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New Whistleblower Program May Lead to Surge in Bank Secrecy Act Enforcement

Jan. 22, 2021, 9:01 AM

The Anti-Money Laundering Act of 2020 (AMLA), which took effect Jan. 1, creates a new whistleblower reward program in the Treasury Department to encourage insider reporting of financial institutions’ violations of the Bank Secrecy Act (BSA).

As with similar programs created in the Securities and Exchange Commission and other federal agencies, this new reward program may lead to a surge of new BSA investigations and enforcement actions by Treasury. Financial institutions subject to the BSA—such as banks, credit unions, money service firms, casinos, and some fintech providers—should embrace the lessons learned from earlier whistleblower actions and prepare for this new form of enforcement risk.

Rules of the Program

The new whistleblower reward rules are modeled on the SEC program created by the 2010 Dodd-Frank statute. The rules provide that if a whistleblower voluntarily provides “original information” to Treasury, the Justice Department, or the whistleblower’s employer about a BSA violation that leads to a government enforcement action and over $1 million in sanctions, the whistleblower can recover up to 30% of the total sanction amount.

“Original information” must be “derived from the whistleblower’s independent knowledge or analysis” and not already known to Treasury or the DOJ from another source or contained in court, government, or media reports. An award may not be made to a whistleblower who acquired the information while “acting in the normal course of the job duties of the whistleblower,” limiting the ability of bank auditors and BSA compliance personnel to act as whistleblowers.

The law also protects whistleblowers from retaliation by employers, by allowing them to report the retaliation to the Labor Department and potentially file a federal lawsuit seeking reinstatement, double back pay, and attorney fees and costs. Employers may not require employees to waive these rights or arbitrate related disputes.

Adapting to BSA Whistleblower Risk

The prospect of multi-million dollar rewards will likely lead to a flood of tips to Treasury from insiders at financial institutions, and a corresponding increase in BSA enforcement. Fortunately, the experience of companies subject to the earlier SEC and other whistleblower programs offers guidance as to how financial institutions should respond.

1. Step up BSA Compliance. Given the heightened scrutiny, companies should re-examine their existing BSA/AML policies, training, and staffing, and consider devoting additional resources to ensure they are well-tailored to the company’s particular business and risk profile.

2. Encourage Internal Reporting of BSA Compliance Problems. To ensure they learn of any potential compliance issues before the government does, companies should create, improve, and inform employees of internal tip hotlines where issues can be reported, as well as anti-retaliation policies that protect those who make reports. At the same time, companies should use caution when considering more heavy-handed tactics, such as confidentiality agreements, to deter reporting outside the company, as the government will likely be hostile to such practices.

3. Investigate Any Internal Reports of BSA Issues. In some cases, such as when the issue is significant, widespread, or involves senior managers, this may call for involving experienced outside counsel, who can help maintain privilege, avoid retaliation issues, and enhance credibility with the whistleblower and the government.

4. Engage With the Whistleblower During Any Investigation. Whistleblowers who believe their complaints are not being taken seriously may take more aggressive action, whether complaining to regulators or spreading negative information within the company. It is thus well-advised to remain in contact with the internal whistleblower to assure them that action is being taken. At the same time, the company should be careful to maintain confidentiality and privilege, carefully document interactions with the whistleblower, and take caution in any personnel changes affecting the relevant employee.

5. Take Corrective Action. This includes updating compliance programs in response to any issues uncovered in an investigation. An internal whistleblower complaint that uncovers genuine issues can help prevent future liability, whether from a separate whistleblower disclosure or an independent government investigation. But failing to adequately address any problems uncovered by an internal complaint and investigation can make the company look even worse in a later investigation, and can lead to harsher sanctions and settlement demands from government enforcers.

6. Consider Self-Disclosure of BSA Issues Uncovered. Both the DOJ and certain Treasury agencies have confirmed that voluntary disclosure of violations will be considered a positive factor in determining potential penalties. This is always a difficult issue in any corporate compliance context, as the balance between pros and cons of voluntary disclosure can vary from case to case and agency to agency. As in other areas, advice from experienced counsel is particularly important here.

The new Treasury whistleblower program will add a new dimension to anti-money laundering compliance risk, but one with obvious and recent parallels. To adapt, financial institutions should be students of that near history.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

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Author Information

Joshua M. Robbins is a shareholder at Buchalter and chair of the firm’s White Collar & Investigations practice. He is a former Assistant U.S. Attorney for the Central District of California.

Cheryl M. Lott is a shareholder at Buchalter. She leads the firm’s Anti-Money Laundering compliance practice

Tiffany Ng is an attorney at Buchalter and member of the firm’s White Collar Litigation and Real Estate practice groups.

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