Bank Secrecy Act (BSA)/Anti-Money Laundering (AML) Employee & Agent Training

Transcription

1 Bank Secrecy Act (BSA)/Anti-Money Laundering (AML) Employee & Agent Training OVERVIEW The Bank Secrecy Act, or BSA, was passed by congress in The BSA required banks to maintain records of certain financial transactions in order to aid law enforcements in criminal investigations. From 1986 through the enactment of the USA Patriot Act of 2001, the Act was further strengthened by a series of federal laws aimed at making money laundering illegal and imposing additional information collection, recordkeeping, monitoring, and reporting requirements on financial institutions. Insurance companies are "financial institutions" covered by the BSA if they offer the following "covered products": A permanent life insurance policy, other than a group life insurance policy; Any annuity contract, other than a group annuity contract; or Any other insurance product with features of cash value or investment. As financial institutions, companies offering covered products are also subject to the BSA requirements, including: Anti-money laundering program (and training) requirements; Suspicious activity reporting; Currency transaction reporting. The Financial Crimes Enforcement Network (FinCEN) implements rules to help financial institutions comply with the BSA. FinCEN rules impose Anti-Money Laundering (AML) compliance program requirements and SAR obligations on insurance companies similar to those that apply to banks. What is money laundering? Money laundering is an illegal act in and of itself. Money laundering is typically used to disguise the funding sources and/or profits of other criminal acts, such as drug trafficking, fraud schemes, and terrorist activities. Money laundering generally involves three independent, but often simultaneous, steps: 1. Placement Putting illegally obtained funds into the financial system. 2. Layering Hiding the source or destination of the funds to disguise from where it comes or where it goes. 3. Integration Combining illegitimate funds with legitimate funds to make the bad funds appear good. Can insurance products really be used to launder money? Insurance products can be used to facilitate money laundering. For example, currency can be used to purchase one or more life insurance policies, which may subsequently be quickly canceled by a policyholder (also known as early surrender ) for a penalty. The insurance company refunds the money to the purchaser in the form of a check. Insurance policies without cash value or investment features are lower risk, but can be used to launder money or finance terrorism through the submission by a policyholder of inflated or false claims to its insurance carrier, which if paid, would enable the insured to recover a part or all of the originally invested payments. Other ways insurance products can be used to launder money include: Borrowing against the cash surrender value of permanent life insurance policies. Selling units in investment-linked products (such as annuities). LifeShield BSA/AML Agent Training 1

2 Using insurance proceeds from an early policy surrender to purchase other financial assets. Buying policies that allow the transfer of beneficial interests without the knowledge and consent of the issuer (e.g., secondhand endowment and bearer insurance policies). Purchasing insurance products through unusual methods such as currency or currency equivalents. Buying products with insurance termination features without concern for the product s investment performance. Responsibilities As a LifeShield employee/agent, it is your responsibility to: Comply with the BSA regulatory requirements as set forth below. Identify and scrutinize higher-risk customers, accounts, and products. Conduct due diligence on higher-risk accounts when appropriate. Monitor for and report unusual/suspicious activity. Understand how the various methods of payments could be used to launder money. Be able to identify the red flags of suspicious activities. Comply with record keeping requirements. CUSTOMER IDENTIFICATION PROGRAM (CIP) Financial institutions are expected to develop and implement a Customer Identification Program (CIP) which requires them to form a reasonable belief that they know the true identity of each customer prior to selling a policy. As part of the CIP, financial institutions are expected, at a minimum, to collect the following information prior to opening an account. This information is obtained using the LifeShield National Insurance Company application form. Name Date of birth (for individuals) A residential or business street address Tax identification number (TIN) In addition, financial institutions must verify the identity of each customer within a reasonable time after opening an account. For LifeShield policies, this verification is performed by: In person obtain a copy of the customer s valid driver s license (or other government issued identification). Phone/mail/internet Valid e-signature using HIPPA and ACH compliant Sertify software CUSTOMER DUE DILIGENCE (CDD) A strong Customer Due Diligence (CDD) process is a financial institution s most effective weapon against being used unwittingly to launder money or as a conduit for other illegal activities. In addition to obtaining information from the customer in order to verify their identity, LifeShield also requires certain due diligence information in order to better identify those customers who present an increased risk for laundering money or committing other suspicious activity. This due diligence information includes: Job Title/Occupation Hire date State/Country of birth Beneficiary name, age and relationship Source of funds for Life insurance policies only Agents are responsible for reviewing the customer s responses to these due diligence questions. In the event the customer s responses appear questionable, agents should request additional clarifying information. For example, Customer John Smith works for a local restaurant washing LifeShield BSA/AML Agent Training 2

3 dishes. He applies for a $100,000 Single Premium Whole Life policy listing the beneficiary as Julie Jacobs. He claims the source of funds to be selling a car. This example raises several follow up questions and concerns: 1. How does someone who washes dishes for a living have $100,000 sitting around to purchase a life insurance policy? 2. It must have been a very nice car if it s worth $100,000! How does someone who washes dishes for a living have such a nice car? 3. Who is Julie Jacobs and what is her relationship to the customer? In addition to the above due diligence questions, Agents should pay particular attention to customers located in high risk geographies or purchasing high risk products. High Risk Geographies The federal government has identified various US cities and states as having an increased risk for drug trafficking, money laundering, and other financial crimes. Although there are no restrictions against doing business in these cities and states, you should be aware of the increased risks associated with the geographic locations and conduct addition due diligence when warranted. High Intensity Financial Crime Areas (HIFCAs) were first announced in the 1999 National Money Laundering Strategy as a means of concentrating law enforcement efforts at the federal, state, and local levels in high intensity money laundering zones. HIFCA locations are identified on the map below: High Intensity Drug Trafficking Areas (HIDTAs) were introduced as a result of the Anti-Drug Abuse Act of 1988 and the ONDCP Reauthorization Act of 1998 in order to designate areas within the United States which exhibit serious drug trafficking problems and harmfully impact other areas of the country. HIDTA locations are identified on the map below: LifeShield BSA/AML Agent Training 3

4 High Risk Products Many different types of insurance products can be used to launder money. However, Agents should pay particular attention to the following insurance products as they present an increased risk for money laundering or other suspicious activity: Single Premium Whole Life Annuities Transactions involving $10,000 or more within a 12 month period INSURANCE PREMIUM PAYMENT OPTIONS To mitigate BSA/AML risks, LifeShield National Insurance Company only accepts the following methods of premium payments: Cash is not accepted Checks Money orders Travelers cheques Wires (domestic only) ACH SUSPICIOUS ACTIVITY REPORTING (SAR) Financial institutions are required to file Suspicious Activity Reports (SARs) for the following types of violations: 1. Criminal violations involving insider abuse in any amount. 2. Criminal violations aggregating $5,000 or more when a suspect can be identified. 3. Criminal violations aggregating $25,000 or more regardless of a potential suspect. 4. Transactions conducted or attempted through the bank and aggregating $5,000 or more if the bank knows, suspects, or has reason to suspect that the transaction: May involve potential money laundering or other illegal activity. Is designed to evade the BSA or its implementing regulations. Has no business or apparent lawful purpose or is not the type of transaction that the particular customer would normally be expected to engage in, and the bank knows of no reasonable explanation for the transaction. LifeShield BSA/AML Agent Training 4

5 LifeShield National Insurance Company maintains a centralized suspicious activity reporting program. Employees/agents are not expected to determine whether or not a SAR should be filed on a particular situation/issue/transaction. Instead, employees/agents must be alert for signs of possible fraud or criminal activity and escalate red flags within 24 hours of detection by ing MidFirst Bank s Compliance Incident Reporting System at CIRS@midfirst.com or contacting Heather Reeves at Heather.Reeves@midfirst.com. When should I escalate suspicious activity? When you feel uncomfortable about a transaction. When your instincts tell you that something isn't right. When there is no logical explanation for a customer's, non-customer's, or employee's activity. When you know or suspect that there might be an illegal activity involved. Red flags for possible fraudulent, suspicious or criminal activity A customer uses unusual or suspicious identification documents that cannot be readily verified. A customer provides an Individual Tax Identification Number (ITIN) after having previously used a Social Security Number (SSN). A customer uses different tax identification numbers with variations of his or her name. A customer s home telephone is disconnected. A customer purchases products with termination features without concern for the product s investment performance. A customer purchases insurance products using a single, large premium payment, particularly when payment is made through unusual methods such as currency or currency equivalents. A customer purchases a product that appears outside the customer s normal range of financial wealth or estate planning needs. A customer borrows against the cash surrender value of permanent life insurance policies, particularly when payments are made to apparently unrelated third parties. Policies are purchased that allow for the transfer of beneficial ownership interests without the knowledge and consent of the insurance issuer. This would include secondhand endowment and bearer insurance policies. A customer is known to purchase several insurance products and uses the proceeds from an early policy surrender to purchase other financial assets. A customer uses multiple currency equivalents (e.g., cashier s checks and money orders) from different banks and money services businesses to make insurance policy or annuity payments. Early termination of a product (including during the "free look" period). The designation of an apparently unrelated third party as a policy's or product's beneficiary. A customer who is reluctant to provide identifying information when purchasing a product, or who provides minimal or seemingly fictitious information. A customer who borrows the maximum amount available soon after purchasing the product. Confidentiality By federal law, you are prohibited from disclosing any information about a SAR, or that a SAR is being considered or has been filed, with any third parties. Federal law also prohibits a financial institution from informing a suspect that a report is being considered or that a report has been filed on them. SAR related questions or issues should be directed Heather Reeves at Heather.Reeves@midfirst.com. LifeShield BSA/AML Agent Training 5

6 OFFICE OF FOREIGN ASSET CONTROL (OFAC) OFAC is an agency within the US Treasury Department which administers a series of laws that impose economic sanctions against foreign countries which are considered hostile to United States Foreign Policy. OFAC has identified and named thousands of people, places, and things banks are prohibited from doing business with. Although the OFAC regulations are not part of the Bank Secrecy Act, regulators typically examine a bank s OFAC and BSA compliance together, due to the close correlation between the two. Financial institutions are directed to monitor for potential transactions with targeted individuals or entities, to block any such transaction encountered, and to freeze the funds immediately. LifeShield uses automated processes to periodically screen customers against the OFAC list. However, you should be aware of the following sanctioned countries and programs and contact Heather Reeves at Heather.Reeves@midfirst.com before conducting any transactions or business in connection with them. OFAC Sanctioned Countries: Balkans (certain entities) Belarus Burma (Myanmar) Cote d Ivoire (Ivory Coast) Cuba Democratic Republic of the Congo Iran Iraq Former Liberian Regime of Charles Taylor Lebanon Libya North Korea Somalia Sudan Syria Zimbabwe (certain persons) OFAC List Based Sanctions: Anti-Terrorism Diamond Trading Counter Narcotics Trafficking Non-proliferation RECORDKEEPING REQUIREMENTS The Bank Secrecy Act requires financial institutions to maintain certain records for a minimum of five years. In addition, records relating to certain BSA requirements, such as SARs, must be accessible within a reasonable amount of time. PENALTIES FOR NON COMPLIANCE Cease and Desist Orders (C&D) Prohibition Order Civil Money Penalties Prison sentences up to 20 years for willful violations Drop Dead provision enables the government to cancel an institution s charter if the institution is convicted of money laundering State insurance departments could revoke an agent s license to do business Insurance companies could revoke an agent s license to sell company products LifeShield BSA/AML Agent Training 6