66754 Federal Register / Vol. 70, No. 212 / Thursday, November 3, 2005 / Rules and Regulations 

1Language expanding the scope of the Bank 

Secrecy Act to intelligence or counter-intelligence 

activities, including analysis, to protect against 

international terrorism was added by section 358 of 

the Uniting and Strengthening America by 

Providing Appropriate Tools Required to Intercept 

and Obstruct Terrorism Act of 2001 (the USA 

PATRIOT Act), Public Law 107–56. 

2See 67 FR 60625 (Sept. 26, 2002). 

3See 31 CFR 103.170, as codified by interim final 

rule published at 67 FR 21110 (Apr. 29, 2002), as 

U.S.C. 552(a) and delegated to the 

Director, Bureau of Prisons, we amend 

28 CFR part 523 as follows. 

Subchapter B—Inmate Admission, 

Classification, and Transfer 

PART 523—COMPUTATION OF 

SENTENCE 

■ 1. The authority citation for 28 CFR 

part 523 is revised to read as follows: 

Authority: 5 U.S.C. 301; 18 U.S.C. 3568 

(repealed November 1, 1987 as to offenses 

committed on or after that date), 3621, 3622, 

3624, 4001, 4042, 4081, 4082 (Repealed in 

part as to conduct occurring on or after 

November 1, 1987), 4161–4166 (repealed 

October 12, 1984 as to offenses committed on 

or after November 1, 1987), 5006–5024 

(Repealed October 12, 1984 as to conduct 

occurring after that date), 5039; 28 U.S.C. 

509, 510. 

■ 2. Revise § 523.20 to read as follows: 

§ 523.20 Good conduct time. 

(a) For inmates serving a sentence for 

offenses committed on or after 

November 1, 1987, but before September 

13, 1994, the Bureau will award 54 days 

credit toward service of sentence (good 

conduct time credit) for each year 

served. This amount is prorated when 

the time served by the inmate for the 

sentence during the year is less than a 

full year. 

(b) For inmates serving a sentence for 

offenses committed on or after 

September 13, 1994, but before April 26, 

1996, all yearly awards of good conduct 

time will vest for inmates who have 

earned, or are making satisfactory 

progress (see § 544.73(b) of this chapter) 

toward earning a General Educational 

Development (GED) credential. 

(c) For inmates serving a sentence for 

an offense committed on or after April 

26, 1996, the Bureau will award 

(1) 54 days credit for each year served 

(prorated when the time served by the 

inmate for the sentence during the year 

is less than a full year) if the inmate has 

earned or is making satisfactory progress 

toward earning a GED credential or high 

school diploma; or 

(2) 42 days credit for each year served 

(prorated when the time served by the 

inmate for the sentence during the year 

is less than a full year) if the inmate has 

not earned or is not making satisfactory 

progress toward earning a GED 

credential or high school diploma. 

(d) Notwithstanding the requirements 

of paragraphs (b) and (c) of this section, 

an alien who is subject to a final order 

of removal, deportation, or exclusion is 

eligible for, but is not required to, 

participate in a literacy program, or to 

be making satisfactory progress toward 

earning a General Educational 

Development (GED) credential, to be 

eligible for a yearly award of good 

conduct time. 

(e) The amount of good conduct time 

awarded for the year is also subject to 

disciplinary disallowance (see tables 3 

through 6 in § 541.13 of this chapter). 

[FR Doc. 05–21969 Filed 11–2–05; 8:45 am] 

BILLING CODE 4410–05–P 

DEPARTMENT OF THE TREASURY 

31 CFR Part 103 

RIN 1506–AA70 

Financial Crimes Enforcement 

Network; Amendment to the Bank 

Secrecy Act Regulations—Anti-Money 

Laundering Programs for Insurance 

Companies 

AGENCY: Financial Crimes Enforcement 

Network, Treasury. 

ACTION: Final rule. 

SUMMARY: The Financial Crimes 

Enforcement Network is issuing this 

final rule to prescribe minimum 

standards applicable to insurance 

companies pursuant to the provision in 

the Bank Secrecy Act that requires 

financial institutions to establish antimoney laundering programs and to 

define the companies and insurance 

products that are subject to that 

requirement. 

DATES: Effective Date: December 5, 2005. 

Applicability Date: May 2, 2006. See 

31 CFR 103.137(b) of the final rule 

contained in this document. 

FOR FURTHER INFORMATION CONTACT: 

Financial Crimes Enforcement Network, 

Regulatory Policy and Programs 

Division on (202) 354–6400 (not a tollfree number). 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. Statutory Provisions 

The Bank Secrecy Act, Public Law 

91–508, as amended, codified at 12 

U.S.C. 1829b, 12 U.S.C. 1951–1959, and 

31 U.S.C. 5311–14, 5316–5332, 

authorizes the Secretary of the Treasury 

to issue regulations requiring financial 

institutions to keep records and file 

reports that are determined to have a 

high degree of usefulness in criminal, 

tax, and regulatory matters, or in the 

conduct of intelligence or counterintelligence activities, including 

analysis, to protect against international 

terrorism, and to implement anti-money 

laundering programs and compliance 

procedures.1 Regulations implementing 

Title II of the Bank Secrecy Act appear 

at 31 CFR Part 103. The authority of the 

Secretary to administer the Bank 

Secrecy Act has been delegated to the 

Director of the Financial Crimes 

Enforcement Network. 

On October 26, 2001, the President 

signed into law the USA PATRIOT Act. 

Section 352 of the USA PATRIOT Act, 

which became effective on April 24, 

2002, amended 31 U.S.C. 5318(h) to 

require anti-money laundering programs 

for all financial institutions defined in 

31 U.S.C. 5312(a)(2). At a minimum, the 

anti-money laundering programs are 

required to include: 

(A) The development of internal policies, 

procedures, and controls; (B) the designation 

of a compliance officer; (C) an ongoing 

employee training program; and (D) an 

independent audit function to test programs. 

31 U.S.C. 5318(h)(1). 

Section 352(c) of the USA PATRIOT Act 

directs the Secretary to prescribe 

regulations for anti-money laundering 

programs that are ‘‘commensurate with 

the size, location, and activities’’ of the 

financial institutions to which such 

regulations apply. Section 5318(h)(2) 

permits the Secretary to exempt from 

this anti-money laundering program 

requirement those financial institutions 

not currently subject to the Financial 

Crimes Enforcement Network’s 

regulations implementing the Bank 

Secrecy Act. Section 5318(a)(6) further 

provides that the Secretary may exempt 

any financial institution from any Bank 

Secrecy Act requirement. Taken 

together, these provisions authorize the 

issuance of anti-money laundering 

program regulations that may differ with 

respect to certain kinds of financial 

institutions, and that may exempt 

certain financial institutions from the 

requirements of section 5318(h)(1). 

Although insurance companies have 

long been defined as financial 

institutions under the Bank Secrecy Act 

(see 31 U.S.C. 5312(a)(2)(M)), we, prior 

to the notice of proposed rulemaking 

preceding this final rule,2 had neither 

defined ‘‘insurance companies’’ for 

purposes of the Bank Secrecy Act nor 

issued regulations regarding insurance 

companies. In April 2002, we deferred 

the anti-money laundering program 

requirement contained in 31 U.S.C. 

5318(h) that would have applied to the 

insurance industry.3 The deferral 

Federal Register / Vol. 70, No. 212 / Thursday, November 3, 2005 / Rules and Regulations 66755 

amended at 67 FR 67547 (Nov. 6, 2002) and 

corrected at 67 FR 68935 (Nov. 14, 2002). 

4The limited definition of insurance company for 

purposes of this rule, as well as the final rule 

requiring insurance companies to file Suspicious 

Activity Reports, is not intended to limit the kinds 

of financial institutions that may voluntarily report 

suspicious activity under the protection of the safe 

harbor from liability contained in 31 U.S.C. 

5318(g)(3). 

5The Financial Action Task Force is an intergovernmental body whose purpose is the 

development and promotion of policies to combat 

money laundering. Originally created by the G–7 

nations, its membership now includes Argentina, 

Australia, Austria, Belgium, Brazil, Canada, 

Denmark, Finland, France, Germany, Greece, Hong 

Kong, Iceland, Ireland, Italy, Japan, Luxembourg, 

Mexico, the Kingdom of the Netherlands, New 

Zealand, Norway, Portugal, Russia, Singapore, 

South Africa, Spain, Sweden, Switzerland, Turkey, 

the United Kingdom, and the United States, as well 

as the European Commission and the Gulf 

Cooperation Council. 

6For an example of money laundering involving 

the fraudulent conversion of money in an insurance 

premium trust account, see U.S. v. Boscarino, 

Aulenta, and Mangurten, No. 02 CR 0086 (N.D. Ill. 

ED 2002) (Superseding Indictment). 

7United States of America v. Rodrigo Jose 

Murillo, Alexander Murillo, Jaime Eduardo Rey 

Albornoz, Arturo Delgado, and Esperanza Romero, 

Mag. Docket No. 02–21007 (S.D. FL. 2002) (Grand 

Jury Indictment). 

allowed us time to study the insurance 

industry and to consider how antimoney laundering controls could best 

be applied to that industry, considering 

differences in size, location, and 

services within the industry. 

Published elsewhere in a separate part 

of the Federal Register is a final rule 

requiring insurance companies to file 

Suspicious Activity Reports. That final 

rule applies to the same universe of 

insurance companies and covered 

products as this final rule.4

B. Insurance Company Regulation and 

Money Laundering 

The statutory mandate that all 

financial institutions establish antimoney laundering programs is a key 

element in the national effort to prevent 

and detect money laundering and the 

financing of terrorism. The mandate 

recognizes that financial institutions 

other than depository institutions, 

which have long been subject to Bank 

Secrecy Act requirements, are also 

vulnerable to money laundering. 

The application of anti-money 

laundering measures to non-depository 

institutions generally, and to insurance 

companies in particular, also has been 

emphasized by the international 

regulatory community as a key element 

in combating money laundering. One of 

the central recommendations of the 

Financial Action Task Force,5 of which 

the United States is a member, is that 

financial institutions, including 

insurance companies, establish antimoney laundering programs. See 

Financial Action Task Force Forty 

Recommendations (Recommendation 15 

and Glossary). 

This final rule applies only to 

insurance companies offering covered 

products, as defined in the rule. 

Insurance companies offer a variety of 

products aimed at transferring the 

financial risk of a certain event, from the 

insured to the insurer. These products 

include life insurance policies, annuity 

contracts, property and casualty 

insurance policies, and health insurance 

policies. These products are offered 

through a number of different 

distribution channels. Some insurance 

companies sell their products through 

direct marketing in which the insurance 

company sells a policy directly to the 

insured. Other companies employ 

agents, who may either be captive or 

independent. Captive agents generally 

represent only one insurer or one group 

of affiliated insurance companies; 

independent agents may represent a 

variety of insurance carriers. A customer 

also may employ a broker (i.e., a person 

who searches the marketplace for 

insurance in the interest of the 

customer) to obtain insurance. 

This final rule focuses on those 

covered insurance products possessing 

features that make them susceptible to 

being used for money laundering or the 

financing of terrorism. For example, life 

insurance policies that have a cash 

surrender value are potential money 

laundering vehicles. Cash value can be 

redeemed by a money launderer or can 

be used as a source of further 

investment of tainted funds’for example, 

by taking out loans against such cash 

value. Similarly, annuity contracts also 

pose a money laundering risk because 

they allow a money launderer to 

exchange illicit funds for an immediate 

or deferred income stream or to 

purchase a deferred annuity and obtain 

clean funds upon redemption.6 These 

risks do not exist to the same degree in 

term life insurance products, group life 

insurance products, group annuities, or 

in insurance products offered by 

property and casualty insurers or by 

title or health insurers. 

The international community has 

focused on life insurance policies and 

those insurance products with 

investment features as the appropriate 

subjects of anti-money laundering 

programs for insurance companies. In 

defining the kinds of insurance 

companies that should establish antimoney laundering programs, the 

Financial Action Task Force Forty 

Recommendations focuses on those 

businesses involved in the 

‘‘[u]nderwriting and placement of life 

insurance and other investment related 

insurance.’’ See Glossary and 

Recommendation 15. 

A 2002 federal grand jury indictment 

illustrates the money laundering risks 

associated with insurance products and 

the corresponding need for vigilance in 

the insurance industry.7 That 

indictment charged five Colombian 

nationals with conspiring to launder 

millions of dollars originating from the 

illicit sale of cocaine. The scheme 

involved the purchase and subsequent 

redemption of life insurance policies. 

According to court documents and 

interviews related to that indictment, 

federal law enforcement officials have 

discovered that in recent years 

Colombian drug cartels bought life 

insurance policies in continental 

Europe, the United Kingdom, and in 

smaller jurisdictions such as the Isle of 

Man, to launder the proceeds of drug 

trafficking. Using narcotics proceeds 

from the United States and Mexico, the 

traffickers purchased 250 life insurance 

policies in the Isle of Man alone. The 

insurance policies, worth as much as 

$1.9 million each, were sometimes 

taken out in the names of cartel 

associates and members of their 

families. The traffickers would typically 

cash out all or part of the Isle of Man 

policies prematurely, in some cases after 

only a year, paying penalties of 25 

percent or more. The penalties, 

however, merely represented a 

‘‘business cost’’ of using the insurance 

products to launder the illicit narcotics 

proceeds. Thus far, federal law 

enforcement officials have seized more 

than $9.5 million in Florida in 

connection with the investigation. If the 

insurance companies in the relevant 

jurisdictions had been subject to antimoney laundering controls, they might 

have detected the money laundering 

scheme because the policyholders were 

authorizing unrelated third parties to 

withdraw money from the cash value of 

their policies or were frequently cashing 

out their policies early. 

A review of the Suspicious Activity 

Reports filed with the Financial Crimes 

Enforcement Network also reveals 

instances in which financial institutions 

have reported the suspected use of 

insurance products for the purpose of 

laundering the proceeds of criminal 

activity. During the past five years, a 

number of Suspicious Activity Reports 

were filed that reference the use of an 

insurance product in suspected money 

laundering activity. For example, 

several reports describe as suspicious 

the large, lump-sum purchase of annuity 

contracts, followed almost immediately 

66756 Federal Register / Vol. 70, No. 212 / Thursday, November 3, 2005 / Rules and Regulations 

8Certain agents of insurance companies are 

required under separate rules to establish antimoney laundering programs. See infra note 10. 

9Although some agents work within large 

structures, only a small fraction of agencies employ 

more than a handful of people. According to one 

commenter, there are ‘‘independent agents who 

operate on their own or in offices with just a few 

of their independent agent colleagues and thus 

comprise the quintessential notion of a small 

business operation.’’ Letter from the American 

Council of Life Insurers, Nov. 25, 2002, at 4. 

10For example, variable life insurance contracts 

and variable annuities (variable insurance products) 

are securities under the Securities Exchange Act of 

1934 and therefore may be sold only by registered 

broker-dealers, who are required to have antimoney laundering programs pursuant to rules 

issued by the Financial Crimes Enforcement 

Network and the National Association of Securities 

Dealers and the New York Stock Exchange, two of 

the securities industry’s self-regulatory 

organizations. In addition, other covered products, 

including fixed annuities, are sold by banks, which 

are also subject to anti-money laundering program 

requirements. See infra note 19. 

by several withdrawals of those funds. 

In some cases, the entire balance of the 

annuity contract was withdrawn shortly 

after the purchase of the contract. Other 

reports detail suspicious loans taken out 

against an annuity contract and life 

insurance premiums being paid by 

unrelated third parties. 

II. Notice of Proposed Rulemaking 

On September 26, 2002, we published 

a notice of proposed rulemaking, 67 FR 

60625, that would extend the 

requirement to establish an anti-money 

laundering program to insurance 

companies. The comment period for the 

proposed rule ended on November 25, 

2002. We received over 50 comments 

from insurance companies and agents, 

banks, trade associations, attorneys, and 

a government agency addressing issues 

raised by either the proposed rule or by 

a related proposed rule, 67 FR 64067 

(October 17, 2002), that would require 

insurance companies to report 

suspicious transactions. 

III. Summary of Comments 

Most of the comments focused on the 

following matters: (1) The potential 

application of an anti-money laundering 

program requirement to agents and 

brokers of insurance companies, rather 

than just their insurance company 

principals; (2) the training of agents and 

brokers concerning their responsibilities 

under an insurance company’s antimoney laundering program; and (3) the 

appropriate scope of the products that 

cause an entity to be defined as an 

insurance company for purposes of the 

rule. These comments are discussed 

below. Other significant comments are 

discussed in the section-by-section 

analysis. 

A. Treatment of Agents and Brokers 

In the proposed rule, we proposed 

that an insurance company, but not its 

agents or brokers, establish an antimoney laundering program. Under the 

proposed rule, an insurance company 

would be responsible for obtaining 

customer information from all relevant 

sources, including from its agents and 

brokers, necessary to make its antimoney laundering program effective. 

We specifically sought comments on 

whether an insurance company’s agents 

and brokers should be subject to a direct 

obligation to establish anti-money 

laundering programs. Commenters were 

almost evenly divided on this issue. 

Several agreed with the approach taken 

in the proposed rule, stating that the 

benefit of requiring tens of thousands of 

insurance agents and brokers to 

independently establish an anti-money 

laundering program would be 

outweighed by the costs. Other 

commenters argued that a direct 

obligation is necessary because 

insurance companies lack sufficient 

control over their distribution channels 

to integrate these elements into an 

adequate anti-money laundering 

compliance program. 

After careful consideration of all the 

views expressed, we are adopting the 

approach set forth in the proposed rule. 

Under the terms of the final rule, the 

obligation to establish an anti-money 

laundering program applies to an 

insurance company, and not its agents 

or brokers.8 Nevertheless, because 

insurance agents and brokers are an 

integral part of the insurance industry 

due to their direct contact with 

customers, the final rule requires each 

insurance company to establish and 

implement policies, procedures, and 

internal controls reasonably designed to 

integrate its agents and brokers into its 

anti-money laundering program and to 

monitor their compliance with its 

program. An insurance company’s antimoney laundering program also must 

include procedures for obtaining all 

relevant customer-related information 

necessary for an effective program, 

either from its agents and brokers or 

from other sources. 

The final rule imposes a direct 

obligation only on insurance companies, 

and not their agents or brokers, for a 

number of reasons. First, whether an 

insurance company sells its products 

directly or through agents, we believe 

that it is appropriate to place on the 

insurance company, which develops 

and bears the risks of its products, the 

responsibility for guarding against such 

products being used to launder 

unlawfully derived funds or to finance 

terrorist acts. Second, insurance 

companies, due to their much larger size 

relative to that of their numerous agents 

and brokers, are better able to bear the 

costs of compliance connected with the 

sale of their products.9 Finally, 

numerous insurers already have in place 

compliance programs and best practices 

guidelines for their agents and brokers 

to prevent and detect fraud. We believe 

that insurance companies largely will be 

able to integrate their anti-money 

laundering programs into their existing 

compliance programs and best practices 

guidelines. 

Insurance agents and brokers will 

play an important role in the effective 

operation of an insurance company’s 

anti-money laundering program. By not 

placing an independent regulatory 

obligation on agents and brokers, we do 

not intend to minimize their role and 

we intend to assess the effectiveness of 

the rule on an ongoing basis. If it 

appears that the effectiveness of the rule 

is being undermined by the failure of 

agents and brokers to cooperate with 

their insurance company principals, we 

will consider proposing appropriate 

amendments to the rule. We also expect 

that an insurance company, when faced 

with a non-compliant agent or broker, 

will take the necessary actions to secure 

such compliance, including, when 

appropriate, terminating its business 

relationship with such an agent or 

broker. 

B. Training of Agents and Brokers 

Several commenters requested that 

the final rule incorporate some 

flexibility regarding an insurance 

company’s training of its agents and 

brokers. At least one commenter 

suggested that we add language to the 

rule to avoid the duplicative training of 

independent agents that sell products 

on behalf of more than one insurance 

company. 

We agree with these comments. 

Consequently, the final rule gives an 

insurance company the flexibility of 

directly training its agents and brokers. 

Alternatively, an insurance company 

may satisfy its training obligation by 

verifying that its agents and brokers 

have received the training required by 

the rule from another insurance 

company or from a competent third 

party with respect to the covered 

products offered by the company. Such 

training courses are already being 

developed and offered. A competent 

third party can include another 

financial institution that is required to 

establish an anti-money laundering 

program.10 It is left to the discretion of 

an insurance company to determine 

whether the training of its agents by 

Federal Register / Vol. 70, No. 212 / Thursday, November 3, 2005 / Rules and Regulations 66757 

11See, e.g., Joint Letter from the Independent 

Insurance Agents and Brokers of America and the 

National Association of Professional Insurance 

Agents, Nov. 25, 2002, at 1 (‘‘This distinction 

[between life insurance and property and casualty 

insurance] is legitimate and provides relief from the 

administrative and regulatory burdens of the 

proposed rule for the segments of the insurance 

industry that are at very low risk of money 

laundering.’’). 

12For example, a tax-exempt organization that 

offers charitable gift annuities (as defined in section 

501(m)(5) of the Internal Revenue Code, 26 U.S.C. 

501(m)(5)) as a vehicle for planned charitable giving 

to the tax-exempt organization, and that would not 

otherwise fall within the definition of an insurance 

company, generally would not be considered an 

insurance company under the final rule. 

another party is adequate. We do not 

intend to certify, license, or otherwise 

prospectively approve training 

programs. 

C. Covered Products 

Under the proposed rule, the issuing, 

underwriting, or reinsuring of a life 

insurance policy, an annuity contract, or 

any product with investment or cash 

value features, would have caused an 

insurance company to fall within the 

scope of the rule. A company that 

offered exclusively other kinds of 

insurance products, such as a property 

and casualty insurance policy, would 

not have been required to establish an 

anti-money laundering program. The 

overwhelming majority of commenters 

agreed with the distinction that we 

made between higher-risk and lowerrisk insurance products.11 Some of those 

commenters requested that we take the 

additional step of further excluding 

other kinds of insurance contracts and 

products relating to life insurance and 

annuities, such as reinsurance, group 

life insurance policies, group annuities, 

and term life insurance policies. 

We, not having been informed or 

otherwise having learned of examples to 

the contrary, agree that some of these 

contracts and products pose little or no 

risk of being used for money laundering. 

For example, reinsurance and 

retrocession contracts and treaties are 

arrangements between insurance 

companies by which they reallocate 

risks within the insurance industry and 

do not involve transactions with 

customers. Similarly, group life 

insurance policies and group annuities 

are typically issued to a company, 

financial institution, or association, and 

generally restrict the ability of an 

individual insured or participant to 

manipulate their investment. These 

products pose low money laundering 

risks. Consequently, the final rule does 

not include in its coverage reinsurance 

or retrocession contracts or treaties, 

group life insurance, or group annuities. 

After careful consideration of the 

comments, we also have decided to 

exclude term life (which includes credit 

life) insurance policies at this time. 

Given the operating characteristics of 

these products—e.g., the absence of a 

cash surrender value and the 

underwriting scrutiny given to term 

policies, especially those with large face 

amounts—we believe that it would be 

impractical to launder money through 

term life insurance policies, and that the 

corresponding money laundering risks 

associated with such products are not 

significant. Nevertheless, as with all 

new exclusions, we will reconsider this 

position if circumstances warrant. 

While some insurance companies that 

offer a diversity of insurance products 

may decide to adopt company-wide 

anti-money laundering programs, 

regardless of the kinds of products they 

offer, we wish to emphasize that the 

final rule does not require that an 

insurance company adopt a companywide anti-money laundering program 

applicable to all of its insurance 

products. The anti-money laundering 

program requirement applies only to 

covered products, as defined in the final 

rule, offered by the insurance company. 

IV. Section-by-Section Analysis 

A. 103.137(a)—Definitions 

Section 103.137(a) defines the key 

terms used in the final rule. In response 

to comments seeking clarification of 

certain terms used in the proposed rule, 

the final rule includes definitions of the 

terms ‘‘annuity contract,’’ ‘‘bank,’’

‘‘broker-dealer in securities,’’ ‘‘covered 

product,’’ ‘‘group annuity contract,’’

‘‘group life insurance policy,’’

‘‘insurance agent,’’ ‘‘insurance broker,’’

and ‘‘permanent life insurance policy.’’

The final rule defines an annuity 

contract as ‘‘any agreement between the 

insurer and the contract owner whereby 

the insurer promises to pay out a fixed 

or variable income stream for a period 

of time.’’ For purposes of the rule, 

contracts of indemnity, as well as 

workers compensation insurance and 

structured settlements, are not annuity 

contracts. 

The definition of an insurance 

company reflects our determination that 

an anti-money laundering program 

should be imposed only on those 

products that pose a significant risk of 

money laundering or terrorist financing. 

Thus, an ‘‘insurance company’’ includes 

any person engaged within the United 

States as a business in the issuing or 

underwriting of a covered product. The 

term ‘‘as a business’’ is intended to 

exclude those persons that offer 

annuities or another covered product as 

an incidental part of their non-insurance 

business.12 At this time, we believe that 

such persons present a much lower risk 

of being used for money laundering or 

terrorist financing than those persons 

that offer a covered product as an 

integral part of their business. We leave 

open the possibility of revisiting this 

issue in a future rulemaking if 

circumstances warrant. 

The final rule contains an explicit 

exception to the definition of an 

insurance company. That exception 

clarifies that insurance agents and 

insurance brokers are not required 

under the final rule to establish an antimoney laundering program. However, as 

explained below, an insurance company 

is responsible for integrating its agents 

and brokers into its anti-money 

laundering program and for monitoring 

their compliance with the requirements 

of its program. In addition, the 

definition of an insurance company 

refers only to the business of issuing or 

underwriting certain kinds of insurance 

products, and therefore does not cover 

the reinsuring or retrocession of 

insurance products. 

The term ‘‘covered product’’ is 

defined to mean: (i) A permanent life 

insurance policy, other than a group life 

insurance policy; (ii) any annuity 

contract, other than a group annuity 

contract; and (iii) any other insurance 

product with features of cash value or 

investment. Permanent life insurance 

and annuity products are covered 

products, with the exception of group 

life insurance and group annuities. The 

definition also incorporates a functional 

approach, and encompasses any 

insurance product having the same 

kinds of features that make permanent 

life insurance and annuity products 

more at risk of being used for money 

laundering. To the extent that term life 

insurance, property and casualty 

insurance, health insurance, and other 

kinds of insurance do not exhibit these 

features, they are not products covered 

by the rule. 

Some commenters suggested that we 

should adopt a dollar threshold 

exemption for life insurance policies, 

particularly in the context of term life 

insurance policies. For example, 

commenters requested that we exempt 

from the scope of the anti-money 

laundering program requirement, term 

life insurance policies with face values 

below $10,000. As stated above, term 

life insurance is not covered by this 

final rule. In addition, we expect, as we 

do with all of anti-money laundering 

rules, that an insurance company will 

take a risk-based approach when 

developing its anti-money laundering 

66758 Federal Register / Vol. 70, No. 212 / Thursday, November 3, 2005 / Rules and Regulations 

13See infra note 18 and accompanying text. 

14See http://www.state.gov/s/ct/rls/pgtrpt/. 

15See http://www1.oecd.org/fatf/NCCT_en.htm. 

16 Information about such jurisdictions can be 

found at http://www.ustreas.gov/. 

17When voluntarily filing reports of suspicious 

transactions, insurance companies should use the 

Suspicious Activity Report by Insurance Companies 

(SAR–IC) form being developed specifically for use 

by the insurance industry. This form will be made 

available on the Financial Crimes Enforcement 

Network website at http://www.fincen.gov. In the 

interim, insurance companies should use the 

Suspicious Activity Report by Securities and 

Futures Industries. 

program. Such an approach should 

consider a number of factors, including, 

but not limited to, the dollar amount 

involved in the issuing or underwriting 

of certain products. Consequently, we 

believe that a dollar threshold 

exemption for purposes of establishing 

an anti-money laundering program is 

not warranted. 

B. 103.137(b)—Anti-Money Laundering 

Program Requirements for Insurance 

Companies 

Section 103.137(b) requires that, not 

later than May 2, 2006, each insurance 

company issuing or underwriting a 

covered product develop and 

implement an anti-money laundering 

program reasonably designed to prevent 

the insurance company from being used 

to facilitate money laundering or the 

financing of terrorist activities. In 

response to comments requesting that 

we clarify the breadth of the program 

requirement, language has been added 

to clarify that the anti-money laundering 

program is only required with respect to 

covered products issued or 

underwritten by an insurance company. 

The anti-money laundering program 

must be in writing and must be 

approved by senior management. An 

insurance company’s written program 

also must be made available to the 

Department of the Treasury, the 

Financial Crimes Enforcement Network, 

or their designee upon request. 

Minimum requirements for the antimoney laundering program are set forth 

in section 103.137(c). Beyond these 

minimum requirements, however, the 

final rule is intended to give insurance 

companies the flexibility to design their 

programs to meet the specific risks 

associated with their particular 

business. 

C. 103.137(c)—Minimum Requirements 

Section 103.137(c) sets forth the 

minimum requirements of an insurance 

company’s anti-money laundering 

program. Section 103.137(c)(1) requires 

the anti-money laundering program to 

incorporate policies, procedures, and 

internal controls based upon the 

insurance company’s assessment of the 

money laundering and terrorist 

financing risks associated with its 

covered products. As noted above, an 

insurance company’s assessment of 

customer-related information, including 

methods of payment, is a key 

component of an effective anti-money 

laundering program. Thus, an insurance 

company is responsible for integrating 

its agents and brokers into its antimoney laundering program, for 

obtaining relevant customer-related 

information from them, and for using 

that information to assess the money 

laundering risks presented by its 

business and to identify any ‘‘red 

flags’’.13 The specific procedures for 

conducting such a program are left to 

the discretion of the insurance 

company. Insurance companies must 

use the expertise that they possess about 

their industry and their particular lines 

of business to develop a program that 

meets the requirements of the rule. 

In developing a risk-based anti-money 

laundering program, an insurance 

company must consider all relevant 

factors affecting the risks inherent in its 

covered products. For example, an 

insurance company should consider the 

extent and circumstances under which 

its customers use cash or cash 

equivalents to purchase a covered 

product, and whether the insurance 

company issues or underwrites covered 

products to persons in a jurisdiction: (1) 

Whose government has been identified 

by the State Department as a sponsor of 

international terrorism under 22 U.S.C. 

2371; 14 (2) that has been designated by 

the Financial Action Task Force as noncooperative with international antimoney laundering principles; 15 or (3) 

that has been found by the Secretary of 

the Treasury or the Director of the 

Financial Crimes Enforcement Network 

as warranting special measures due to 

money laundering concerns.16

When assessing risks associated with 

particular distribution channels for its 

covered products, an insurance 

company should consider, among other 

things, whether an agent or broker is 

required to establish its own anti-money 

laundering program pursuant to another 

requirement in 31 CFR Part 103. Some 

commenters suggested excluding from 

an insurer’s anti-money laundering 

program covered products sold by, for 

example, broker-dealers in securities or 

banks because they are already subject 

to an anti-money laundering program 

requirement. Although we do not 

believe that a complete exclusion is 

appropriate, the insurance company 

could generally rely on the agent’s own 

program requirements to address issues 

at the time of the sale if reasonable (i.e., 

the insurer knows of no defect in the 

agent’s program), while the insurer’s 

program should focus on the ongoing 

administration of the covered product. 

Policies, procedures, and internal 

controls also must be reasonably 

designed to ensure compliance with 

applicable Bank Secrecy Act 

requirements. The only Bank Secrecy 

Act regulatory requirement currently 

applicable to insurance companies is 

the obligation to report on Form 8300 

the receipt of cash or certain non-cash 

instruments totaling more than $10,000 

in one transaction or in two or more 

related transactions. As noted above, we 

today are also publishing a final rule 

requiring insurance companies to file 

Suspicious Activity Reports, which will 

apply to transactions occurring after 

May 2, 2006.17 If insurance companies 

become subject to additional Bank 

Secrecy Act requirements, their antimoney laundering programs will need 

to be updated accordingly. 

Insurance companies typically 

conduct their sales operations through 

agents. Some elements of the 

compliance program will be best 

performed by these agents, in which 

case it is permissible for an insurance 

company to make appropriate 

arrangements with an agent to perform 

those aspects of its anti-money 

laundering program. Any insurance 

company that arranges for its agent to 

perform aspects of its anti-money 

laundering program, however, remains 

responsible for the effectiveness of the 

program, as well as for ensuring that the 

appropriate examiners have access to 

information and records relating to the 

anti-money laundering program and are 

able to inspect the agent or the third 

party for purposes of the program. An 

insurance company’s compliance with 

this regulation includes: Taking 

reasonable steps to identify the aspects 

of its operations that may give rise to 

applicable Bank Secrecy Act regulatory 

requirements or that are vulnerable to 

money laundering or terrorist financing 

activity; developing and implementing a 

program reasonably designed to achieve 

compliance with such regulatory 

requirements and to prevent such 

activity; and monitoring the 

effectiveness of its program. For 

example, it would not be sufficient for 

an insurance company simply to obtain 

a certification from its delegee that the 

company ‘‘has a satisfactory anti-money 

laundering program.’’

Section 103.137(c)(2) requires that an 

insurance company designate a 

compliance officer to be responsible for 

administering the anti-money 

laundering program. An insurance 

Federal Register / Vol. 70, No. 212 / Thursday, November 3, 2005 / Rules and Regulations 66759 

18Some examples of ‘‘red flags’’ include, but are 

not limited to, the following: The purchase of an 

insurance product inconsistent with the customer’s 

needs; unusual payment methods, such as cash, 

cash equivalents (when such a usage of cash or cash 

equivalents is, in fact, unusual), or structured 

monetary instruments; early termination of a 

product, especially at a cost to the customer, or 

where payment is made by, or the refund check is 

directed to, an apparently unrelated third party; the 

transfer of the benefit of a product to an apparently 

unrelated third party; a customer who shows little 

concern for the investment performance of a 

product, but much concern about the early 

termination features of the product; a customer who 

is reluctant to provide identifying information 

when purchasing a product, or who provides 

minimal or seemingly fictitious information; and a 

customer who borrows the maximum amount 

available soon after purchasing the product. 

19As noted above, an employee or agent of an 

insurance company who also is a registered 

representative of a broker-dealer in securities or an 

employee of a bank would be subject to the brokerdealer’s or bank’s anti-money laundering program, 

including its testing. In such a case, the insurance 

company would not have to independently test 

those relevant parts of the broker-dealer’s or bank’s 

program, as long as it confirms that such testing has 

occurred and the insurance company reviews the 

relevant portion of any report produced. 

20We are currently aware of only one such 

insurance company, although there may be others. 

21We have not expanded this provision to also 

apply to broker-dealers with anti-money laundering 

programs distributing an insurance company’s 

products as agent, as requested by a commenter. 

The final rule’s application to such broker-dealers 

is discussed in Part IV.C. above. 

company may designate a single person 

or committee to be responsible for 

compliance. The person or persons 

should be competent and 

knowledgeable regarding applicable 

Bank Secrecy Act requirements and 

money laundering risks, and should be 

empowered with full responsibility and 

authority to develop and enforce 

appropriate policies and procedures. 

The role of the compliance officer is to 

ensure that: (1) The program is being 

implemented effectively, including 

monitoring compliance by the 

company’s insurance agents and 

insurance brokers with their obligations 

under the program; (2) the program is 

updated as necessary; and (3) 

appropriate persons are trained in 

accordance with section 103.137(c)(3). 

The compliance officer also should 

ensure that employees of the insurance 

company have appropriate resources to 

which they can address questions 

regarding the application of the program 

in light of specific facts. 

Section 103.137(c)(3) requires that an 

insurance company provide training for 

appropriate persons. Training is an 

integral part of any anti-money 

laundering program. In order for the 

anti-money laundering program to be 

effective, employees of an insurance 

company with responsibility under the 

program must be trained in the 

requirements of the program and money 

laundering risks generally so that ‘‘red 

flags’’ associated with covered products 

can be identified.18 Such training could 

be conducted by outside or in-house 

seminars, and could include computerbased training. The nature, scope, and 

frequency of the training will depend 

upon the functions performed. 

However, those persons with obligations 

under the anti-money laundering 

program must be sufficiently trained to 

carry out their responsibilities 

effectively and should receive periodic 

updates and refreshers regarding the 

anti-money laundering program. 

An insurance company also must 

provide for the training of its insurance 

agents and brokers concerning their 

responsibilities under the company’s 

anti-money laundering program. An 

insurance company may satisfy this 

requirement by directly training its 

agents and brokers or by verifying that 

its agents and brokers have received the 

required training by another insurance 

company or by a competent third party 

with respect to covered products offered 

by the company. For purposes of the 

rule, a competent third party can 

include a third-party vendor as well as 

another financial institution that is 

subject to an anti-money laundering 

program requirement, such as a brokerdealer in securities or a bank. Some 

commenters suggested that we establish 

and maintain a central registry for 

certifications of agent training. Although 

we would not object to the 

establishment of a privately maintained 

registry, we will not establish such a 

registry for a number of reasons, 

including the fact that it could be 

interpreted as an endorsement of the 

adequacy of such training. 

Section 103.137(c)(4) requires that an 

insurance company provide for 

independent testing of the program on 

a periodic basis to ensure that it 

complies with the requirements of the 

rule and that the program functions as 

designed.19 An outside consultant or 

accountant need not perform the test. A 

single employee of the insurance 

company, or a committee comprised of 

more than one employee, may perform 

the independent testing, as long as the 

tester is not the compliance officer or 

otherwise involved in administering the 

program. The frequency of the 

independent testing will depend upon 

the insurance company’s assessment of 

the risks associated with its covered 

products. Any recommendations 

resulting from such testing should be 

implemented promptly or submitted to 

senior management for consideration. 

D. 103.137(d)—Insurance Companies 

That Are Registered Broker-Dealers in 

Securities 

The proposed rule contained a 

provision stating that an insurance 

companythat is required to register with 

the Securities and Exchange 

Commission shall be deemed to have 

satisfied the requirements of this section 

for those activities regulated by the 

Securities and Exchange Commission to 

the extent that the company complies 

with the anti-money laundering 

program requirements applicable to 

such activities that are imposed by the 

Securities and Exchange Commission or 

by a self-regulatory organization 

registered with the Securities and 

Exchange Commission. This provision, 

which was intended to avoid an 

insurance company being subject to two 

different anti-money laundering rules 

regarding the same activities, has been 

retained in simplified form in the final 

rule. It would apply to an insurance 

company that is registered (or is 

required to register) with the Securities 

and Exchange Commission as a brokerdealer in securities. To the extent such 

a company already is required to 

establish and has established an antimoney laundering program pursuant to 

31 CFR 103.120, it shall be deemed to 

be in compliance with this final rule. 

However, to the extent that this final 

rule imposes requirements with respect 

to activities not covered by 31 CFR 

103.120 and the registered broker-dealer 

insurance company has adopted an antimoney laundering program that 

addresses only its broker-dealer 

activities, the company would not be 

deemed in compliance with this rule. In 

addition, this provision applies only to 

an insurance company that is itself 

registered or required to register with 

the Securities and Exchange 

Commission as a broker-dealer in 

securities,20 and not to a registered 

broker-dealer that distributes an 

insurance company’s products as 

agent.21

E. 103.137(e)—Compliance 

A new subsection (e) has been added 

to specifically state that the Financial 

Crimes Enforcement Network or its 

delegee shall examine the insurance 

company for compliance with this 

regulation, and that failure to comply 

may violate the Bank Secrecy Act and 

the final rule. 

V. Executive Order 12866 

The final rule contained in this 

document is not a significant regulatory 

action for purposes of Executive Order 

66760 Federal Register / Vol. 70, No. 212 / Thursday, November 3, 2005 / Rules and Regulations 

12866. Accordingly, a regulatory impact 

analysis is not required. 

VI. Regulatory Flexibility Act 

It is hereby certified, pursuant to the 

Regulatory Flexibility Act (5 U.S.C. 601 

et seq.), that the final rule contained in 

this document is not likely to have a 

significant economic impact on a 

substantial number of small entities. 

Most insurance companies are not small 

businesses. In addition, the costs 

associated with the establishment and 

implementation of anti-money 

laundering programs are attributable to 

the mandatory nature of 31 U.S.C. 

5318(h)(1). The final rule provides for 

substantial flexibility in how each 

insurance company may comply with 

that statutory mandate. This flexibility 

is designed to account for differences 

among insurance companies, including 

size. In this regard, the costs associated 

with developing and implementing an 

anti-money laundering program will be 

commensurate with the size of an 

insurance company. If a company is 

small, the burden of complying with the 

final rule should be correspondingly 

small. Consistent with the principles of 

the Regulatory Flexibility Act, we did 

consider exempting small insurance 

companies from some or all of the 

requirements of the final rule. We do 

not believe that such an exemption is 

appropriate, given the flexibility 

provided in the final rule to account for, 

among other things, differences in size 

and resources, and that money 

laundering can also occur through small 

insurance companies. 

VII. Paperwork Reduction Act 

The collection of information 

contained in the final rule has been 

approved by the Office of Management 

and Budget in accordance with the 

Paperwork Reduction Act of 1995 (44 

U.S.C. 3507(d)), and assigned Office of 

Management and Budget Control 

Number 1506–0035. An agency may not 

conduct or sponsor, and a person is not 

required to respond to, a collection of 

information unless it displays a valid 

control number assigned by the Office of 

Management and Budget. 

The only requirement in the final rule 

that is subject to the Paperwork 

Reduction Act is the requirement that 

an insurance company keep a written 

record of its anti-money laundering 

program. The estimated annual average 

burden associated with this collection of 

information is one hour per 

recordkeeper. We received one 

comment on this recordkeeping burden 

estimate, suggesting that the estimate 

was too low. Consistent with each of the 

prior rules that we have issued 

implementing 31 U.S.C. 5318(h)(1), we 

believe that our original estimate is 

accurate. 

Comments concerning the accuracy of 

this recordkeeping burden estimate and 

suggestions for reducing this burden 

should be sent (preferably by fax on 

(202) 395–6974) to Desk Officer for the 

Department of the Treasury, Office of 

Information and Regulatory Affairs, 

Office of Management and Budget, 

Washington, DC 20503 (or by the 

Internet to jlackeyj@omb.eop.gov), with 

a copy by paper mail to Financial 

Crimes Enforcement Network, P.O. Box 

39, Vienna, VA 22183, ‘‘ATTN: Section 

352—Insurance Company AML 

Regulation’’ or by electronic mail to 

regcomments@fincen.treas.gov with the 

caption ‘‘ATTN: Section 352—Insurance 

Company AML Regulation’’ in the body 

of the text. 

List of Subjects in 31 CFR Part 103 

Administrative practice and 

procedure, Authority delegations 

(Government agencies), Insurance 

companies, Currency, Investigations, 

Law Enforcement, Reporting and 

recordkeeping requirements. 

Authority and Issuance 

■ For the reasons set forth in the 

preamble, part 103 of title 31 of the 

Code of Federal Regulations is amended 

as follows: 

PART 103—FINANCIAL 

RECORDKEEPING AND REPORTING 

OF CURRENCY AND FINANCIAL 

TRANSACTIONS 

■ 1. The authority citation for part 103 

is revised to read as follows: 

Authority: 12 U.S.C. 1829b and 1951–1959; 

31 U.S.C. 5311–5314, 5316–5332; title III, 

sec. 314, Pub. L. 107–56, 115 Stat. 307. 

■ 2. Subpart I of part 103 is amended by 

adding new § 103.137 to read as follows: 

§ 103.137 Anti-money laundering 

programs for insurance companies. 

(a) Definitions. For purposes of this 

section: 

(1) Annuity contract means any 

agreement between the insurer and the 

contract owner whereby the insurer 

promises to pay out a fixed or variable 

income stream for a period of time. 

(2) Bank has the same meaning as 

provided in § 103.11(c). 

(3) Broker-dealer in securities has the 

same meaning as provided in 

§ 103.11(f). 

(4) Covered product means: 

(i) A permanent life insurance policy, 

other than a group life insurance policy; 

(ii) An annuity contract, other than a 

group annuity contract; and 

(iii) Any other insurance product with 

features of cash value or investment. 

(5) Group annuity contract means a 

master contract providing annuities to a 

group of persons under a single 

contract. 

(6) Group life insurance policy means 

any life insurance policy under which a 

number of persons and their 

dependents, if appropriate, are insured 

under a single policy. 

(7) Insurance agent means a sales 

and/or service representative of an 

insurance company. The term 

‘‘insurance agent’’ encompasses any 

person that sells, markets, distributes, or 

services an insurance company’s 

covered products, including, but not 

limited to, a person who represents only 

one insurance company, a person who 

represents more than one insurance 

company, and a bank or broker-dealer in 

securities that sells any covered product 

of an insurance company. 

(8) Insurance broker means a person 

who, by acting as the customer’s 

representative, arranges and/or services 

covered products on behalf of the 

customer. 

(9) Insurance company or insurer. (i) 

Except as provided in paragraph 

(a)(9)(ii) of this section, the term 

‘‘insurance company’’ or ‘‘insurer’’

means any person engaged within the 

United States as a business in the 

issuing or underwriting of any covered 

product. 

(ii) The term ‘‘insurance company’’ or 

‘‘insurer’’ does not include an insurance 

agent or insurance broker. 

(10) Permanent life insurance policy 

means an agreement that contains a cash 

value or investment element and that 

obligates the insurer to indemnify or to 

confer a benefit upon the insured or 

beneficiary to the agreement contingent 

upon the death of the insured. 

(11) Person has the same meaning as 

provided in § 103.11(z). 

(12) United States has the same 

meaning as provided in § 103.11(nn). 

(b) Anti-money laundering program 

requirements for insurance companies. 

Not later than May 2, 2006, each 

insurance company shall develop and 

implement a written anti-money 

laundering program applicable to its 

covered products that is reasonably 

designed to prevent the insurance 

company from being used to facilitate 

money laundering or the financing of 

terrorist activities. The program must be 

approved by senior management. An 

insurance company shall make a copy of 

its anti-money laundering program 

available to the Department of the 

Treasury, the Financial Crimes 

Enforcement Network, or their designee 

upon request. 

Federal Register / Vol. 70, No. 212 / Thursday, November 3, 2005 / Rules and Regulations 66761 

1Language expanding the scope of the Bank 

Secrecy Act to intelligence or counter-intelligence 

activities, including analysis, to protect against 

international terrorism was added by section 358 of 

the Uniting and Strengthening America by 

Providing Appropriate Tools Required to Intercept 

and Obstruct Terrorism Act of 2001 (the USA 

PATRIOT Act), Public Law 107–56. 2 31 U.S.C. 5318(g) was added to the Bank 

Secrecy Act by section 1517 of the Annunzio-Wylie 

Anti-Money Laundering Act, Title XV of the 

Housing and Community Development Act of 1992, 

Public Law 102–550; it was expanded by section 

403 of the Money Laundering Suppression Act of 

1994 (the Money Laundering Suppression Act), 

Title IV of the Riegle Community Development and 

Regulatory Improvement Act of 1994, Public Law 

103–325, to require designation of a single 

government recipient for reports of suspicious 

transactions. 

(c) Minimum requirements. At a 

minimum, the program required by 

paragraph (b) of this section shall: 

(1) Incorporate policies, procedures, 

and internal controls based upon the 

insurance company’s assessment of the 

money laundering and terrorist 

financing risks associated with its 

covered products. Policies, procedures, 

and internal controls developed and 

implemented by an insurance company 

under this section shall include 

provisions for complying with the 

applicable requirements of subchapter II 

of chapter 53 of title 31, United States 

Code and this part, integrating the 

company’s insurance agents and 

insurance brokers into its anti-money 

laundering program, and obtaining all 

relevant customer-related information 

necessary for an effective anti-money 

laundering program. 

(2) Designate a compliance officer 

who will be responsible for ensuring 

that: 

(i) The anti-money laundering 

program is implemented effectively, 

including monitoring compliance by the 

company’s insurance agents and 

insurance brokers with their obligations 

under the program; 

(ii) The anti-money laundering 

program is updated as necessary; and 

(iii) Appropriate persons are educated 

and trained in accordance with 

paragraph (c)(3) of this section. 

(3) Provide for on-going training of 

appropriate persons concerning their 

responsibilities under the program. An 

insurance company may satisfy this 

requirement with respect to its 

employees, insurance agents, and 

insurance brokers by directly training 

such persons or verifying that persons 

have received training by another 

insurance company or by a competent 

third party with respect to the covered 

products offered by the insurance 

company. 

(4) Provide for independent testing to 

monitor and maintain an adequate 

program, including testing to determine 

compliance of the company’s insurance 

agents and insurance brokers with their 

obligations under the program. The 

scope and frequency of the testing shall 

be commensurate with the risks posed 

by the insurance company’s covered 

products. Such testing may be 

conducted by a third party or by any 

officer or employee of the insurance 

company, other than the person 

designated in paragraph (c)(2) of this 

section. 

(d) Anti-money laundering program 

requirements for insurance companies 

registered or required to register with the 

Securities and Exchange Commission as 

broker-dealers in securities. An 

insurance company that is registered or 

required to register with the Securities 

and Exchange Commission as a brokerdealer in securities shall be deemed to 

have satisfied the requirements of this 

section for its broker-dealer activities to 

the extent that the company is required 

to establish and has established an antimoney laundering program pursuant to 

§ 103.120 and complies with such 

program. 

(e) Compliance. Compliance with this 

section shall be examined by the 

Department of the Treasury, through the 

Financial Crimes Enforcement Network 

or its delegees, under the terms of the 

Bank Secrecy Act. Failure to comply 

with the requirements of this section 

may constitute a violation of the Bank 

Secrecy Act and of this part. 

Dated: October 28, 2005. 

William J. Fox, 

Director, Financial Crimes Enforcement 

Network. 

[FR Doc. 05–21917 Filed 11–2–05; 8:45 am] 

BILLING CODE 4810–02–P 

DEPARTMENT OF THE TREASURY 

31 CFR Part 103 

RIN 1506–AA36 

Financial Crimes Enforcement 

Network; Amendment to the Bank 

Secrecy Act Regulations—

Requirement That Insurance 

Companies Report Suspicious 

Transactions 

AGENCY: Financial Crimes Enforcement 

Network, Treasury. 

ACTION: Final rule. 

SUMMARY: This document contains an 

amendment to the regulations 

implementing the statute generally 

referred to as the Bank Secrecy Act. The 

amendment requires insurance 

companies to report suspicious 

transactions to the Financial Crimes 

Enforcement Network. The amendment 

constitutes a further step in the creation 

of a comprehensive system for the 

reporting of suspicious transactions by 

the major categories of financial 

institutions operating in the United 

States. 

DATES: Effective Date: December 5, 2005. 

Applicability Date: This rule applies 

to transactions occurring after May 2, 

2006. See 31 CFR 103.16(h) of the final 

rule contained in this document. 

FOR FURTHER INFORMATION CONTACT: 

Financial Crimes Enforcement Network, 

Office of Regulatory Programs on (202) 

354–6400 (not a toll-free number). 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. Statutory Provisions 

The Bank Secrecy Act, Public Law 

91–508, as amended, codified at 12 

U.S.C. 1829b, 12 U.S.C. 1951–1959, and 

31 U.S.C. 5311–14, 5316–5332, 

authorizes the Secretary of the Treasury 

to issue regulations requiring financial 

institutions to keep records and file 

reports that are determined to have a 

high degree of usefulness in criminal, 

tax, and regulatory matters, or in the 

conduct of intelligence or counterintelligence activities, including 

analysis, to protect against international 

terrorism, and to implement anti-money 

laundering programs and compliance 

procedures.1 Regulations implementing 

Title II of the Bank Secrecy Act appear 

at 31 CFR Part 103. The authority of the 

Secretary to administer the Bank 

Secrecy Act has been delegated to the 

Director of the Financial Crimes 

Enforcement Network. 

With the enactment of 31 U.S.C. 

5318(g) in 1992,2 Congress authorized 

the Secretary of the Treasury to require 

financial institutions to report 

suspicious transactions. As amended by 

the USA PATRIOT Act, subsection (g)(1) 

states generally: 

The Secretary may require any financial 

institution, and any director, officer, 

employee, or agent of any financial 

institution, to report any suspicious 

transaction relevant to a possible violation of 

law or regulation. 

Subsection (g)(2)(A) provides further 

that: 

[i]f a financial institution or any director, 

officer, employee, or agent of any financial 

institution, voluntarily or pursuant to this 

section or any other authority, reports a 

suspicious transaction to a government 

agency—

(i) The financial institution, director, 

officer, employee, or agent may not notify 

any person involved in the transaction that 

the transaction has been reported; and 

(ii) No officer or employee of the Federal 

Government or of any State, local, tribal, or 

territorial government within the United