On October 26, 2001, President Bush signed into law the "Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001" (the Act). The full text of the law can be obtained at http://www.gpoaccess.gov/legislative.html. (Scroll to public and private laws, select 107th Congress, and select Public Law 107-56.) This law, enacted in response to the terrorist attacks of September 11, 2001, is intended to strengthen our Nation’s ability to combat terrorism and prevent and detect money-laundering activities.
The purpose of this Bulletin is to advise persons or entities regulated by the Texas Department of Insurance of important new responsibilities under the Act. In particular, Section 352 of the Act amends the Bank Secrecy Act ("BSA") to require that all financial institutions establish an anti-money laundering program, and Section 326 amends the BSA to require the U.S. Secretary of the Treasury (Treasury) to adopt minimum standards for financial institutions regarding the identity of customers that open accounts. The BSA is codified in Title 31, Chapter 53, Subchapter II of the U.S. Code. Insurance companies are included in the BSA’s definition of financial institution, and should prepare to comply with the new law and the regulations promulgated thereunder. Section 352(a) of the Act became effective April 24, 2002. The Treasury, however, issued an interim final rule that temporarily exempts insurance companies, among others, from the application of section 352 of the Act. 67 Fed. Reg. 21,110 (2002) (to be codified at 31 C.F.R. pt. 103) (proposed April 29, 2002). According to the rule, the exemption will apply for no more than six months, or no later than October 24, 2002.
On April 23, 2002, Treasury issued a press release discussing the exemption. The press release, which may be viewed at http://www.treas.gov/press/releases/po3034.htm, contains a link where the interim final rule may be viewed. Please note that the press release states that Treasury has been examining the money laundering risks associated with insurance products and will issue in the near future a proposed rule governing the establishment of anti-money laundering programs by insurance companies. The Texas Department of Insurance encourages all insurance companies to be alert for the issuance of the proposed rule.
I. Section 352 Establishing AntiMoney Laundering Programs
Section 352 of the Act requires the establishment of an anti-money laundering program, including, at a minimum:
- The development of internal policies, procedures, and controls. These should be appropriate for the level of risk of money laundering identified.
- The designation of a compliance officer. The officer should have appropriate training and background to execute their responsibilities. In addition, the compliance officer should have access to senior management.
- An ongoing employee training program. The training program should match training to the employees’ roles in the organization and their job functions. Further, the training program should be provided as often as necessary to address gaps created by movement of employees within the organization and turnover.
- An independent audit function to test the programs. The independent audit function does not require engaging outside consultants. Internal staff that is independent of those developing and executing the anti-money laundering program may conduct the audit.
II. Section 326 Customer Identification
Section 326 of the Act amends the BSA to require that Treasury issue regulations setting forth minimum standards for financial institutions regarding the identity of their customers in connection with the purchase of a policy or contract of insurance. This program must set forth customer identity verification and documentation procedures, as well as procedures the insurer will employ to notify its customers about this requirement and determine whether the customer appears on government lists of known or suspected terrorists or terrorist organizations.
The Treasury plans to issue final regulations regarding this requirement by October 26, 2002. Proposed regulations will be published in the Federal Register later in the year. The Federal Register website address is http://www.access.gpo.gov/nara. Through the rulemaking process, Treasury will determine which insurance entities will be subject to the regulations. Insurance entities subject to the rules will be required to comply when the final Treasury regulations become effective.
Financial institutions, including insurance companies, are encouraged to review the Act for other provisions that may apply. Further, please provide this bulletin to appointed agents. The Texas Department of Insurance appreciates your cooperation in assuring that this bulletin is disseminated to the appropriate agents and other personnel in your organization.
Questions regarding the Act may be directed to Linda L. Duzick, Office of Thrift Supervision, serving as insurance industry liaison for the Department of the Treasury, at (202) 906-6565 or Linda.duzick@ots.treas.gov. Any information regarding suspected money laundering that a financial institution would like to report may be reported to the Financial Crimes Enforcement Network, Treasury hotline at 866-556-3974. If a financial institution would like to provide information regarding suspected money laundering to the Texas Department of Insurance, such information may be directed to:
Texas Department of Insurance
Attn: Dennis Pompa, Deputy Commissioner
Fraud Unit
P.O. Box 149404
Mail Code 109-3A
Austin, TX 78714-9104
512-463-6492
Jose Montemayor
Commissioner of Insurance
Links to Public Law 107-56 updated: You can now find Text Here or PDF Here.