Odious Disclosure: Letter From an insurance broker

December 9, 2010

Dear client:

Thanks for your message. I understand your reluctance to provide, for the insurance company, copies of your bank statements. I assure you that you are not alone in your apprehension. But I would like to explain why you are being asked to do this.

In 2008, Costa Rica signed the Central American Free Trade Agreement with the United States (CAFTA), and one of its covenants is that the country as a whole should get serious about preventing money laundering. Law 8204, the famous Ley sobre Estupefacientes (I love that word, which implies that people who take drugs are stupid, or that they become stupid from taking them), was enacted, requiring any person or corporation with a transaction of $10,000 or more passing through a financial institution to fill out and sign a disclosure form, “Conozca Su Cliente” (Know Your Client). This nosey-parker form asks some awkward questions, mainly focused on the place of residence and source of income of the person involved – and the information provided must be verifiable.

The place of residence is established by means of a utility bill, tax receipt, etc. Proving the source of income is also flexible, but often the best and most easily verifiable means is a copy of a bank statement where it is evident that X amount of money regularly comes in, presumably from a salary, pension or other legitimate source of income.

I think it’s practically impossible to launder drug money through insurance, but because insurance companies are financial institutions, they must comply with Law 8204, and the repercussions if they are caught in noncompliance are staggering – in 2008, one of our local banks was fined over $2 million. And because sums of money over $10,000 could conceivably change hands with the payment of a claim, the insurance companies are biting the bullet and requiring disclosure from everybody. How would this work? For example, you could insure your car and pay a premium of $250, but if the car were stolen and the insurance company paid the claim, the amount of the transaction could well exceed the $10,000 threshold.

Those are the rules, and not only the National Insurance Institute but also the new insurance companies have to comply by getting their clients to complete the Conozca Su Cliente form and provide means of verification. A real pain for everybody.

With kind regards from your sympathetic but reluctantly bureaucratic insurance broker…

Our purpose is to give the reader a better understanding of insurance in Costa Rica. The opinions and viewpoints expressed are those of the writer. Contact David Garrett at 2233-9520 or david@garrettbrokers.com.

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