USA Patriot Act of 2001

STATE OF HAWAII

INSURANCE DIVISION

DEPARTMENT OF COMMERCE & CONSUMER AFFAIRS

P. O. BOX 3614

HONOLULU, HAWAII 96811-3614

250 S. KING ST., 5TH FLOOR

HONOLULU, HAWAII 96813

April 17, 2002

Memorandum 2002-4A

To:

All Hawaii Domesticated Insurers and Licensees

From: Wayne C. Metcalf, III

Insurance Commissioner, State of Hawaii

RE:

USA Patriot Act of 2001

On October 26, 2001, President Bush signed into law the “Uniting and Strengthening America

by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA Patriot) Act

of 2001”1 (Act). This law, enacted in response to the terrorist attacks of September 11, 2001,

strengthens our Nation’s ability to combat terrorism and prevent and detect money-laundering

activities.

The purpose of this Commissioner’s Memorandum is to advise persons or entities regulated by

the Hawaii Insurance Division of important new responsibilities under the Act. In particular,

Section 352 of the Act amends the Bank Secrecy Act (BSA)2 to require that all financial

institutions establish an anti-money laundering program and Section 326 amends the BSA to

require the Secretary of the Treasury (Treasury) to adopt minimum standards for financial

institutions regarding the identity of customers that open accounts.

Section 352 – Establishing Anti-Money Laundering Programs

Section 352 of the Act requires the establishment of an anti-money laundering program,

including, at a minimum:

• The development of internal policies, procedures, and controls. These should be

appropriate for the level of risk of money laundering identified;

• The designation of a compliance officer. The officer should have appropriate training

and background to execute their responsibilities. Additionally, the compliance officer

should have access to senior management;

• An ongoing employee training program. A training program should match training to the

employees’ roles in the organization and their job functions

oney laundering identified;

• The designation of a compliance officer. The officer should have appropriate training

and background to execute their responsibilities. Additionally, the compliance officer

should have access to senior management;

• An ongoing employee training program. A training program should match training to the

employees’ roles in the organization and their job functions. The training program

should be provided as often as necessary to address gaps created by movement of

employees within the organization and turnover; and

BENJAMIN J. CAYETANO

GOVERNOR

MAZIE K. HIRONO

LT. GOVERNOR

KATHRYN S. MATAYOSHI

DIRECTOR

WAYNE METCALF

INSURANCE COMMISSIONER

Memorandum 2002- (April 17, 2002)

Insurance Commissioner Wayne C. Metcalf, III

Page 2

• An independent audit function to test the programs. The independent audit function does

not require engaging outside consultants. Internal staff that is independent of those

developing and executing the anti-money laundering program may conduct the audit.

Treasury is currently drafting a regulation describing the anti-money laundering compliance

program for insurers. The regulation may borrow from the anti-money laundering compliance

program rule recently proposed by the NASD for broker-dealers3, and is expected to be

promulgated in late spring or early summer.

Insurance companies are included in the BSA’s definition of financial institution, and should be

prepared to comply with the new law and the regulations promulgated thereunder. Section 352

of the Act becomes effective on April 24, 2002. All insurance companies are required to be

in compliance with the law by that date.

As part of its rulemaking process, Treasury is determining the extent to which other insurance

entities will be considered financial institutions for purposes of the regulation

to comply with the new law and the regulations promulgated thereunder. Section 352

of the Act becomes effective on April 24, 2002. All insurance companies are required to be

in compliance with the law by that date.

As part of its rulemaking process, Treasury is determining the extent to which other insurance

entities will be considered financial institutions for purposes of the regulation. It is anticipated

that the regulation could cover all other persons and entities engaged in the business of

insurance, including brokers, agents, and managing general agents, and may also include other

regulated entities. These insurance entities will be required to comply with the regulation by the

regulation’s effective date.

Anti-money laundering programs are not anticipated to be “one size fits all.” Rather, it is

expected that they will be developed using a risk-based approach. Development of an anti-

money laundering program should begin with identification of those areas, processes and

programs that are susceptible to money laundering activities. The practices and procedures

implemented under the program should reflect the risks of money laundering given the entity’s

products, methods of distribution, contact with customers and forms of customer payment and

deposits.

Section 326 – Customer Identification

Section 326 of the Act amends the BSA to require that Treasury issue regulations setting forth

minimum standards for financial institutions regarding the identity of their customers in

connection with the purchase of a policy or contract of insurance. This program must set forth

customer identity verification and documentation procedures, as well as procedures the insurer

will employ to notify its customers about this requirement and determine whether the customer

appears on government lists of known or suspected terrorists or terrorist organizations.

Final regulations regarding this requirement are to be issued by the Department of the Treasury

by October 26, 2002

customer identity verification and documentation procedures, as well as procedures the insurer

will employ to notify its customers about this requirement and determine whether the customer

appears on government lists of known or suspected terrorists or terrorist organizations.

Final regulations regarding this requirement are to be issued by the Department of the Treasury

by October 26, 2002. Proposed regulations will be published in the Federal Register4 later in the

year. Through the rulemaking process, Treasury will determine which insurance entities will be

subject to the regulations. Insurance entities subject to the rules will be required to comply when

the final Treasury regulations become effective.

Memorandum 2002- (April 17, 2002)

Insurance Commissioner Wayne C. Metcalf, III

Page 3

Requests for additional information or questions regarding the Act may be directed to Linda L.

Duzick, Office of Thrift Supervision, serving as insurance industry liaison for the Department of

the Treasury, at (202) 906-6565 or Linda.duzick@ots.treas.gov.

End Notes

1The full text of the law can be obtained at www.access.gpo.gov/congress. Scroll to public and private laws, select

107th Congress, and select Public Law 107-56.

2Codified in subchapter II of chapter 53 of title 31, U.S. Code.

367CFR 8565 (February 25, 2002)

4The Federal Register website address is www.access.gpo.gov/nara.