IIABA Notes Agents/Brokers Should Be Part of Patriot Act Regulations

April 29, 2002

The Independent Insurance Agents & Brokers of America (IIABA) calls it a step in the right direction—a decision by the U.S. Treasury Department to delay application of anti-money laundering rules to independent agents and brokers until it further studies the need and implications.

“We applaud Treasury Secretary Paul O’Neill and the Bush Administration for taking IIABA’s concerns with the Patriot Act into consideration,” CEO Robert Rusbuldt remarked. “The regulations applicable to huge corporations would have imposed a tremendous burden on the owners of independent agencies, especially when you consider that independent agencies pose no threat for money laundering due to the nature of the business.”

The USA Patriot Act (Public Law 107-56), enacted following the Sept. 11 terrorist attacks, makes it harder for terrorists, other criminal entities and individuals to engage in money-laundering activities. The law requires financial institutions to establish anti-money laundering programs by assigning a compliance officer, training employees to detect money laundering, conducting annual independent audits and establishing policies and procedures to identify money-laundering risks and minimize opportunities for abuse.

IIABA said it supports the intent and goal of the new law, but expressed concern when it appeared agents and brokers would have to comply with onerous regulations when no one has identified a problem with independent agencies in this area.

Meantime, the Treasury Department has been working on implementing regulations for several months and announced the new rules earlier this week. Many financial service entities, but not insurance agents and brokers and several other groups must comply with the rules immediately.

The extended review for agents and brokers and several other groups was driven in large part by House Financial Services Committee Chairman Mike Oxley (R-Ohio).

In a letter to Treasury’s O’Neill, Oxley said the Patriot Act requires Treasury to consider “the different money-laundering vulnerabilities exhibited by various financial institutions” instead of imposing a one-size-fits-all approach. “We need to ensure that the burdens we are imposing on low-risk financial institutions do not outweigh the gains,” wrote Oxley. “There has been little evidence of money laundering being conducted through insurance products. It would be particularly difficult to launder money through property-casualty products, or life products without cash value. The commensurate requirements placed on underwriters and agents of these products should be correspondingly less.”

Oxley is not alone in his opposition to extending the reach of the regulations to insurance and other entities that pose minimal or no risk of money laundering. Many other House and Senate members do not believe it was the intention of Congress to include independent insurance agencies where money laundering does not exist, including a coauthor of the House legislation—Rep. Bob Ney (R-Ohio). Ney also sent a letter to O’Neill calling for agents and brokers to be exempted from the final rule.

IIABA representatives twice met with Treasury officials to discuss concerns with the emerging rules. In these meetings, IIABA told Treasury that independent agencies do not pay the actual claims, and that it would be virtually impossible for independent agents and brokers to engage in money laundering due to the nature of the products and the business practices of agencies. In addition, IIABA informed Treasury that the average agency has limited staff and they possibly would have to hire an additional employee exclusively to comply with new government regulations.

“In essence, the anti-money laundering rules as initially proposed would have been a hidden tax on small business owners,” Rusbuldt commented. “We feel that the rules should reflect the level of risk for money laundering, and independent agencies and brokerages are at the lowest level possible.”

“All along we have said to Treasury and key congressional leaders that agents and brokers do not deal in large amounts of cash and don’t pay loss claims,” IIABA Senior Vice President of Federal Government Affairs Maria Berthoud added. “Thus the opportunity for illicit activity is virtually nonexistent. By its very nature, insurance does not lend itself to money laundering because it requires the demonstration of a loss to recover policy proceeds. There are exceptions to this rule of reasoning, but those are few and far between and can be singled out in the updated rules the Treasury currently is contemplating. IIABA will continue to work closely with congressional leaders and the Treasury Department to ensure that agents, brokers and small businesses are not burdened.

“We are grateful to Chairman Oxley, Rep. Ney and other congressional leaders for raising agent and broker concerns with the Treasury Department and Secretary O’Neill,” Berthoud commented. “Treasury has been very responsive so far to the concerns of agents and brokers, and we believe they appreciate our input on the implementation of this Act.”

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