Surprise! Proceeds of Crime law to impact insurers

Selling life insurance has just become more complicated. So has perhaps buying it.

As of Monday, the federal government’s Proceeds of Crime (Money Laundering) and Terrorist Financing Act came into effect, which requires the sale of life insurance to comply with a new legislative framework.

Primarily, sellers will have to introduce a formal compliance framework within their own companies, train and educate employees of the new rules, verify client identities through documentation, keep records clients’ personal information for five years, and sign formal agreements with business partners who have “face-to-face” dealings with clients or can otherwise verify the customers’ identities if it’s practical to delegate that responsibility.

Customers will, for the first time have to provide proof of their identity in the way of a birth certificate, passport or drivers license. And clients related to foreign dignitaries will have to provide even more information regarding their ties to their homelands.

“This will mean increased costs to insurers,” confirms Patrick Veilleux, a lawyer with McCarthy Tétrault’s litigation group in Toronto who will be advising clients affected.

He acknowledges providers will also have to implement a formal means of assessing their risk of exposure to money launders or terrorism financiers.

And there are penalties for breaching the Act, Veilleux notes, although the related fines have been reduced to reflect the gravity and circumstance surrounding the violation.

The Act’s new record-keeping and reporting requirements directly affect financial entities, life insurance companies, securities dealers, money services businesses, real estate brokers and casinos.

The legislation, however, includes tips for compliance, recordkeeping and client identification procedures, along with means to report suspicious transactions to the Financial Transactions and Reports Analysis Center of Canada, otherwise known as FINTRAC.

FINTRAC analyses and discloses financial intelligence on suspected money laundering or terrorist financing.

Veilleux says there are some simpler means to achieve compliance. For example, he says, in the event there is no “face-to-face” meeting during which a client can furnish ID, a credit report can be obtained to verify his or her identity, as can a certified cheque.

Veilleux says theAct was rolled out with such little fanfare, few professionals who stand to be affected that he’s spoken with recently are not aware of it’s full implications. “Many people seem surprised and there isn’t much out there to educate consumers or corporations,” he says.

“And some of these requirements will be quite onerous. Some larger insurance companies will have to have departments such as legal counsel on staff whose job it is to make sure the business is on side,” he observes. “But there are many businesses that just don’t have that capacity.”

He suggests companies that have any doubts deem it a priority to seek legal advice from lawyers familiar with the details of the legislation’s requirements.

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