The Financial Crimes Enforcement Network’s anti-money laundering whistleblower program has had a quiet start.
The program became effective Jan. 1, 2021, following passage of the Anti-Money Laundering Act of 2020. The nascent program has yet to pay a significant award, and FinCEN, which oversees the program, has not yet proposed implementing regulations.
However, thanks to congressional action and FinCEN’s sustained focus on filed complaints, the program may now be ready to roar to life. Financial institutions and other covered entities should know how to evaluate the program’s potential impact following these congressional changes.
Operations to Date
FinCEN’s AML program allows whistleblowers who report violations of the Bank Secrecy Act to receive up to 30% of any resulting monetary sanctions in excess of $1 million. The BSA requires financial institutions to maintain an effective anti-money laundering program and report different types of transactions, including those suspected of relating to criminal activity.
Penalties for BSA violations can be enormous, creating substantial incentives for whistleblowers to step forward.
For example, in March 2022 FinCEN fined USAA Federal Savings Bank $140 million for failing to timely review thousands of cases that it internally flagged as potentially suspicious. Had a whistleblower disclosed information leading to that penalty, the resulting award could have been $42 million.
FinCEN’s whistleblower program started receiving tips in October 2021. Although leanly staffed, the office showed its commitment to ramping up capacity as quickly as possible. And in late 2022, Congress amended the program to expand its coverage and fix perceived problems.
FinCEN is now investigating hundreds of complaints, sometimes with other regulatory agencies.
Given the original program’s singular focus on the Bank Secrecy Act, the office is receiving tips at the heart of BSA compliance: violations of know-your-customer rules, failing compliance programs that do not catch questionable transactions, monitoring failures that allow transactions by high-risk customers, and other similar compliance program issues.
The AML program’s statutory language largely tracks the highly successful Securities and Exchange Commission’s whistleblower program, and FinCEN is looking to that office as a model for how to manage tips.
As with the SEC, tips come in through FinCEN’s whistleblower office before being referred to the enforcement team for investigation and a determination whether to initiate enforcement action.
Obstacles to Progress
However, two provisions have hamstrung the AML whistleblower program.
First, unlike other whistleblower programs, the AML program did not mandate a minimum award. Disclosing information about money-laundering violations involves personal and professional risk. If the Treasury secretary could decide to award as little as one dollar, whistleblowers would be deterred from coming forward.
Second, and more problematic, whistleblower awards were required to be paid from funds allocated in advance through appropriation bills. Thus, no award could be paid until funds were appropriated by Congress, which did not happen in the two years since the program’s enactment.
In late 2022, Congress fixed these issues by passing the Anti-Money Laundering Whistleblower Improvement Act, mandating a minimum award of 10% of civil penalties for any whistleblower providing original information. That minimum award must be paid for information that led to successful enforcement.
Congress also created a fund for paying awards without the need for additional appropriations. The fund will receive money (up to a maximum of $300 million) from penalties imposed by the Treasury secretary or attorney general under the BSA and other statutes.
Perhaps most important, Congress broadened the whistleblower program as part of the US response to Russia’s ongoing war in Ukraine.
Whistleblowers can now report violations of sanctions imposed under the International Emergency Economic Powers Act, the Foreign Narcotics Kingpin Designation Act, and certain provisions of the Trading With the Enemy Act. These statutes authorize the executive branch to impose financial sanctions on foreign entities or individuals regarded as a threat to national security.
For example, in response to the ongoing invasion of Ukraine, President Joe Biden and the Office of Foreign Asset Control invoked IEEPA to restrict transactions with large Russian banks and affiliated individuals. Whistleblowers can report financial institutions that violate those restrictions, including through branches and correspondent accounts located abroad.
Potential whistleblowers who previously had nowhere to go can now disclose information to FinCEN relating to complex efforts by oligarchs, drug traffickers, and terrorist organizations to hide money. If past experience is any guide, FinCEN should expect a groundswell of tips.
Russia’s war in Ukraine helped push Congress to expand the program. It is possible that much of the information FinCEN receives will relate to Russian sanctions violations.
But the success of the program will ultimately rest on what happens after tips come in.
To further develop its whistleblower program, FinCEN must show that it takes tips seriously, protects confidentiality, and acts on the credible information it receives.
Tracking illicit funds is one of law enforcement’s biggest challenges. If FinCEN provides a clear path to report gaps in such tracking, its whistleblower program will strengthen the effectiveness of enforcement across the financial system.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
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Poppy Alexander is a partner at Constantine Cannon, where she represents whistleblowers under the various whistleblower reward programs.
Caleb Hayes-Deats is a partner at MoloLamken, where he represents companies and individuals in whistleblower litigation.