RECOMMENDED CORE ELEMENTS OF AN AML TRAINING PROGRAM FOR LIFE INSURANCE AGENTS AND BROKERS NOTICE: This document is provided to assist life insurance companies in the integration of their agents and brokers, including those associated with independent agencies, into their anti-money laundering programs, as required by federal law. It addresses only those requirements for insurance company AML programs that are specified in the USA PATRIOT Act and regulations issued by the U.S. Department of the Treasury and the Financial Crimes Enforcement Network (FinCEN). Life insurance companies are solely responsible for developing and implementing their own AML programs in accordance with applicable law and regulations. The incorporation of these suggested core elements into a company s training program for agents does not guarantee compliance with these legal requirements. In designing its training program, each life insurance company should consider carefully the characteristics of its particular business, including the role that agents play in that business and the appropriate means for the company to deliver and/or contract for such training. Antitrust Disclaimer: The American Council of Life Insurers is committed to adhering strictly to the letter and spirit of the antitrust laws. Under no circumstances shall ACLI be used as a means for competing companies to reach any understanding, expressed or implied, which tends to restrict competition, or in any way, to impair the ability of members to exercise independent business judgment regarding matters affecting competition. 1
Introduction This document provides recommendations concerning the subjects that should be covered in anti-money laundering (AML) training programs for insurance agents and brokers. Its goal is to assist insurance company compliance officers, agents and brokers, and vendors in identifying training programs that will comply with regulations requiring the integration of agents and brokers into insurance company AML programs. Under these regulations, all agents selling covered products (in general, individual life insurance and annuities) must receive training regarding money laundering and terrorist financing. The ACLI has developed these recommendations to assure that this training is consistent with generally accepted program standards, as identified by regulations issued by the U.S. Department of the Treasury, and to avoid the burden of repetitive training of independent agents by multiple companies. ACLI members may, but are not required, to accept a certification that an agent or broker has completed training satisfying these standards in lieu of a requirement that an agent receive training from each company for whom the agent may act. Each company is responsible for establishing its own rules and procedures for training, including determinations as to the acceptability of particular programs and the means by which completion of training may be documented. Training should be as comprehensive as possible and include the elements outlined below. In addition to this comprehensive training, agents and brokers should expect to receive risk-based guidance from each company they represent, which will provide specific guidance regarding the company s particular product mix and unique business practices. Companies should, however, be mindful of the burden that inconsistent or conflicting programs could impose on agents and brokers and be aware of various ways to avoid any undue burden, while assuring the effectiveness of the industry s efforts to combat money laundering. Recommendations for Training Programs 1. Format and Procedure The course should be provided in a classroom setting by an instructor or through an on-line program. The course should include instruction on general standards, their application to particular fact situations, and some testing of an agent s grasp of material. Controls should be present to assure that agents both sign in and complete testing. Each person taking the course should be provided a document substantiating completion of the course and a document summarizing the subjects covered. The course should cover the subjects listed in paragraphs 2 through 8 and should include case studies. (Appendix A includes illustrative samples of case studies of the type that may be included.) 2
2. Key Concepts The Definition Of Money Laundering Three Stages Of Money Laundering Terrorist Financing The Insurance Company s Obligation to Establish an AML Program Applicable to its Covered Products, Integrate its Agents into that Program, and Report Suspicious Activity 3. Agent s and Broker s Responsibilities Gaining Familiarity with Company Programs Training Methods of Payment Identifying Red Flags and Reporting Suspicious Activity Participating in Assembling Information for SARS and Confidentiality Recordkeeping Complying with Requirements Applicable to High Risk Countries, Transactions, OFAC, and FATF Countries 4. Know Your Customer What role will agents and brokers play in gathering information from customers? What source of funds will be paying for the policy? How does an agent verify the customer s identity? 5. Methods of Payment Product specific requirements, if applicable, for premium payments, rollovers, transfers, loan repayments Currency Definition of cash equivalents including money orders, cashiers checks, travelers checks, etc Wire transfers and EFT (include foreign jurisdictions) 3
6. Suspicious Activity Monitoring and Reporting Identifying Red Flags methods of payment, initial point of sale meetings with customer, new business and application activity, ongoing account activity, where applicable), ongoing payment activity (where applicable) Responsibility to report suspicious activity of customers and potential customers to the insurance company Confidentiality of SARs High risk industries, markets High risk transactions 7. Recordkeeping Responsibilities What information should an agent record after a meeting with a customer? Can these records be electronic? What type of records should an agent keep on customers? How long should these records be kept? 8. Foreign Clients and Overseas Markets: OFAC, FATF countries What types of insurance transactions would be an OFAC violation? What countries are on the OFAC and FATF list? What does that mean? High risk customers Extra due diligence 9. Time as a critical element Timing requirements for filing of items o SARs o OFAC reporting o Cash and cash equivalent receipt reporting 10. Penalties Criminal (for organizations and individual) o Fines in dollar amounts or as a multiple of the property involved in the transaction - whichever is greater o Prison sentences (duration) Civil (for organizations and individuals): 4
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o Fines in dollar amounts or the value of funds involved in the transaction whichever is greater o Seizure of any property involved Reputation o Damage to the insurance company s reputation o Damage to personal/professional reputation 6
Appendix A Case Studies Training on particular subjects should include case studies, both to illustrate the application of general concepts to particular facts and to test the agent s grasp of material. The following are examples of case studies; companies and vendors are free to design their own. AML Scenarios for Life and Annuities 1. No picture ID A potential customer meets with an agent to purchase a life insurance policy or an annuity. The agent asks the person for a Driver s License or Passport. The potential customer shows a passport with no picture and when questioned by the agent says that it is a military passport and that military passports do not have pictures. When asked for another form of ID, the person, unable to produce another ID, becomes irate and questions whether this company wants the business or not. A. Agent should call the police to refer this person to law enforcement. B. Since this is suspicious activity related to a customer applying for an insurance contract, the agent should immediately contact the Money Laundering Compliance Officer at the insurance company to report all the details of this meeting. C. Agent is not required to take any action, since an application was not signed. 2. Change in Payment Behavior Company Operations Department notices in an exception report that for the third Friday in a row a small business owner gave his agent a payment of exactly $9500 in money orders to add to his flexible premium fixed annuity. A. Since the insurance company has already deposited the funds, there is nothing further that needs to be done by either the agent or the company. B. There is nothing to be concerned about since this is a fixed annuity. C. The agent should immediately notify the company s Money Laundering Compliance Officer that this customer has been using cash equivalents, so that the Compliance Officer can consider whether this form of payment is acceptable and whether reporting is required. 3. High Risk Businesses A jeweler/precious metal dealer applies for a corporate owner life insurance policy. In accordance with the company s due diligence 7
procedures for owners in high risk businesses, the dealer provides valid articles of incorporation and documents verifying its identity are accurate and complete. The company operations department notices on a monthly exception report that on the first of every month, the agent calls in requesting a loan, which the owner immediately pays back with cash equivalents. A. Since the extra due diligence was performed on this business, no action is needed. B. The agent should recognize that monthly loans paid back immediately are a red flag and should call the company s Money Laundering Compliance Officer. C. The agent should tell the customer to call the company s customer service line to process these loans. He really doesn t need to be involved in these transactions. 4. Disregard for Monetary Losses An annuity owner calls his agent to request a surrender of an annuity, which was held for less than one year. When the agent apprises the owner of the surrender charges and potential losses, the owner indicates that the fees and losses do not matter and to please make the surrender immediately and wire the money to an account located in Europe. A. The agent should tell the customer to handle this surrender by sending the paperwork directly to the company. B. The agent should promptly send in the surrender paper work and at the same time call the Money Laundering Compliance Officer. C. The agent should call the Money Laundering Compliance Officer and await instructions. 5. Foreign Clients and Overseas Markets--During her annual Supervisory Interview, your top selling agent notifies you that 2 of her clients are currently residing in Iran. Upon further investigation you learn that the address of record for the policies of both clients is Michigan. Both contracts have been in force for approximately 10 years. According to the Agent, one of her clients is currently in Iran but the owner of the policy resides in Michigan. The other client, who is the owner and Insured of his policy, is also currently living in Iran. Both policies were issued in the United States and premiums are being paid via electronic drafts with funds from U.S. banks. What action should you take? A. Call OFAC and while apologizing profusely fess-up to the fact that your company is in violation of its blocked country statues. Await pending fines and punishment and advise the AML Compliance Officer when this is complete. 8
B. Contact your Administrative Services and the AML Compliance Officer, share the information you have obtained from the Supervisory Interview and await further instruction. C. Continue to perform enhanced due diligence with the agent. Crank up the questioning and threaten to terminate her if necessary. 6. Know Your Customer--You as the agent have written an application for insurance and the client provides payment to you in the form of eighteen money orders totaling $9,088, ranging from $88.00 to $1,000 in amount. The prospective insured is a 25-year-old female who does not have a checking account. The application shows China as country of birth, and a current Orlando, Florida address. The application also indicates that the proposed insured owns a Chinese restaurant in Tampa and your (agent s) statement indicates that you met the client on solicitation. The application indicates that the insured has a driver s license and a Social Security number. How should you handle this case? A. Due to the nature of the premium payment, as well as the admission that the client, a business owner, does not have a checking account, you should expect that the branch office will contact the AML Compliance Officer immediately for guidance. Perhaps a non-documentary review (enhanced due diligence) is in order. B. Make sure that the branch office applies the premiums to the policy without further ado. After all, the proposed client may want to deposit additional cash or cash equivalents into this account and we want to be easy to do business with. C. Call the police or the F.B.I. It s obvious that something s fishy here and the earlier we can involve the law enforcement agencies the better. 7. Suspicious Transaction Monitoring Your field office receives what appears to be a $15,000 bank draft from Tulips Bank in the Netherlands. The insured s name and policy number are written on the check, which appears to be in USD. The name of an international concern is printed toward the bottom of the check. Is there anything unusual about this situation? What should you (your office) do? A. The check should be deposited immediately so that the insurance company will not suffer any losses due to the foreign exchange rate. B. Someone should call the U.S. Treasury Department to see if this is a real check; if it is, then you may tell the administrative staff to deposit it so that you can get your commission. 9
C. The check should be referred to the branch office manager, who in turn should contact the AML Compliance Officer or the insurance company s Treasury Dept. for additional instructions on how to handle premiums received as foreign currency 10 Copyright American Council of Life Insurers, 101 Constitution Avenue, NW, Washington, DC 20001-2133. All rights reserved. Draft 3/23/06