New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

Eliot Spitzer
Governor

Eric R. Dinallo
Superintendent

The Office of General Counsel issued the following opinion on January 25, 2008 representing the position of the New York State Insurance Department.

Re: Anti-money laundering program of life insurers

Question Presented:

Does any federal statute or regulation prohibit an authorized life insurer from accepting premium payment for a term life insurance policy by money order or certified bank check?

Conclusion:

No. There is no federal statute or regulation that prohibits an authorized life insurer from accepting premium payment for a term life insurance policy by money order or certified bank check.

Facts:

The inquirer reports that he is a general agent licensed to sell life insurance. The inquirer reports that four named authorized life insurers informed him that a "federal anti-money laundering law" precluded them accepting premium payments for term life insurance policies by money order or certified bank check. The inquirer asks whether there is in fact any "federal anti-money laundering" statute or regulation that prohibits premium payment for a term life insurance policy by money order or certified bank check.

Analysis:

31 U.S.C.S. § 5318(h)(1) (Lexis 2007) is the federal statute that requires financial institutions to establish an anti-money laundering program. That provision reads as follows:

(h) Anti-money laundering programs.

(1) In general. In order to guard against money laundering through financial institutions, each financial institution shall establish anti-money laundering programs, including, at a minimum--

(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.S. § 5312(a)(2)(M) (Lexis 2007) defines "financial institution" to include an "insurance company". 31 U.S.C.S. § 5318(h)(2) (Lexis 2007) provides in relevant part that the Secretary of the Treasury may prescribe minimum standards for anti-money laundering programs established under 31 U.S.C.S. § 5318(h)(1) (Lexis 2007).

The Department of the Treasury promulgated 31 C.F.R. § 103.137 (2005) to prescribe "Anti-money laundering programs for insurance companies." All insurers, as defined by 31 C.F.R. § 103.137(a)(9) (2005), therefore were required pursuant to 31 C.F.R. § 103.137(b) (2005) to develop and implement a written anti-money laundering program applicable to its "covered products" not later than May 2, 2006, and to provide a copy of this program to the Department of the Treasury, Financial Crimes Enforcement Network, or its designee upon request.

As applied to life insurance, a "covered product", and "permanent life insurance policy" other than a group life insurance policy, are defined by 31 C.F.R. § 103.137(a)(4) (2005) and 31 C.F.R. § 103.137(a)(10) (2005), respectively, to involve features of cash value or investment. 31 C.F.R. § 103.137(a)(4) (2005) defines "covered product" to mean: "(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." 31 C.F.R. § 103.137(a)(10) (2005) defines "permanent life insurance policy" to mean: "[A]n 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." Since a term life insurance policy does not involve cash value or investment, a term life insurance policy is not a "covered product". Thus, an authorized life insurer's anti-money laundering program does not apply to a term life insurance policy.

Even if a "covered product" were the subject of the inquirer’s inquiry, the federal regulation does not specifically preclude the use of money orders and certified bank checks for premium payment. 31 C.F.R. § 103.137(b) (2005) states in relevant part: "[E]ach 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." 31 C.F.R. § 103.137(c) (2005) sets forth minimum requirements for an insurance company's written anti-money laundering program, but that regulation does not specifically preclude the use of money orders and certified bank checks for premium payment of a life insurance company's covered products.

While the state Insurance Department requests and reviews an authorized life insurer's anti-money laundering program as part of the Department's examination cycle of authorized life insurers, it is the federal Department of the Treasury, and not this Department, that is responsible for compliance with the regulation. See 31 C.F.R. § 103.137(e) (2005).

Nothing in the New York Insurance Law or the regulations promulgated thereunder specifically prohibits an authorized life insurer from refusing to accept premium payment for a term life insurance policy by money order or certified bank check, if the insurer's refusal to accept that type of premium payment is implemented uniformly. However, it is conceivable that under certain circumstances, such a company policy could be found to constitute an unfair trade practice pursuant to Article 24 of the Insurance Law.

For further information, you may contact Senior Attorney Robert Freedman at the New York City office.