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December 16, 2002 Page 2 of 4

Finally, we wish to raise again, as we did in our November 25th comment letter, the compliance difficulties the Proposed Rule presents to the life insurance industry when we lack the regulations covering section 326 of the USA PATRIOT Act (verification of accountholder identification). We strongly urge Treasury to issue the regulations governing sections 352, 326, and the Proposed Rule at the same time with the same effective dates so compliance efforts may be coordinated and implemented in a timely as well as efficient manner.

Proposed Rule - section 103.16 (a)(2) Definition of Insurance Company

The ACLI strongly advocates here, as in our November 25th letter, exemption of four categories (reinsurance, group insurance, term life insurance, and, credit life insurance) from the purview of the Proposed Rule. We believe the analysis to be sound in our November 25th letter and will not repeat that analysis here. It is important that the regulations emanating from the USA PATRIOT Act be consistent. For example, a life insurance company must be aware of the types of lines to which the myriad regulations apply in order to develop the internal policies and procedures necessary to comply with the regulations. Therefore, if certain lines indeed become exempt from the section 352, then those lines must also be exempt from the SAR requirement.

Distribution Channels

The many different types of distribution channels in the life insurance industry were fully explored and explained in our November 25th letter. As explained in that letter, any cure to the issue of distribution channel cooperation with a life insurance company cannot include amendment to distribution contracts. Such an approach is unworkable and incredibly burdensome on the life insurance company. Indeed, it is not unusual for life insurance companies to have thousands of these distribution contracts, all individually negotiated. To revisit these arrangements for the purpose of compliance with the Proposed Rule is not an acceptable solution for the life insurance industry. As advocated in our November 25th letter, a much more meaningful exercise would be to assure that distributors have continuing education (“CE”) training in the USA PATRIOT Act to accomplish the goal of understanding the importance of and compliance with this federal law.

The ACLI proposes a solution to the distributor issue. First, it is important for the overall goals of the USA PATRIOT Act that suspicious activity be reported to federal regulatory authorities. Second, the realities of liability exposure in our country also dictate that entities reporting such activity be protected for such reporting. Third, insurance is unique to other financial services products in that suspicious activity detected by a distributor may occur in a situation which has not matured to the point where an application for a policy is completed. Therefore, the ACLI respectfully suggests that the Proposed Rule do the following: (1) ensure that distributors are able to avail themselves of the liability protections and immunities for reporting found in the Bank Secrecy Act and in section 314 of the USA PATRIOT Act; (2) obligate the distributor to report the suspicious activity directly to federal regulators when no application for insurance is completed; (3) obligate the distributor to report the suspicious

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