specially Designated Nationals and Blocked Persons list.
What does "Risk-based" mean
a company's AML program reflects the unique money laundering risks it faces, The intent is to prevent a company's "covered products" (mainly cash value life insurance and deferred annuity contracts) from being used in money laundering or terrorist activity financing.
What is Generally regarded as the first significant federal AML law in the U.S.
Bank Secrecy Act (BSA) of 1970
The USA PATRIOT Act requires that financial institutions to
"maintain internal policies, procedures and controls to help identify and report potential money laundering transactions."
The second set of FinCEN final rules amends the Bank Secrecy Act of 1970 to include insurance companies in the list of those that are required to report
"suspicious activity" involving certain covered product transactions through the filing of a suspicious activity report (SAR).
All of the following are required elements of an insurance companies AML program EXCEPT A) Designing an AML compliance officer B) Certifying every employee and appointed producer with FinCEN C) Maintaining and ongoing training program D) Periodically testing the AML program through independent audit
Certifying every employee and appointed producer with FinCEN
What is the job of the compliance officer?
The compliance officer is the person responsible for the day-to-day operation of the company's AML program and for ensuring that the requirements or steps laid out in the program are fully implemented and followed.
A ____must be given to every applicant for a covered product.
a Notice to Customer
What are some examples of sophisticated financial products
can include cash value life insurance and deferred annuity contracts.
What is layering?
cash equivalents obtained in the placement stage are used to purchase a variety of financial instruments
What is willful blindness
the intentional and deliberate avoidance of knowledge of the facts of a crime to avoid civil or criminal liability for one's role in it—can subject an apparently uninvolved party (such as an agent or broker) to prosecution even if the person claims to have been unaware of suspicious activity.
Financial Crimes Enforcement Network (FinCEN) published two long-awaited final rules geared specifically towards insurance carriers:
the requirement that insurance companies develop and implement anti-money laundering programs the requirement that insurance companies report suspicious transactions
Under FinCEN rules, the suspicious activity review threshold is
$5,000
red flags are generally separated into three categories
new business, premium and deposit payments, and policy activity. The geographical location of the parties involved in the transaction may also raise a red flag.
The first stage in the money laundering process is called?
placement
Under the Bank Secrecy Act (BSA) of 1970
Cash payments over $10,000, received in a trade or business from one buyer, must be reported to the IRS using Form 8300. Businesses and individuals that own foreign bank accounts, brokerage accounts, mutual funds, unit trusts, or other financial accounts in which the aggregate value exceeds $10,000 are required to report the account annually to the IRS. Banks must file a Suspicious Activity Report (SAR) for "any suspicious transaction relevant to a possible violation of law or regulation."
Under FinCEN's final rules as they apply to insurance companies, agents, and brokers are required to establish and maintain their own AML programs and procedures A) True B) False
False (Agents and brokers are not required to establish separate AML programs)
Money laundering summary
Money laundering has long existed as a way for illegal ventures to integrate "dirty" funds into the economic system without a trace of their illicit source. It's a process that moves illegally obtained money through three stages to apparent legitimacy: placement, layering, and integration. While law enforcement has tried to deter money laundering for decades, the events of September 11, 2001, elevated the issue to a matter of national security. To assist in the battle against terrorism, the USA PATRIOT Act of 2001, largely modeled on the Bank Secrecy Act of 1970 and amended by FinCEN's final rules applicable May 2, 2006, engages insurance companies in the fight. With its insurance charges, contract fees, and potential surrender charges, life insurance would seem an unlikely object of money launderers' affection. Real cases reveal otherwise. The PATRIOT Act requires that insurance companies establish anti-money laundering (AML) measures to prevent the use of their products in money laundering or terrorist activity financing and report "suspicious activities." The cooperation of a company's producers is essential to the program's success.
The money laundering operation set up by Raul and his associates followed the standard three-stage process characteristic of most money laundering schemes.
Placement occurred when the cash was deposited into off-shore bank accounts, where it was subsequently wired to Tom's insurance company to pay premiums. Layering was achieved through buying multiple life insurance and deferred annuity contracts using cash payments and wire transfers from uncertain sources. Ownership changes helped cover any audit trail. Integration occurred through partial surrenders and withdrawals in the form of insurance company checks, which moved the money back into the legal monetary system.
CHapter 2 summary
The USA PATRIOT Act (amended by the FinCEN final rules effective May 2, 2006) mandates that financial services companies involved in the sale of "covered products" must comply with four basic AML requirements: designate a compliance officer to oversee the company's AML policies and procedures maintain internal policies, procedures, and controls to help identify and report potential money laundering transactions maintain an ongoing training program for all associates who are involved in the sale and administration of covered products periodically test the company's AML policies and procedures through an independent audit While the PATRIOT Act puts the burden for creating an AML program on the shoulders of insurance companies and not their producers, producers' front-line position puts agents and brokers at the heart of every company's AML policy.
FinCEN's final rulings, the USA PATRIOT Act stipulates that financial services companies involved in the sale of "covered products" must:
designate a compliance officer to oversee the company's development and implementation of AML policies and procedures develop and maintain internal policies, procedures, and controls to help identify and report potential money laundering transactions, including a formal AML policy document maintain an ongoing training program for all associates who are involved in any sale and administration of "covered products" maintain an independent audit procedure to periodically test the company's AML policies and procedures
SAR-ICs must be filed
within 30 days of when the suspicious transaction was first detected.
What is a red flag?
A red flag is any fact or circumstance that is outside the customer's typical actions, especially where the economic gain is not obvious or clear.
What is AML mean?
AML refers collectively to laws, policies, and company programs intended to deter and detect money laundering.
What is money laundering?
Claiming illegal funds as a legitimate business transaction
Chapter 3 summary
An effective anti-money laundering program uses a risk-based compliance process that reflects the company's unique set of money laundering risks. The process is designed to monitor and detect suspicious activity as it relates to the company's covered products. A producer or employee who detects a red flag or any other suspicious activity is only required to report the suspicion to a manager or designated compliance principal and should never discuss the concerns with the customer. The company's AML process will escalate the case through compliance review before deciding if it will be reported to FinCEN. It is the insurance company's compliance officer—not the producer—who reports the case to federal authorities. Suspicious activity is reported using Form SAR-IC. It may be filed with any case about which the company has suspicions, but it must be filed for any covered insurance product transaction (or related series of transactions) that exceeds $5,000 in value and raises at least one red flag. SAR-ICs must be filed within 30 days of when the suspicious transaction was first detected. Once filed, SAR-ICs must be retained for five years from the date of filing. In addition to Form SAR-IC, insurance companies are required to report cash (or cash equivalent) receipts exceeding $10,000. Insurance companies use Form 8300 for this reporting.
A customer requests a $5,000 partial surrender of his universal life insurance policy. the producer notices that the customer has made a $5,000 premium deposit just a week before. the producer should?
Discuss the situation with his/her manager
FinCEN rules require that the person who fills out and files an SAR-IC must be the person who actually detects or witnesses suspicious activity A) True B) False
False ( A producer or company employee is only required to report the suspicion to a manager or designated compliance officer)
Insurance companies are not required to establish anti-money laundering programs, though they are encouraged to do so A) True B) Flase
False ( title 3 of the patriot act specifically addresses money laundering and expands the bank secretary act to encompass all financial institutions, including life insurance companies)
What are some ways to money launder?
A money launderer could purchase a life insurance policy and then cancel the policy during the free-look period to receive a refund of the premium. The returned premium is used to purchase other assets or investments, thus adding layers to the process and further integrating the money into the financial system. A money launderer could purchase a life insurance policy and then use the policy values as collateral for a loan to buy a piece of real estate. The loan is repaid by surrendering the policy, and the launderer now owns property that can be retained or sold at a later date. A money launderer could use illicit funds to purchase life insurance policies from terminally ill insureds under viatical settlement agreements, naming an off-shore company or group of foreign investors as beneficiaries of the policies. When the insureds die, the proceeds are paid to the company or the investors as legitimate death benefits.
A customer has purchased over a dozen life insurance and annuity contracts over the past year, using chashiers checks to pay the premiums. If this action is part of a money laundering operation, What stage does this represent? A) Acquisition B) Placement C) Layering D) Integration
Layering ( The 2nd stage layering is achieved by using cash or cash equivalents to purchase multiple financial instruments that can subsequently be converted to clean money)
Any covered product transaction that includes a payment (or aggregate of payments) of $5,000 or more requires a closer evaluation by the company to assess the need to file an
SAR-IC.
As part of the life insurance application process in compliance with AML requirements, producers are required to obtain all of the following information EXCEPT? A) The applicants social security or tax identification numer B) The applicants residential address C) The beneficiaries DOB D) THe applicants full legal name
The beneficiaries DOB ( required information: full name, DOB, residential address, and SSN or TIN)
All of the following are federal laws or related rulings that have a direct impact on anti-money laundering requirements EXCEPT ? A) The bank secretary act of 1970 B) The fair credit reporting act of 1972 C) THe US patriot act of 2001 D) the FinCEN final rules published in November 2005
The fair credit reporting act of 1972 (FCRA does not directly related to money laundering )
Factors that producers should consider when determining if an application raises a red flag include all of the following EXCEPT? A) The source of the premium or deposit payment B) The size of the commission that might be earned on the transaction C) The geographical location of the person requesting the transaction D) Transaction history involving this customer or this policy
The size of the commission that might be earned on the transaction
Tom and Raul case study
Tom wrote a $500,000 universal life insurance policy. wrote large cash value policies not only on Raul but also on Raul's business associates and personal friends. A common denominator with every case was the buyer's interest in the policy's living benefits. There were frequent withdrawals and partial surrenders, and several policies had been canceled during the free-look period. Raul and his associates, agents for an international drug cartel, were responsible for laundering the millions of dollars generated annually from cocaine and heroin buyers in the U.S. and Europe
The patriot act is otherwise known as?
Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001
What are the 2 red flags with FinCEN?
an aggregate of at least $5,000 in funds or other assets facts or circumstances of the case that raise suspicion
What is the Financial Action Task Force (FATF)
an international body whose purpose is to develop and promote policies to combat money laundering. Its members include nations from around the world.
The focus of the USA PATRIOT Act was not on money laundering per se but on
any financial transaction that might be involved in terrorist financing
Suspicious activity is reported b
by the insurance company (not the agent or broker) to FinCEN using Form SAR-IC (Suspicious Activity Report by Insurance
Transactions may include
cash value transfers between policies and 1035 exchanges as well as premium payments and deposits
In creating an AML policy, an insurance company's first responsibility is to designate a
compliance officer whose charge is to oversee the policy's development and then assure its effective implementation and maintenance.
According to FinCEN, the types of suspicious activities that prompt the majority of SAR filings by insurance companies are:
excessive insurance excessive or unusual cash borrowing against a policy or annuity proceeds sent to unrelated third parties suspicious life settlement sales (i.e., STOLIs, viaticals) suspicious termination of a policy or contract unclear or no insurable interest
Who oversees money laundering?
federal regulations like the USA PATRIOT Act,
In determining the need to report suspicious activity, all of the following are considered to be "transactions" EXCEPT? A) all premiums are paid with money orders B) The intial premium deposit is paid by a wire transfer C) cash value transfers are made between policies (or via a 1035 exchange) D) participating policy dividends are used to purchase paid-up additions
participating policy dividends are used to purchase paid-up additions
Operation Capstone
revealed that owners were heavily funding their policies just shy of MEC levels to avoid IRS scrutiny and making early withdrawals to access the cleansed money within. . Changes in policy ownership were common.
Operation Capstone involved the efforts of whom
the action involved the coordinated efforts of the U.S. Customs Service, the U.S. Attorney for the Southern District of Florida, and several police departments in South Florida, as well as British and South American authorities.
What is structuring?
the practice of breaking up large cash transactions into multiple smaller transactions (for the purpose of evading reporting or recordkeeping requirements