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Difficulty: MediumUSA PATRIOT Act and Anti-Money Laundering (AML)

An independent agent helps a client secure an indexed universal life insurance policy. The client funds the initial $13,500 premium via multiple wire transfers from different unverified offshore bank accounts. Shortly after the policy is issued, the client cancels the contract during the free-look period and demands the full refund be wired to a newly established, unrelated corporate account. Under the USA PATRIOT Act and Anti-Money Laundering (AML) regulations, what is the required compliance action for the insurer?

  1. A
    Block the refund transaction and immediately question the client regarding the destination of the corporate account to resolve the discrepancy.
  2. B
    File a Currency Transaction Report (CTR) because the total premium exceeded $10,000, and provide the client with a copy of the federal filing.
  3. Submit a Suspicious Activity Report (SAR) to FinCEN within 30 days of detecting the red flags and ensure the client is not informed about the filing.Answer
  4. D
    Report the suspicious activity directly to the state's Department of Insurance and local law enforcement within 30 days.

Answer

Submit a Suspicious Activity Report (SAR) to FinCEN within 30 days of detecting the red flags and ensure the client is not informed about the filing.
The scenario describes a classic money laundering scheme involving a covered cash-value life insurance product. Because the transaction exceeds the $5,000 statutory threshold and involves multiple red flags, the insurer is legally required to file a Suspicious Activity Report (SAR) with FinCEN within 30 days. Furthermore, federal law strictly prohibits the insurer or agent from tipping off the client about the investigation or the filing.

Step-by-Step Solution

1
Identify if the insurance product is subject to AML regulations.
The product is indexed universal life, which is a permanent cash-value policy, making it a covered product under federal AML rules.
The USA PATRIOT Act requires AML programs primarily for products with cash value or investment features, not term life or property/casualty insurance.
2
Evaluate the client's actions against mandatory reporting thresholds and red flags.
The actions (multiple offshore wires, early cancellation, redirecting a refund to a third-party corporate account) are strong indicators of money laundering. The amount (13,500)exceedsthe13,500) exceeds the 5,000 threshold for suspicious activity.
Financial institutions must file reports when transactions involving $5,000 or more appear to have no business or lawful purpose.
3
Determine the correct regulatory procedure and limitations.
The insurer must file a Suspicious Activity Report (SAR) with FinCEN within 30 days. The insurer must not tell the client about the report.
Federal law establishes strict filing deadlines and an absolute anti-tipping-off prohibition to prevent suspects from hiding assets or evading law enforcement.

Key Concept

AML Red Flags, SAR Filing Requirements, and the Anti-Tipping-Off Prohibition
Estimated Time:1m 15s
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Topics

USA PATRIOT Act and Anti-Money Laundering (AML)

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