Patriot Act Final Rules on Money Laundering Exempt P/C Insurers

September 20, 2002

The U.S. Treasury Department’s final rules on implementation of the USA Patriot Act exclude property/casualty insurers from specific sections of the law aimed at detecting terrorists’ money laundering schemes within financial institutions. The National Association of Independent Insurers (NAII) applauded the final rules, announced this week.

“Section 352 of the USA Patriot Act required financial institutions to establish anti-money laundering programs,” Julie Gackenach, NAII Assistant vice president, Government Relations said. “The newly proposed rules apply the anti-money laundering requirements to insurers that offer products with investment features or features of stored value, such as annuities and life products. The property/casualty insurance business involves personal lines, such as homeowners, auto insurance or commercial policies. These lines of business require insurers to collect premium for policyholders, but does not involve setting up deposits or investment accounts that could be easily used for money laundering by terrorists. NAII is pleased that the Treasury recognizes the inherent differences and addressed the regulations to areas of greatest risk.”

The NAII, along with the Alliance of American Insurers and the National Association of Mutual Insurance Companies, met with the Treasury Department last April to discuss the differences in the property/casualty insurance area and requested that regulations recognize those unique characteristics.

“The USA Patriot Act anti-money laundering provisions are clearly directed at financial institutions such as banks and security brokers, not property/casualty insurers,” Kathleen Jensen, NAII insurance service counsel, said. “The Act could apply to life insurers, but clearly does not have application for property/casualty insurers because premium does not earn interest nor is it kept for investment purposes. Property/casualty insurers do not establish, maintain, administer or manage a private banking account or keep premium for investment purposes for the policyholder. Our meeting with Treasury representatives clearly spelled out these differences.”

The Patriot Act under Section 352 specifies that financial institutions avoid knowingly becoming involved in unlawful financial transactions with suspected terrorists. It also requires that companies establish and maintain:

· Written, anti-money laundering programs that at a minimum:
· Incorporate internal policies, procedures, and controls based on the company’s assessment of its money laundering risks;
· Designates a compliance officer; and
· Establishes an ongoing employee training program as well as an independent audit function to test programs.

“Although property/casualty insurers are clearly exempt, NAII will continue to support all efforts to combat terrorists’ illegal activities and look forward to working with the Treasury in whatever capacity is most appropriate,” Gackenbach added.

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