Tiffany & Co., American International Group Inc. and other jewelry and insurance businesses will be the next group of companies required to train staff and check transactions with clients to catch money launderers.
The U.S. Treasury's Financial Crimes Enforcement Network (FinCen) plans to issue rules in the next 30 days to extend the 2001 USA Patriot Act's anti-money-laundering and terrorist-financing rules, which were first applied to banks, credit unions, casinos, securities broker-dealers and mutual funds.
President Bush signed the law 45 days after the Sept. 11, 2001, attacks. Jewelry retailers and insurers are concerned they will have additional expenses from studying transactions with a low risk of money laundering. Enforcement officials want to prevent terrorists from using other cash-intensive businesses as alternatives after banks and casinos implemented the law.
"As you tighten control in the formal financial sector, banks for example, people will look to move elsewhere to try and integrate dirty money into the system," William D. Langford Jr., associate director for regulatory policy at the network, said in an interview Monday.
Insurance companies also would be required to file suspicious-activity reports to the government. "Both rules, I hope, will be out in the next month," Langford said.
Jewelers and insurers were among the industries Congress identified as most susceptible to money laundering. The agency focused on implementing the law's rules to banks and casinos first and needed additional time "defining the scope of these industries we've never regulated before," Langford said. "We've got to do it right, and we've got to treat people squarely."
Companies will have to train workers to recognize suspicious transactions, appoint compliance officers to run the programs and conduct independent tests to monitor the effectiveness of anti-laundering programs. The goal is to identify money launderers or terrorists when they first try to make their money look legitimate.
"It's the entry into the financial system, however that occurs. That's where they're at their most vulnerable," said John Roth, who was a senior counsel on the National Commission on Terrorist Attacks Upon the United States and a co-author of a commission report on terrorist financing.
Jewelers and insurers told the agency that it didn't understand their companies and made the rules too restrictive.
"Our main concern is that rules be drafted in such a way that they don't cover activity that is really low risk for money laundering," said Cecilia L. Gardner, executive director of the Jewelers Vigilance Committee, a trade group that is educating its companies about money laundering. Trade-ins, for example, usually are of minimal value and must be reported to law enforcement under older laws.
The American Council of Life Insurers said the agency was wrong when it said drug dealers or terrorists could buy a term insurance policy for an elderly or sick person and "collect the cleansed proceeds when the insured dies." The buyer must have an interest in keeping the person alive, the group said.
"A number of life insurance products, including group life insurance, credit life insurance, term life insurance products without stored value and reinsurance, do not fit FinCen's profile of a product that carries money laundering risk, and they should be excluded from the final rule," the Financial Services Roundtable, an industry lobbying organization, wrote in a letter to the agency.
The enforcement network's proposed expanded rule acknowledges there is no significant money-laundering risk in health or property and casualty insurance.
Banks want the agency to include all industries that provide financial services. After jewelers and insurance firms, the network will look at investment advisers, automobile dealers, and travel and real estate agents.
"Our goal was always to say there should be some sort of leveling of the playing field," said John Byrne, director of the American Bankers Association's Center for Regulatory Compliance. "I'm certainly sympathetic to industries that are just starting to realize the impact."