United States: The New Whistleblower Program AML Professionals Should Know

The Anti-Money Laundering Act of 2020 (AMLA) is the most significant change to the U.S.' anti-money laundering (AML) laws in more than a decade. One provision of interest to financial institutions (FIs) and AML professionals is the expansion of the Bank Secrecy Act's (BSA) whistleblower program. Whistleblowers can now anonymously report BSA violations and receive up to 30% of the monetary sanctions the government imposes, which can sometimes total hundreds of millions of dollars. The significant incentives now in place are likely to result in a dramatic increase in whistleblower reports, much like what the U.S. Securities and Exchange Commission (SEC) witnessed following the creation of its separate program in 2010. The BSA requires FIs to implement an effective AML program that detects and reports suspicious transactions.¹ If an FI violates this requirement, it faces penalties between $25,000 and $100,000 for each underlying transaction.² While the BSA previously had a program for rewarding the so-called "informants," the amount of any award was capped at $150,000.³ In addition, the BSA contained no provision for anonymously disclosing violations.

The AMLA made several important changes to the BSA's whistleblower program. It significantly increased the potential awards for disclosing BSA violations, added protections against retaliation and created a procedure for anonymous reporting. Now, a "whistleblower" who provides "original information" about violations of the BSA can receive up to 30% of any monetary sanction in excess of $1 million that the government recovers.⁴

A whistleblower can be "any individual" or group of individuals "acting jointly."⁵ U.S. citizenship is not required, as money laundering frequently crosses borders. The "original information" that a whistleblower provides can derive from the whistleblower's independent knowledge or analysis, as long as it is not already known to the government or available in public records.⁶ Whistleblowers also do not need to report the information directly to the government.⁷ Instead, they can relay it to their employers as part of their job duties. The secretary of the treasury has discretion over what amount to award a whistleblower but must consider the significance of the original information to subsequent enforcement actions and the degree of assistance that the whistleblower or the counsel provides in such actions.⁸

The new AML whistleblower program could produce substantial awards as violations of the BSA frequently result in civil and criminal penalties in the hundreds of millions of dollars. For example, in January 2021, the Financial Crimes Enforcement Network (FinCEN) assessed a $390 million civil money penalty against Capital One, National Association.⁹ That penalty resulted from Capital One's failure to implement effective AML controls at a check-cashing subsidiary. Capital One's AML deficiencies led it to not file suspicious activity reports on transactions by check-cashing outlets that later pleaded guilty to loan sharking, illegal gambling, tax evasion and money laundering, among other crimes.

Similarly, in 2018, U.S. Bank paid $528 million in penalties under a deferred prosecution agreement with the U.S. Attorney's Office for the Southern District of New York.¹⁰ Among other things, the government faulted U.S. Bank for employing an inadequate number of AML personnel, stretching them "dangerously thin" and limiting the number of potentially suspicious transactions it would review. Following the AMLA, penalties like those against Capital One and U.S. Bank could give rise to awards of over $100 million for any whistleblower who provided original information.

The AMLA also creates significant protections against retaliation.¹¹ It prohibits an employer from discharging, demoting, suspending, blacklisting or discriminating "in any other manner" against whistleblowers who disclose conduct that they reasonably believe violates the AML law. That prohibition applies even if the conduct is disclosed to the whistleblower's supervisors, rather than the government. A whistleblower who suffers discrimination can file a complaint with the secretary of labor. If the secretary of labor does not issue a final decision within 180 days, the whistleblower can sue in federal court. The potential remedies include reinstatement, double the amount of any back pay owed and other compensatory damages, including attorneys' fees.

Finally, the AMLA permits whistleblowers to report information "anonymously" through a counsel.¹² Under this approach, the government receives only the counsel's name and contact information, and any follow-up inquiries are relayed to the whistleblower through the counsel. Before receiving any award, whistleblowers must disclose their identities. This is required because certain groups, such as government employees, are excluded from receiving whistleblower awards.¹³ However, when a whistleblower's identity is disclosed, the AMLA requires the government to treat that information confidentially and places specific limitations on disclosure including the limitations in the Privacy Act.

The AMLA is likely to increase the number of whistleblower reports received by AML enforcement agencies dramatically. The provisions described above are highly similar to the SEC's whistleblower program created by the Dodd-Frank Act in 2010. Since that program's enactment, the number of whistleblower tips received by the SEC has increased each year, and now totals more than 40,000. Between 2012 and 2020, the SEC paid $562 million in whistleblower awards.¹⁴

The AMLA's expansion of the BSA whistleblower program has significant implications for both AML professionals and FIs. AML professionals with knowledge of BSA violations have much stronger incentives to disclose what they know to the government, and now they can do so anonymously. These incentives will likely lead to many reports as the history of the SEC's program demonstrates.

This new reality also creates risks for FIs, even if they are in full compliance with the BSA. A whistleblower report that lacks foundation can still result in an investigation, and FIs targeted by such investigations will need to devote significant resources to responding. FIs can mitigate the risk of an unexpected investigation by taking several measures to encourage internal reporting. The first step is the implementation of internal reporting mechanisms such as anonymous hotlines. But reporting mechanisms alone are not enough. Employees must believe that their institution will take such complaints seriously and not engage in retaliation. The institution can cultivate that belief by encouraging reporting at the highest levels, enacting robust anti-retaliation protections and making investigations into complaints as transparent as possible. Reporting programs that employees regard as credible maximize an institution's opportunity to resolve issues proactively rather than in response to an investigation. The AMLA encourages internal reporting by including internal whistleblowers among those eligible for an award.

AML professionals and FIs with questions or concerns about the new whistleblower program would be well-advised to consult with a counsel. While the AMLA has set forth the program's boundaries, many aspects of the program's future will depend on enforcement agencies and the regulations or other guidance they issue. Experienced counsel can help professionals and institutions keep up with new developments, analyze their implications and plot an effective course of action.

Footnotes

1. 31 U.S.C. §5318.
2. Id. §5321.
3. 31 U.S.C. §5323(b) (2020).
4. 31 U.S.C. §5323(b)(1). Monetary sanctions include "penalties, disgorgement, and interest," but not "forfeiture," "restitution," or other "victim compensation." Id. §5323(a)(2).
5. Id. §5323(a)(5).
6. Id. §5323(a)(3).
7. Id. §5323(a)(5).
8. Id. §5323(c)(1).
9. "Assessment of Civil Monetary Penalty Number 2010-01," Financial Crimes Enforcement Network, https://www.fincen.gov/sites/default/files/enforcement_action/2021-01-15/Assessment_CONA%20508_0.pdf
10. "Manhattan U.S. Attorney Announces Criminal Charges Against U.S. Bancorp For Violations Of The Bank Secrecy Act," The United States Attorney's Office Southern District of New York, February 15, 2018, https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-announces-criminal-charges-against-us-bancorp-violations-bank
11. 31 U.S.C. §5323(g).
12. 31 U.S.C. §5323(d).
13. 31 U.S.C. §5323(c)(2).
14. "2020 Annual Report to Congress Whistleblower Program," U.S. Securities and Exchange Commission, https://www.sec.gov/files/2020%20Annual%20Report_0.pdf

Originally published in the September-November 2021 Vol. 20 No. 4 edition of ACAMS Today, a publication of ACAMS © 2021 - www.acams.org.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.