USA PATRIOT Act Compliance Presents Numerous Challenges

Insurance companies have temporarily been exempted from the originally established April 24, 2002, USA PATRIOT Act compliance date for establishing anti-money laundering programs, pending further study by the Treasury Department. And, although challenges that will accompany the issuance of further rules (expected to take place within the next six months) are uncertain, there are numerous hurdles carriers can expect to face as they begin handling anti-money laundering (AML) issues.

Piyush Singh, vice president, information technology, RLI Insurance Co. (Peoria, IL, $1.39 billion in assets), says the biggest challenge his company is facing is handling fraudulent activities without already having defined processes in place, such as those that banks have. "While technology implementation will be easier in the grand scheme of things, the process of identifying and verifying names, following up with appropriate internal and external agencies and then acting in a timely manner in case of a real problem will be challenging," stresses Singh.

An increase in analytic reporting functions and storage needs, depending upon the number of transactions carriers are currently retaining, may be faced with the handling of AML, according to Jamie Bisker, director, insurance practice, TowerGroup (Needham, MA). "Challenges are likely to come from retention of applications and transactions that might tie into fraudulent activities, which are most likely precursors to money laundering," explains Bisker. However, because most carriers retain many transactions already, insurers may just need to change retention time and reporting outputs, he notes. Still, the maintenance of a PATRIOT Act data warehouse, or at least dedicated resources to extracting such data from an existing warehouse, may be necessary.

Neal Oswald, global vice president, Trading and Risk Management, Cap Gemini Ernst & Young (New York), suggests that insurers take a risk-based enterprise-wide approach to handling the AML process. He advises that insurers put "know-your-customer" procedures into place. These should include "list checking, detailed understanding of customer business, business patterns and sources of funds, as well as ongoing monitoring of high-risk accounts," says Oswald.

More insight into the compliance challenges related to the PATRIOT Act will be reported in the upcoming August issue of Insurance & Technology, which can be accessed at www.insurancetech.com