On December 23, 2022, Congress included the Anti-Money Laundering Whistleblower Improvement Act in the omnibus budget presented to President Biden. The Improvement Act contained several key amendments to the Anti-Money Laundering Act that bring the program more closely into alignment with other highly successful federal whistleblower programs.
On December 29, 2022, President Biden signed the Act into law. Senator Chuck Grassley, who sponsored the bill alongside Senators Raphael Warnock, Elizabeth Warren, and Catherine Cortez Masto, explained the bill’s importance: “[W]ith 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[,] I’m optimistic that our new program encouraging individuals to come forward for suspected sanctions violations will be successful as well.”
The Improvement Act Fills Gaps in the AML Enforcement Regime
The Anti-Money Laundering Act of 2020 (AMLA), part of the National Defense Authorization Act, created a critical whistleblower program for anti-money laundering (AML) enforcement. Administered through the Department of Treasury, the 2020 AML program provided protection and monetary incentives to whistleblowers who voluntarily raised alarms within their companies or to the federal government about violations of the Bank Secrecy Act (BSA), the country’s primary AML enforcement law. Before the AMLA, whistleblowers with information on BSA violations were confined to a maximum possible award of $150,000, a poor incentive for the long-term, high-earning employees best poised to detect major violations. In response, the AMLA was modeled on the highly successful SEC whistleblower program. If the information whistleblowers provided resulted in monetary sanctions over $1,000,000, the whistleblower could receive up to 30% of the total sanctions as an award. These sanctions and ensuing rewards can be considerable: FinCEN fined USAA Federal Savings Bank $140 million in March 2022 when then Bank inadequately responded to thousands of potentially suspicious cases. That fine could have carried a $42 million award for a participating whistleblower. However, unlike the SEC whistleblower program, the AML program made no guarantee of a minimum award for successful tips.
Under the AMLA of 2020, whistleblowers could be, but need not be, company insiders. They could reside in the United States or hail from abroad. The conduct they reported could take place domestically or internationally, so long as American regulators had jurisdiction. Whistleblowers who were represented by an attorney could report anonymously, and some whistleblowers received protection from employer retaliation based on their reports.
But for all its strength, the AMLA of 2020 had holes. Corporate auditors and compliance professionals could not qualify as whistleblowers under the original law, despite their unique access to BSA/AML-related information. And as its critics noted from its inception, the AMLA’s missing floor on awards for successful tips severely undercut the program’s power to encourage whistleblowers. Those with information could risk their livelihood and financial stability to bring forward critical information that resulted in massive monetary sanctions, only to see minimal or nonexistent compensation for their courage. Additionally, awards were funded through Congressional appropriations bills, so even for those whistleblowers who did receive an award, FinCEN could not pay them until Congress allocated the money.
The Improvement Act patched these holes with several long-sought changes. Based on the highly successful Dodd-Frank Act (15 U.S.C. § 78u-6), the Improvement Act demonstrates clear intent by Congress to solicit increased whistleblower tips by expanding incentives and protections for those who report. First, the Act set a 10% minimum award for whistleblowers whose information leads to financial sanctions over $1 million. Second, the Act established the Financial Integrity Fund to support these awards, drawing on criminal forfeitures, fines, and victim restitution from sanctioned entities instead of relying on appropriated tax payer dollars. Third, the Act lifted restrictions on potential whistleblowers who learned of violations through their roles as compliance or audit professionals. Each of these changes further encourages potential whistleblowers to report violations within their organizations to the federal government.
In ameliorating these gaps, Congress took the extra step of expanding the AMLA to cover information uncovering violations of American sanctions laws. In addition to recognizing whistleblowers with BSA/AML violation information, the amended AML program protects and rewards whistleblowers with information relating to the International Emergency Economic Powers Act, the Trading with the Enemy Act, and the Foreign Narcotics Kingpin Designation Act. Relevant information under the AML program includes any possible violation of these laws and their regulations that has happened, is about to occur, or is ongoing. These violations include:
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Companies directly engaging in business with sanctioned individuals or entities or individuals or entities from a sanctioned country;
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Companies allowing sanctioned individuals or entities to avail themselves of the company’s systems or tools;
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Companies failing to create and maintain effective compliance programs that will ensure they avoid transacting with sanctioned individuals or entities;
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Recidivist noncompliance with sanctions rules and requirements.
The move to include sanctions reporting in the AML program was a direct, bipartisan response by Congress to the war in Ukraine. Because the expanded program amplifies enforcement powers against money laundering in United States financial systems and abroad, it allows federal agencies to target and seize assets of individuals violating U.S. sanctions by providing money, technology, or weapons to sanctioned countries, including Russia. Senator Grassley noted upon the Act’s passage that “[g]iven the expansive sanctions we’ve implemented on Russia as they wage an unjust war in Ukraine, our legislation is urgently needed to hold bad actors accountable.”
Importantly, because the Act does not specify that a whistleblower be a U.S. citizen or resident, foreign nationals may also qualify for AMLA protection and awards. This feature tracks closely with the Dodd-Frank Act, which effectively polices foreign bribery by incentivizing non-U.S. citizens to report violations of securities laws, the Foreign Corrupt Practices Act, and fraud in commodity markets.
In total, the Improvement Act creates a significantly stronger AML program designed to embolden potential whistleblowers to come forward. The broad support for the Act forecasts increased whistleblower-initiated enforcement actions from the Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”) and the Office of Foreign Assets Control (“OFAC”).
The Necessary Next Step
While the 2022 amendments made critical expansions to the AMLA, the Act still has at least one glaring hole. For the whistleblowers it protects, the AMLA creates a strong shield against retaliation for engaging in protected activity. Covered whistleblowers may report violations not only to the government, but also within their organization to those with authority to “investigate, discover, [] terminate, . . . [or] take any other action to address the misconduct.” 31 U.S. Code § 5323(g)(1). However, reporting internally can and frequently does result in whistleblowers experiencing adverse retaliatory actions by their employers, including termination. The AMLA provides generous remedies for successful retaliation claims, including reinstatement, double back-pay, and attorneys’ fees. 31 U.S. Code § 5323(g)(3).
But key whistleblowers are left outside this protective shield. The AMLA’s retaliation measures “[do] not apply with respect to any employer that is subject to section 33 of the Federal Deposit Insurance Act (12 U.S.C. 1831j) or section 213 or 214 of the Federal Credit Union Act (12 U.S.C. 1790b, 1790c).” 31 U.S. Code § 5323(g)(6). This provision blocks employees of credit unions and FDIC-insured depository institutions, otherwise known as banks, from receiving protection and restitution from retaliation. Instead, bank employees must avail themselves of the older and significantly weaker Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA). FIRREA carries lower remedies for retaliated-against employees and provides no cover to employees who first report their concerns internally.
Because bank employees are some of the most likely people to have access to information on BSA/AML and sanctions violations, this gap is a significant weakness to the AMLA’s otherwise strong program. Retaliation is a primary deterrent to employees considering reporting legal violations either within or outside their organization. Would-be whistleblowers who know they stand to gain significant reparations should their employer fire them for reporting are more likely to push back on illegal activity within their company or report it to government regulators. But those who lack such protections may be less willing to break their silence.
The AMLA’s improved monetary award regime will likely do what Dodd-Frank and Sarbanes-Oxley have done so well: encourage people to come forward. But without comprehensive retaliation protections for the employees best poised to detect AML violations, the program will remain incomplete.