To more effectively counter transnational corruption and economic sanctions evasion, recent changes to the U.S. anti-money laundering ("AML") whistleblower regime expand and reinforce whistleblower protections and rewards in the Bank Secrecy Act of 1970, as amended ("BSA").1 These changes to the BSA/AML whistleblower framework have significant implications, not only for "financial institutions" (as defined in the BSA) already subject to regulation under the BSA, but for all individuals and entities seeking to comply with U.S. economic sanctions administered by the U.S. Department of the Treasury ("Treasury") Office of Foreign Assets Control ("OFAC").
By expanding the scope of violations reportable under the BSA's whistleblower provision to include economic sanctions violations, the new AML whistleblower law seeks to provide U.S. law enforcement agencies with an influx of useful tips to help uncover criminal networks and track down hidden assets, including those used and held by sanctioned Russian oligarchs. Additional changes, such as establishing a mandatory minimum whistleblower payout in certain circumstances, provide greater incentives for insiders to come forward to report BSA/AML and economic sanctions violations. Given that similar U.S. whistleblower laws have proven very effective, especially in recent years, the number of suspected violations reported by whistleblowers is expected to increase rapidly.2
These changes have transformed the BSA's whistleblower provision from a seldom-used regime of little significance into U.S. law enforcement's latest tool for uncovering worldwide sanctions evasion. As such, it is imperative that businesses with AML or economic sanctions exposure understand the changes and reassess their corporate compliance programs to adapt to the latest developments and also to prepare for future modifications to the law.
AML Whistleblower Improvement Act
On December 29, 2022, President Biden signed the Anti-Money Laundering Whistleblower Improvement Act ("Whistleblower Improvement Act" or "the Act") into law as part of the Consolidated Appropriations Act of 2023.3 The Whistleblower Improvement Act, which Congress passed unanimously on December 23, clarifies and expands on previous efforts to revamp the BSA/AML whistleblower regime, most notably, in the Anti-Money Laundering Act of 2020 ("AMLA").4
The AMLA was a comprehensive piece of legislation aimed at strengthening protections against money laundering, terrorism financing, and other illegal activities. The AMLA is also responsible for establishing the majority of the current BSA/AML regime's features; however, the finishing touches were put on the BSA/AML whistleblower program by the Whistleblower Improvement Act.5
Importantly, the Act authorizes, in any "covered judicial or administrative action," the Secretary of the Treasury to pay a whistleblower award of "not less than 10 percent" and "not more than 30 percent, in total, of what has been collected of the monetary sanctions imposed," to a whistleblower (or group of whistleblowers) that "voluntarily" provides "original information" to the individual's employer, the Treasury Secretary, or the Attorney General, that results in a successful enforcement action with sanctions exceeding $1 million.6
Expanded Scope of Reportable Violations to Include Economic Sanctions Violations
Perhaps the most significant change provided by the Act is changing the definition of a "covered judicial or administrative action" to include any action brought by the Secretary of the Treasury or the Attorney General that results in monetary sanctions exceeding $1 million under an expanded list of enumerated authorities.7 This list now covers the BSA as well as many of the legal authorities upon which U.S. economic sanctions are based, including the International Economic Emergency Powers Act ("IEEPA"), certain provisions of the Trading With the Enemy Act ("TWEA"), and the Foreign Narcotics Kingpin Designation Act ("Kingpin Act").8 Accordingly, violations of these U.S. laws are now reportable violations under the BSA/AML whistleblower regime.
Enhanced Monetary Incentives for Whistleblowers
The Act strengthened the monetary incentives for whistleblowers by requiring that whistleblowers who voluntarily bring forward original information that leads to the imposition of sanctions exceeding $1 million be entitled to a minimum award of 10% and a maximum award of 30% of the financial penalties. Under the previous regime, no mandatory minimum whistleblower recovery provision existed, and prospective whistleblowers were understandably reluctant to come forward without the assurance of a future payday.
Though the BSA/AML whistleblower regime established by the AMLA was modeled after the very successful Securities and Exchange Commission ("SEC") whistleblower program, it still lacked a few key components that were hindering its ability to provide evidence for U.S. law enforcement. Critically, the regime established by the AMLA lacked a mandatory minimum recovery provision and its own dedicated fund for whistleblower awards. Senator Chuck Grassley (R-IA), a cosponsor of the Act who has played a hand in creating several U.S. whistleblower programs, explained that adding these two components will help "ensure whistleblowers who step up to expose money laundering and U.S. sanctions violations receive fair compensation."9
$300 million Financial Integrity Fund for Whistleblower Awards
The Act established a revolving fund in the U.S. Treasury known as the Financial Integrity Fund. This fund will be used to pay awards to whistleblowers pursuant to the Act, without the need for further appropriation. Monetary sanctions collected by the Treasury Secretary or Attorney General will be deposited in or credited to the fund (unless the balance of the fund already exceeds $300 million). Establishing this $300 million fund motivates prospective whistleblowers to come forward by showing them the pool of money that has been set aside for whistleblower awards.
The Act's changes to the BSA/AML whistleblower regime have already changed the volume of whistleblower submissions. Since the passage of the Act late last year, Treasury's Financial Crimes Enforcement Network has seen a surge in the number of whistleblower submissions, with more than 100 tips coming in over the course of just three weeks.10 This is a dramatic increase from the program's first two years, which netted only 100 total tips and made zero whistleblower payments.11
BSA/AML Whistleblower Protections
The Act did not significantly alter any of the whistleblower protections already set forth in the AMLA. However, it is worth recalling the basic framework of whistleblower protection under the BSA/AML regime. The BSA is clear: employers may not directly or indirectly retaliate against an employee who provides information to certain designated entities in accordance with the law.12 Any individual who alleges discharge or other discrimination may seek relief by filing a complaint with the Secretary of Labor or, in certain circumstances, bringing action against the employer in the appropriate U.S. district court. If successful, relief may include reinstatement, double back pay with interest, and compensatory damages, including payment for litigation costs, expert witness fees, and attorneys' fees.
Whistleblowers and Corporate Compliance
Whistleblowers play an invaluable role in exposing misconduct in the workplace and promoting transparency and accountability throughout an organization. By calling out suspected wrongdoing, whistleblowers shine a light on shady practices that may otherwise go unnoticed, uninvestigated, and uncorrected. To ensure their disclosure will be protected, prospective whistleblowers should be aware of the applicable law before taking action. Conversely, businesses should be mindful of their obligations under the applicable law, which generally include a prohibition against punishing employees for making whistleblower complaints.
By providing a supportive work environment for employees to report potential misconduct and demonstrating that whistleblower complaints will be taken seriously, businesses can transition from a "culture of secrecy," where fearful or apathetic employees are less likely to speak up and misconduct is allowed to fester, to a "culture of compliance," where mindful employees are empowered to act as the company's first line of defense who inform management of potential misconduct so it can be swiftly and appropriately remediated.
Businesses should also make clear to their employees that reporting misconduct through internal channels will not result in retaliation. Employees who raise good faith allegations of misconduct are an asset to the company and should be treated as such. By taking internal complaints seriously and not punishing whistleblowers, businesses can incentivize employees to use internal reporting mechanisms, which can lead to fewer lawsuits and lower settlement costs in the long run. It is in the best interest of both employees and businesses to understand the legal landscape of whistleblower protection and to promote a culture of compliance through open and supportive communication channels. By doing so, everyone benefits from a safer and more transparent work environment.
When it comes to the new BSA/AML whistleblower regime, businesses with economic sanctions exposure should not overlook the increased whistleblower risks they likely now face including, in particular, the possibility of an insider disclosing information to the Treasury Secretary or Attorney General that may harm the company's interest.
The prospect of a whistleblower threat may also impact a company's decision onwhether to submit a voluntary self-disclosure to OFAC or the U.S. Department of Justice. Accordingly, businesses with economic sanctions exposure may wish to review and improve their compliance programs to ensure their internal controls and reporting mechanisms are well-designed, risk-based, and effective in practice. Companies should also monitor breaking developments in this space, which will include a Treasury rulemaking implementing the BSA whistleblower provision that is expected in the near future.
The increased incentives for reporting BSA and economic sanctions violations, coupled with the expansion of the types of reporting subject to the whistleblower rewards, make it more important than ever for companies to review their internal compliance programs and ensure that they are in a position to address significant BSA/AML and economic sanctions lapses on their own terms.
1. The BSA is codified at 12 U.S.C. § 1829b et seq. and 31 U.S.C. § 5311 et seq.
2. Senator Chuck Grassley, one of the Act's cosponsors, has been involved with the creation of numerous U.S. whistleblower programs. "The whistleblower programs I've helped create have seen roaring success, with the False Claims Act saving taxpayers $70 billion, the SEC whistleblower program saving over $4.8 billion and the IRS whistleblower program saving over $6 billion," Grassley stated in a recent press release. "I'm optimistic that our new program encouraging individuals to come forward for suspected sanctions violations will be successful as well." Grassley-Led Legislation Supporting Whistleblowers, Combatting Money Launderers and Sanctions Violators Passes Senate, Press Release (Dec. 8, 2022), https://www.grassley.senate.gov/news/news-releases/grassley-led-legislation-supporting-whistleblowers-combatting-money-launderers-and-sanctions-violators-passes-senate.
3. The full text of the Consolidated Appropriations Act of 2023, Pub. L. No. 117-328, is available at https://www.congress.gov/bill/117th-congress/house-bill/2617/text. The Whistleblower Improvement Act appears at Section 401, Title IV, Division AA of the Consolidated Appropriations Act, and amends Section 5323 of Title 31 of the U.S. Code (Whistleblower incentives and protections). Specifically, the Act amends § 5323 by striking and replacing the text of subsection (b) (Awards) and making other technical and conforming amendments to subsections (a), (c), and (g).
4. See AMLA, Pub. L. No. 116-283, div. F, title LXIII, § 6314 (prior amendments to 31 U.S.C. § 5323).
5. The BSA whistleblower provision is codified at 31 U.S.C. § 5323. Both the AMLA and the Act amended the BSA whistleblower provision.
6 Specifically, 31 U.S.C. § 5323 is amended to include the following relevant language at subsection (b)(1): "In any covered judicial or administrative action, or related action, the Secretary [of the Treasury]. shall pay an award or awards to 1 or more whistleblowers who voluntarily provided original information to the employer of the individual, the Secretary [of the Treasury], or the Attorney General, as applicable, that led to the successful enforcement of the covered judicial or administrative action, or related action, in an aggregate amount equal to-
- not less than 10 percent, in total, of what has been collected of the monetary sanctions imposed in the action or related actions; and
- not more than 30 percent, in total, of what has been collected of the monetary sanctions imposed in the action or related actions."
7. 31 U.S.C. § 5323(a)(1), as amended by the Act, defines the term "covered judicial or administrative action" to mean "any judicial or administrative action brought by the Secretary of the Treasury.or the Attorney General under this subchapter, chapter 35 or section 4305 or 4312 of title 50, the Foreign Narcotics Kingpin Designation Act (21 U.S.C. 1901 et seq.), or .), [sic] and for conspiracies to violate the aforementioned provisions that results in monetary sanctions exceeding $1,000,000."
8. See IEEPA, P.L. 95-223 (Oct. 28, 1977), 91 Stat. 1626, codified as amended at 50 U.S.C. § 1701 et seq. (2022); TWEA, P.L. 65-91 (Oct. 6, 1917) §§ 4305, 4312, 40 Stat. 411, codified as amended at 50 U.S.C. §§ 4305, 4312 (2022); Kingpin Act, P.L. 106-120 (Dec. 3, 1999), 113 Stat. 1606, codified as amended at 21 U.S.C. § 1901 et seq. (2022).
9. Sabrina Willmer, Banks With Russia Ties Targeted by US Treasury Whistleblowers, Bloomberg Law (Feb. 14, 2023), available at https://news.bloomberglaw.com/securities-law/banks-with-russia-ties-targeted-by-us-treasury-whistleblowers.
10. Id. at 3.
12. See 31 U.S.C. § 5323(g)(1) (Prohibition against retaliation) (providing that "[n]o employer may, directly or indirectly, discharge, demote, suspend, threaten, blacklist, harass, or in any other manner discriminate against a whistleblower in the terms and conditions of employment or post-employment because of any lawful act done by the whistleblower.").
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