As explained in the white paper, the Patriot Act broadens the scope of existing anti-money-laundering laws to institutions that previously were exempt or less scrutinized than banks. Unless the Treasury Department eventually concludes otherwise, these institutions include insurers and broker/dealers, according to the white paper.

One anti-money-laundering law broadened by the new statute is the Bank Secrecy Act, which contains reporting requirements for certain currency transactions and “suspicious activity.”

Mr. Grieco said that the “major impact” of the Patriot Act is its insistence that financial institutions have “a central point of accountability” for information. This means that “the central responsibility” of the insurer is to know its organization, its customers and its transactions “across the organization,” he suggested.

Accomplishing this task requires a person in a position high enough to be able to “cut across” business lines, divisions and units in a coordinated fashion, Ms. Beaty explained. This would be in line with the Patriot Act's requirement that financial institutions appoint a compliance officer.

The white paper also suggested that insurers create a “homeland security assessment team,” led by the compliance officer. The team would analyze compliance gaps, develop solutions and implement a homeland security program, the white paper stated.

The team could be composed of high-level representatives from each business unit who can determine how the requirements and the companys policies and procedures apply to their respective areas, as well the impact across the entire organization, Ms. Beaty said.

She also stated that it is still unclear whether the Patriot Act's requirement of “knowing the customer” means that insurance companies will have to do something different, such as obtaining more details about policyholders. But she surmised that insurers will have to alter their approaches to some degree.

According to Ms. Beaty, “as insurance companies evolve, they tend to create silos by product group.” As a result, customer information that a company has on the life side might differ greatly from customer information on the annuity side, on the property-casualty side and, where applicable, on the banking side.

To satisfy the Patriot Act requirements, insurers with “siloed” product lines must at least have client information they can supply to the federal government on request and that is consistent across the organization, said Ms. Beaty.

But as Mr. Grieco observed, “if you're a siloed organization, simply identifying a customer of multiple products is a challenge in some organizations.”

The Patriot Act requires institutions to track so-called suspicious activity. But as currently written, Ms. Beaty noted, neither the law nor the regulations provide enough of a definition of “suspicious activity” to guide insurance companies.

In fact, the available definitions are “more bank-related at this point,” Ms. Beaty said. What this means for insurers trying to implement policies and procedures is that they must define suspicious activity for themselves, she stated.

Large cash transactions and frequency of transaction are the types of clues for which insurers will have to look, she said.

She added that the white paper suggests other clues, such as transactions involving illegal funds, customers who refuse to disclose information, the quick termination of a transaction by a customer, and transactions “with no apparent business purpose or that are just inconsistent.”

Mr. Grieco suggested that one thing insurers could do right now is to set up training programs for their employees to help them identify what may constitute “a reasonably suspicious transaction.”

As far as technologies for complying with the federal statute and regulations, Ms. Beaty noted that “some of those initiatives are already underway because of other compliance reasons,” such as privacy mandates under the Gramm-Leach-Bliley Financial Services Modernization Act, as well as internal security concerns.

She said that, ideally, insurers will “leverage” their existing technologies while modifying them to meet the requirements of the Patriot Act and all the anti-money-laundering laws.

Mr. Grieco conceded that complying with the new requirements could entail some increased costs. But he also believes that both the country and insurance companies can benefit if insurers combine and coordinate their anti-money-laundering activities with other ongoing initiatives.

“If you think about it, knowing your customer and trying to understand how best to serve [them] can be part of a delivery strategy,” he observed.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, June 3, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.