Get ready for Patriot Act II, says Peter Djinis, a former FinCEN official now practicing law in the Washington, D.C., area: The reach of U.S. anti-money laundering (AML) regulations will keep growing in 2006—from banks, brokerage houses and the like, which have been under the AML umbrella for years, and into industries like insurance, gems and precious metals, hedge funds, investment advisors, and off-shore real estate transactions.
The source of life insurance policy payments, for instance, is about to get a close look, and the ingenuity of bad guys is to blame. Djinis mentions a case broken by the U.S. Customs Service in 2003 in which Columbian drug cartels were buying U.S. life insurance policies with offshore money, cashing them out for near-face value in the U.S., and then either getting the money directly, or having it paid to third parties. “The paper trail was all messed up—(criminals) had all sorts of explanations of why they had that money, and none of the policies showed the illegal nature of the funds that bought the policies,” he says.
Another Columbian scam: Taking out life insurance on people near death, changing the beneficiaries, and then either selling the claim, or just waiting for nature to take its course, and having the insurance company send the money to Bogota. “It’s a way of confusing the audit trail and providing these people with legitimate explanations for the sources of these funds,” he adds.
Treasury will also be adding gems and precious metals dealers to their purview this year. “These are organizations that have really been considered to be on the fringes of terrorist financing activity,” says Djinis. They, as well as automobile and boat dealers, will likewise be required to add the same AML programs that banks and their ilk have had in place since before 9/11.
The effect of this new scrutiny on the affected payments flows is an unknown, but, says Djinis, there are indications that AML compliance has slowed foreign investment in this country, and he wonders if the mission creep of these new areas of scrutiny will cut into those businesses, as well. “People just have to worry that their activities would come under scrutiny, or that they’d be inconvenienced, even if they’re legitimate,” he says.
The good news for 2006? It’s unlikely that Treasury will be given any new authority or AML weapons by Congress. “Call me naïve, but I can’t imagine that Treasury needs more authority at this point,” he says. “They had plenty of authority before the Patriot Act, but now it’s got statutory authority to regulate virtually any business that provides financial services to the public.” (Contact: Peter Djinis, 703-873-0884)