ANTI-MONEY LAUNDERING
Notable Cases U.S. Legislation Regarding Insurance & Money Laundering
Insurance companies have been required to abide by laws against money laundering as much as any financial institution for as long as there has been legislation regarding this form of illegal transaction. It wasn't until the 2001 USA PATRIOT Act, however, that insurance companies were explicitly described as financial institutions required to abide by the same kind of regulations on identity verification, reporting of cash transactions larger than $10,000 (either in single transactions or in the aggregate), and on reporting suspicious activity. Rules regarding how the USA PATRIOT Act is to be enforced with regard to the insurance industry were drafted by the FinCEN agency within the U.S. Treasury. The current rule regarding the insurance industry was published on November 3, 2005 and took effect in 2006.
Stages of Money Laundering Layering
Layering, can be an elaborate and protracted process, particularly as efforts to combat money laundering have grown in scope and sophistication. Money may be moved repeatedly across international borders or moved between financial instruments. Or (as in an example, mentioned above) it can be a very easy process such a short stroll around a Casino floor before you return to get the cash you "placed" in chips back in the form of a Casino check.
Insurance Agent & Broker Obligations Training
Insurance companies must ensure that anyone who handles a covered product is properly trained either directly by that company or by a competent third party. A primary component in this training is to apprise all insurance providers of potential "red flags." Agents and producers are advised to be alert to any and all "red flags" since failure to note warnings could implicate them in the crime. The following list of red flags is intended to present typical examples, not to be inclusive. The presence of any of these red flags may provoke reporting to the insurance company's money laundering compliance department... The purchase of an insurance product that appears to be inconsistent with the customer's needs or appears to exceed the customer's known income or liquid assets. Little or no concern by a customer for product features, other than the early termination feature. Early termination of a product, especially at a cost to the customer or where payment is made by, or the refund check is directed to, an apparently unrelated third party. The return of a policy that refunds a large amount of premium during the free-look period with no apparent reason for not wanting the policy. Repeated policy cancellations in a short period of time for significant amounts of money. Making over-payment on a policy, then asking for a refund. A customer who requests a maximum loan on a single premium policy shortly after purchase. Purchasing a general or P&C insurance policy, then making a claim soon after. Unusual payment methods, such as cash, foreign currency, foreign accounts, or cash-like instruments such as money orders, traveler's checks, cashier's checks, starter checks or credit card advance checks. Payment of a large amount broken into small amounts An attempt to purchase several small policies rather than one large policy for no valid reason. This can be an instance of "structuring" - i.e., purchasing several policies just under the reportable limit, instead of purchasing one large policy. Premiums being paid into one policy, from different sources. A customer who usually purchases small policies, suddenly requests a large lump-sum contract. A customer who wishes to fund its policy using payments from a third party. A large pour-in or "top-up" to a contract, especially if followed by an immediate withdrawal. Reluctance by a customer to reveal information normally provided in the application, or is unwilling to provide photo ID or other documentation that will enable proper identification. Insistence on speedy issue or service without the required paperwork or medical requirements. The transfer of the benefit of a product to an apparently unrelated third party. A customer who usually purchases small policies, suddenly requests a large lump-sum contract. A customer who wishes to fund its policy using payments from a third party. Where the relationship between the policyholder and beneficiary seems unusual. Purchasing an annuity with a lump sum rather than paying regular premiums over a period of time, particularly if the beneficiary is of an age which entitles him to receive the funds soon after. Purchasing products which are inconsistent with the buyer's age, income, employment or history
Obligations of Insurance Industry in Preventing Money Laundering Insurance Company Obligations Reporting
There are two possible money laundering scenarios that would trigger the reporting requirement imposed on insurance companies, cash transactions or suspicious activity.
The History of Money Laundering Origins
There has been "dirty money" as long as there has been money. Anything earned in a way society bans or frowns on is "dirty." Since money rarely has any value by itself - its value happens when others accept it in exchange for goods and services or accept it as a mark of the value of its possessor - those holding "dirty money" sometimes want to change that perception. Some will use philanthropy either to religious or secular causes as a way to make their wealth acceptable. Marrying into a family of good repute and bringing your money with you has been a means to launder money through the ages. Criminal money laundering in the United States can be traced to the creation of the permanent Federal income tax in 1913. For the first time, it was beneficial to appear to have less money than you actually had in order to reduce how much you paid in taxes. It also became the business of the U.S. Government to learn how much and how income was earned. The IRS dates its first money laundering investigation to 1919 when it began tracking money earned by opium producers. The opium producers were convicted for what was termed "tax evasion" since there were no laws at the time that explicitly made money laundering a crime. The origins of this term, itself, is unclear. A legend grew in Chicago during the 1920s that Al Capone had his men feed the money made through bootlegging, gambling, and prostitution into the laundromats he owned to make it appear it had been earned in that way. The term "laundering" money supposedly derived from this practice, although the role of laundromats in Capone's money "laundering" was likely exaggerated. Regardless, the conviction of Al Capone in 1931 not for any of his directly illegal activities but for "tax evasion" had immense repercussions. Capone's conviction made it clear that anyone who wanted to hide what they earned or how they earned it needed to find a better way to do so. Meyer Lansky, who became notorious as the "mob's accountant" and a top aide to Lucky Luciano, is credited with creating the methods for money laundering most widely used over the 50 years from Capone's conviction to the 1980s. Most notable was his use of overseas bank accounts such as in Switzerland where bank secrecy laws prevailed. The funds would then sometimes be returned in the form of spurious "loans" from the same banks which would then not be taxable or reportable income and, in fact, appear as "losses." More recently, the money is sometimes repatriated in the form of "foreign direct investments" that are never repaid. Large-scale legal casinos also became hubs for money laundering in two ways... 1) Skimming (secretly removing income from proceeds before reporting it to the IRS) 2) Turning Cash into Casino-Issued Checks (by buying chips with cash and cashing them in without gambling or after winning either regular or fixed wagers; the casino check would appear as "winnings" and disguise the source of the money). Similarly, the money could just be lost or not reclaimed after buying the chips and become "legitimate" money the Casino earned. Race tracks and legalized sports betting were used in similar ways to launder money. Meyer Lansky and others like him also pioneered the creation of "shell companies," that did no real business other than create fake receipts to either document fictional profits or fictional purchases from the person whose "dirty" money would now appear to be the result of a sale that had never actually occurred. These shell companies might have a thin legitimate business as well, but they would generally lose money in their supposed business and exist primarily to document fictional transactions.
Stages of Money Laundering Uncovering Money Laundering
The form that these three steps take varies based on the amount of money to be laundered, the circumstances of the person who wants to hide the money, and how to respond to the changing nature of detection and enforcement. Clearly, the best time to detect money laundering is during the steps "placement" and "layering." By the time of integration, it may be too late. On the other hand, it may only be when integration takes place that the identity of the launderer becomes clear.
Obligations of Insurance Industry in Preventing Money Laundering Insurance Company Obligations
The legal obligations of the insurance industry with regard to money laundering are restricted to certain "covered products." FinCEN regulations and oversight don't apply to all aspects of insurance but only to these covered products. The regulation and oversight tasks assigned to insurance companies fall into three categories: Administration; Training; and Reporting.
National Efforts to Combat Money Laundering The Money Laundering Suppression Act (1994)
Bank anti-money-laundering compliance programs and reporting procedures were more tightly regulated and any non-bank that exchanged money (through check-cashing, foreign exchange, traveler's checks, money orders) was now required to register with the U.S. Treasury Department and follow reporting procedures.
Stages of Money Laundering Placement
In this step the criminal has temporarily surrendered possession of the money. One common method when placing money into the possession of a financial services company is known as "structuring." This refers to breaking a deposit into smaller amounts so as to evade reporting requirements for larger cash transactions. Recent regulations address the practice of structuring by requiring that multiple deposits over a short span be reported as an aggregate total and by making the financial services company an accomplice in the crime if they aid in the structuring process in any way. This is only one example of the placement phase. Another is to blend illegal money with legal proceeds, smuggling cash across an international border.
Stages of Money Laundering Integration
The goal of money laundering is, of course, to regain possession of the asset in a form you can "integrate" into your bank account or spend without suspicion or legal consequences.
Obligations of Insurance Industry in Preventing Money Laundering Insurance Company Obligations Covered Products
According to the most recently issued guidelines, insurance companies need to create a program designed to address only those "covered products" vulnerable to exploitation by a money launderer. The FinCEN defines "covered products" as a permanent (or "whole") life insurance policy, other than a group life insurance policy, an annuity contract, other than a group annuity contract, any other insurance product with cash value or investment features. FinCEN rules further specify: "The definition incorporates a functional approach and encompasses any insurance product having the same kinds of features that make permanent life insurance and annuity products more at risk of being used for money laundering, e.g., having a [readily accessed] cash value or investment feature. To the extent that term life insurance, property and casualty insurance, health insurance, and other kinds of insurance do not exhibit these features, they are not products covered by the rule."
Obligations of Insurance Industry in Preventing Money Laundering Insurance Company Obligations Administration
At a minimum, insurance companies are required to designate a "Compliance Officer." The responsibility of this officer (or department) is to ensure that... Policies, procedures, and internal controls are developed and implemented by the insurance company necessary to create an effective anti-money-laundering program. All aspects of the program are updated regularly. All details of the program are provided to and approved by company management and provided to the Department of the Treasury. Training is provided either by the company itself or by a "competent third party" to all officers, agents and producers on anti-money-laundering policies and procedures. Information regarding suspicious activity is properly communicated by insurance agents and producers. Independent (third party or company employee unconnected to the Compliance Officer) testing is done to monitor the adequacy of the program, including testing to determine compliance of the company's insurance agents and insurance brokers with their obligations under the program. The scope of the program and frequency of the testing is commensurate with the risks posed by the insurance company's covered products. The FinCEN specifies that "compliance is risk-based, meaning that a financial institution must devote more compliance resources to the areas of its business that pose the greatest risk. Moreover, as is true for all industries we regulate, we do not expect businesses of different sizes and circumstances to have the same types of anti-money laundering programs. We believe effective implementation must be predicated upon your knowledge of your business, a careful assessment of the vulnerabilities of your business to money laundering, and adoption of controls appropriate to that risk."
The History of Money Laundering Recent Developments International Drug Smuggling
Despite the lengthy and elaborate history of hiding assets by organized crime and by some wealthy private individuals, use of the term "money laundering" and public awareness of the practice only became widespread with the explosion of trafficking in cocaine and other illegal drugs in the 1970s and 1980s. Ironically, it wasn't an organized criminal activity during this period that first brought money laundering to prominence but actions tied to the President of the United States. Funds used to finance the Watergate break-in and subsequent cover up were laundered through Mexican banks to disguise their origin as political donations to President Nixon's re-election campaign. The term became even more widely used when money laundering by international drug cartels became known through sensational arrests and seizures of drugs and money in the late 1980's. One case involving the Medellin Colombia cartel purportedly uncovered over $1 billion laundered over four years. Initially, the proceeds from drug sales sent from the U.S. to South America was disguised as proceeds for gold shipments from Colombia-the gold bricks Customs chronicled as legitimate shipments were actually gold-plated lead. Cash paid for drugs in the U.S. was delivered to a gold importer who fabricated receipts for gold sales and remitted the proceeds to banks in Uruguay, where bank secrecy laws mimic Switzerland. These few celebrated arrests for money laundering didn't mean it was eradicated. Just the opposite; it ballooned in size and complexity. In recent decades, money laundering has become largely international. The U.S. Department of Justice estimated in 2004 that there was as much as 1 trillion U.S. dollars annually laundered and that 80 percent of the laundering was achieved through transnational exchanges. Some estimate that the volume of money being laundered may have doubled since 2004. Passage of money through third world countries where banking laws may be more lenient or enforcement less stringent (and corruption more common) is now typical for money laundering.
National Efforts to Combat Money Laundering The Money Laundering and Financial Crimes Strategy Act (1998)
Established the High Intensity Money Laundering and Related Financial Crime Area (HIFCA) Task Force to concentrate law enforcement efforts at the federal, state and local levels in zones where money laundering is prevalent. HIFCAs may be defined geographically or they can also be created to address money laundering in an industry sector, a financial institution, or group of financial institutions. It also required creation of a national strategy to combat money laundering and training programs for bank examiners to explicitly investigate and uncover suspicious activity.
Insurance Agent & Broker Obligations Compliance
FinCEN rules specify that, since insurance agents and brokers "are an integral part of the insurance industry due to their direct contact with customers," insurance companies are required to create and enforce policies and procedures reasonably designed to obtain customer-related information necessary to detect suspicious activity from all relevant sources, including from its agents and brokers, and to report suspicious activity based on this information. As noted above, the insurance company is required to file relevant reports for large cash transactions as well as for "suspicious activities." The company will require therefore that each agent and producer be aware of what products are covered by reporting requirements, what activities trigger a mandated report, what information needs to be collected, communicated, and kept on file, what disclosures are allowed or required, training and testing requirements, and all other information relevant to the maintenance of an effective anti-money-laundering program. It's worth noting that the USA PATRIOT Act holds agents and brokers liable for reporting suspicious activities. Failure to do so can result in charges of willful blindness. Specifics of each anti-money-laundering program may vary slightly. Agents and producers should stay informed of training and compliance protocols for every covered insurance product.
National Efforts to Combat Money Laundering The Bank Secrecy Act (1970)
For the first time, U.S. banks were required to report on the activities of their customers, under certain, prescribed circumstances. The 1970 Bank Secrecy Act (BSA) required banks to (1) report cash transactions over $10,000 using the Currency Transaction Report (CTR); (2) properly identify persons conducting transactions; and (3) maintain a paper trail by keeping appropriate records of financial transactions. The Act shielded banks from litigation from its depositors for disclosing their financial transactions, provided the disclosure was in conformance with this legislation. The BSA also created a means to monitor any transfer of money from other countries into the United States or from the United States into another country.
National Efforts to Combat Money Laundering The Annunzio-Wylie Anti-Money Laundering Act (1992)
In response to the increasing prevalence of electronic as opposed to cash transactions, the BSA requirement to maintain records was extended to all wire transfers. In addition, a new reporting requirement for "suspicious activity" was created, sanctions and penalties for violations of the BSA were increased, and a new agency (the Bank Secrecy Act Advisory Group) created to focus on and respond to specific avenues for money laundering and respond to changing circumstances.
Obligations of Insurance Industry in Preventing Money Laundering Insurance Company Obligations Training
Insurance companies are required to guarantee that all agents and producers who might represent them in selling and servicing covered products are properly trained in procedures to identify and report money laundering. This does not require all companies to train all employees or representatives. Insurance companies are required to assess whether any employee or representative is likely to encounter situations where a significant risk of money laundering exists and only ensure training to those whose work tasks require the training. The insurance company may also determine that any given employee or representative has received or is receiving adequate training from another competent company or agency and waive its own training program as a result. Training should be regularly assessed and updated and additional training provided where needed. Training efficacy and adherence to training must be assessed by an independent third party, either someone employed by another firm or someone within the insurance company itself but independent of the compliance program.
Obligations of Insurance Industry in Preventing Money Laundering Insurance Company Obligations Reporting FinCEN Form 108: Suspicious Activity Report by Insurance Companies
Insurance companies are required to report any transactions or activity with any of its officers, agents, or producers in the course of their activities on behalf of the company if there are any of the hallmarks of money laundering. FinCEN provides a partial list of "red flags." They are intended as examples of suspicious activity that would need to be reported. Training on anti-money-laundering with regard to covered products should use these red flags and supplement them with any additional activities the company might consider "suspicious." As a general rule, any transaction of $5,000 either in a lump sum or in the aggregate is sufficient to trigger reporting if it has any suspicious elements. Any transaction reported on a Form 8300 can be reported on the SAR as well, but it's not required UNLESS the transaction also appears to be suspicious in nature. If the suspicious activity involves more than one insurance company (for example, when a single agent or producer represents more than one company for the same client) a joint SAR may be filed. It's not necessary for each individual company to file a report, provided the reporting requirement is fulfilled with the joint SAR and that all relevant insurance companies are identified as the source of the report. Insurance companies are required to keep all documents and reports involving suspicious activity on file for at least five years. Insurance companies cannot be compelled to disclose that the SAR has been filed or its contents except by the relevant law enforcement agency. They are barred from disclosing that the SAR has been filed or its contents except when compelled to do so. They are shielded from civil penalties for any disclosures made when filing the SAR.
The History of Money Laundering Recent Developments Terrorism & Other Recent Developments
Terrorism's use of money laundering came to the fore in both public perception and government eradication efforts after the devastating attacks of September 11, 2001. Unlike typical money laundering operations which are intended to either shield income from taxation or hide the proceeds of illegal operations, money laundering in terrorism has two main goals: 1) hiding the identity of those who financially support terrorism and 2) hiding either purchases or payments made in the course of terrorist operations. For example, a donation to a purported "charitable organization" may be redirected to a terrorist group, giving the funder of terrorism a plausible defense that he didn't know the charity was fraudulent. Similarly, payments to the families of suicide bombers can be masked as "charity." Payments directly to terrorist actors or to purchase explosives, etc., can be done through shell companies, evading detection at least long enough to carry out the operation. As enforcement in banking has become more stringent, money laundering has sought to exploit any area where large sums of money are typically involved, such as real estate, auto sales, or insurance. Finally, the internet has opened up a vast new arena for money laundering. It democratizes the means for moving money between financial entities as well as potentially shielding identities. Some illegal activities are conducted entirely over the web, such as selling illegal drugs, untaxed cigarettes, etc. Online gambling and, even more so, the creation of internet-based currencies such as "bitcoins" opens vast new opportunity for money laundering. No matter what form it takes, what avenue it travels, or who is doing it, all money laundering has the same ultimate goal - either to hide how much you have or to have the only traceable source of money be a "legitimate" financial agents such as a bank, commodity broker, or insurance company.
Obligations of Insurance Industry in Preventing Money Laundering Insurance Company Obligations Ultimate Responsibilities
The anti-money-laundering measures delineated by the FinCEN represent a sample and minimum amount of responsibility borne by insurance companies in this regard. As the relevant rules specify, "The insurance company remains responsible for the conduct and effectiveness of its anti-money laundering program, which includes the activities of the agents and brokers that are involved with covered products. The insurance company must exercise due diligence, not only in the development of its anti-money laundering program and in the collection of appropriate customer and other information but also in monitoring the operations of its program, its employees, and its agents...We do not expect that this program can prevent all potential money laundering. What is expected is that your business will take prudent steps, with the same kind of thought and care that you take to guard against other crimes, such as theft or fraud."
National Efforts to Combat Money Laundering The Anti-Drug Abuse Act; The Money Laundering Prosecution Improvement Act (1988)
The growth and audacity of drug cartel activity within the United State provoked a response in 1988 in the form of legislation to direct the DEA, FBI, and Treasury Department to collaborate in uncovering money laundering. In addition, the role of financial instruments other than banks was now acknowledged in law. For example, car dealers, insurance agents, and real estate closing companies were now required to report cash transactions above $10,000 comparable to the reporting requirements already imposed on banks. In addition, any purchase of an asset or financial instrument of over $3,000 would now require verification of identity.
National Efforts to Combat Money Laundering International Efforts to Combat Money Laundering
The international scope of money laundering became clear during the 1980s. Not only were varying banking regulations used to hide the source, nature, or extent of assets, but simply transferring money between nations became an increasingly common way to confuse or evade national regulators. It became clear that no country could hope to contain money laundering without international cooperation. In 1989 the meeting of the G7 group of developed nations created the Financial Action Task Force on Money Laundering (FATF). It is headquartered at the Organization for Economic Cooperation and Development in Paris, France and also known by its French acronym (GATI). The FATF currently has 34 members, including all the major European countries, the USA, Canada and Mexico as well as China, India, Japan, Australia, New Zealand, Hong Kong, Turkey, and the Gulf States Cooperation Council (smaller Arab emirates like Dubai along with Saudi Arabia). It has agreements as well with regional banking groups in Latin America, etc. Within a year of its founding, the FATF issued its "Forty Recommendations" which all member countries are urged to incorporate into their banking regulations and enforcement efforts. Although amended and increased in number, the FATF guidelines continue to be referred to as the Forty Recommendations, no matter how many recommendations it actually contains. After September 11, 2001 an additional eight recommendations were added to the FATF mandate, all addressing the role of money laundering in terrorism. In addition to assisting member nations in creating and enforcing anti-money laundering regulations, the FATF helps coordinate efforts across international borders. One of the most powerful enforcement mechanisms for the FATF is its mandate to list those countries (such as Nigeria) who are non-cooperative with international anti-money-laundering efforts. All FATF member nations are required to block any transactions with non-cooperative countries, a powerful incentive for all nations to collaborate with the FATF to uncover and prevent international money laundering.
Notable Cases
The most notorious case involving insurance as a means for money laundering was uncovered in a two-year effort known as "Operation Capstone" from 2000-2002. Customs agents in Miami with the help of law enforcement on three continents were able to expose a sophisticated scheme by which Colombian drug trafficking organizations exploited investment-grade life insurance policies issued in various international markets to launder roughly $80 million worth of drug proceeds over several years. It was the first known instance of massive drug money laundering through the international life insurance industry. The investigation revealed that Colombian cartels, through a small number of insurance brokers, bought life insurance policies in the U.S., the Isle of Man, and other locations, with cartel associates as beneficiaries. These policies were funded with millions in drug proceeds sent via wire transfers and checks from third parties. The life insurance policies were then cashed in early, triggering early liquidation penalties. They were willing to pay considerable early withdrawal fees since beneficiaries would then receive funds from the insurance company that appeared to be legitimate insurance or investment proceeds. The cartels could then use these "clean" funds unquestioned. This case notwithstanding, international enforcement efforts against money laundering continue to focus mainly on banks and not on insurance. A 2004 report by the Financial Action Task Force (FATF) stated that: "there was a low detection of ML within the insurance industry in comparison to the size of the industry and in comparison to other parts of the financial services industry." The FATF studied 37 jurisdictions and found that, in 23 of them, fewer than 3% of Suspicious Transaction Reports (STRs) came from the insurance industry. Given the size of the industry, this strongly suggests that insurers are simply not monitoring transactions or, if they are, are failing to report suspicious ones.
Money Laundering and Insurance How to use Insurance to Launder Money
There are three principal ways insurance can be used to "launder money"; that is to transform money from a questionable source into money from an unquestioned source or to disguise the nature of the asset. Early Cancellation... The easiest and most common way to launder money through insurance is simply to buy a large policy or annuity then cancel it and get a refund in the form of a company check. Any policy or annuity with a large up-front payment can be used in this way, particularly if the company has a "free look" provision whereby a policy or annuity can be terminated within 15 days without any penalty and only a small administrative fee. Money from a source that might arouse suspicion is now transformed into a remittance from an insurance company far more likely to pass scrutiny. Borrowing... A whole life policy with a large up-front payment can have sufficient equity that the purchaser can borrow against the policy. The source of the money is therefore disguised. Hiding Identity... Policies or annuities can have beneficiaries different from the purchaser. Some annuities allow taxes to be deferred and withdrawals by a different person or individual can be structured so as to minimize or avoid taxes. Insurance or annuity benefits paid to a different individual are a simple means to disguise the source or true ownership of assets. It's possible to sell shares in an annuity as well, such that the value of the investment can be turned into a ready asset whose source is disguised. In addition, annuities can be used as a way to pay for terrorist activities. For example, it has become commonplace in some parts of the Middle East to create systems that pay the survivors of suicide bombers a monthly stipend, as an inducement for those who become bombers. Along with these common ways to use insurance to launder money, there are several less obvious or direct avenues for insurance to be used to disguise assets. It's possible to use false claims in ways that launder money. Any asset bought with illegal funds whose destruction is covered by insurance can be turned from a questionable asset to an unquestioned check from an insurer. It's possible to use "structuring" with insurance policies or annuities to evade the reporting requirements in anti-money-laundering regulation. Smaller contributions can add up quickly and yet not be reported as a large transaction. Reinsurance can be used in money laundering. One example is the creation of a false reinsurance company in a foreign location. If a large policy is laid off on this fictional reinsurance company, the money is now back in the hands of the purchaser of the policy without a claim or refund ever being filed or issued.
National Efforts to Combat Money Laundering Financial Crimes Enforcement Network (FinCEN) (1990)
This Agency was created to investigate money laundering or other illegal financial transactions. It became the agency of the Department of the Treasury dedicated to coordinating and supervising efforts of law enforcement nationally and internationally to detect money laundering and take action against it. It also became the resource for financial institutions in their efforts to detect money laundering. Although initially designed to deal with banking, subsequent legislation also made it the controlling agency for insurance.
National Efforts to Combat Money Laundering The Money Laundering Control Act (1986)
This legislation was the first to explicitly list money laundering as a Federal crime. It established a provision to confiscate assets found to have been laundered. It classified as criminal any attempt to structure transactions so as to evade the BSA requirement of filing a CTR for cash transactions over $10,000. A widespread money laundering practice had become known as structuring or "smurfing" whereby multiple deposits of less than $10,000 would evade reporting requirements; (when numerous people were used to make deposits under the reporting limit, they became known as "smurfs"). The law specified that any employee or official who knowingly engaged in efforts to evade reporting requirements was in violation of Federal law. In addition, the Act required that banks establish and maintain procedures to ensure and monitor compliance with the BSA's reporting and record-keeping mandate. In essence, it required the creation of a Compliance Program within every bank in America with a system to train staff on how to recognize and enforce anti-money laundering statutes and a system to monitor the bank's performance in these areas.
National Efforts to Combat Money Laundering The USA PATRIOT Act (2001)
Title III of the Uniting and Strengthening America by Providing Appropriate Tools to Restrict, Intercept and Obstruct Terrorism (USAPATRIOT) Act was entitled "International Money Laundering Abatement and Financial Anti-Terrorism". It recognized the vital role of money laundering in terrorist activities and the potential for uncovering terror plots by unraveling financial dealings. Any funding of an organization deemed a terrorist group was now defined as "money laundering." In addition to making more stringent reporting requirements for banks, suspicious activity reports were now to be sent both to the U.S Treasury Department and to intelligence agencies. Any large cash transaction now came under the authority of the BSA. It outlawed any dealings with "shell banks" -- foreign banks that were not subsidiaries of U.S. banks or under direct supervision of recognized controlling agencies in those countries. It gave authority to deny mergers with banks that had a poor history regarding money laundering and gave the Secretary of the Treasury leeway to enforce anti-money laundering regulations against any type of financial transaction, if suspicions of money laundering existed. Finally, it enhanced requirements to verify identity for financial transactions and expanded the provisions of the BSA to all financial institutions (including insurance companies) in terms of having a Compliance Program, verifying identity, and reporting requirements for large transactions.
National Efforts to Combat Money Laundering Intelligence Reform & Terrorism Prevention Act (2004)
Title VI of this Act refers primarily to money laundering as it relates to terrorism and increases monitoring of international transactions. The increasing scope and devotion of resources to regulating transactions and uncovering money laundering from 1970 to the present demonstrates the growing prominence of this activity. It shows the increasing concern of the effects on our financial system of money laundering, its costs to the country, and its vital role in both criminal and terrorist activities. It also demonstrates the growing awareness that money laundering can occur through myriad financial groups and that insurance company transactions are as important to monitor and control as those of a bank or any other financial organization.
Obligations of Insurance Industry in Preventing Money Laundering Insurance Company Obligations Reporting Form 8300
Under the BSA, banks that receive cash deposits of over $10,000 are required to file a Currency Transaction Report (CTR). Insurance companies are not required to file a CTR in this situation. Insurance companies are provided, instead, with Form 8300 on which to report receipt of cash either in one transaction or in the aggregate over a short period of over $10,000. Form 8300 also allows the company to document suspicious transactions (Box 1b). This is used to supplement a Suspicious Activity Report (SAR) not in place of that report. It is also not required as a supplement to the SAR.