New Anti-Money Laundering Whistleblower Law Makes Economic Sanctions Violations Reportable - Export Controls & Trade & Investment Sanctions - United States

[Gunnar Larson]

https://www.mondaq.com/unitedstates/export-controls--trade--investment-sanctions/1292082/new-anti-money-laundering-whistleblower-law-makes-economic-sanctions-violations-reportable


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.

Conclusion

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.

Footnotes

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.

11. Id.

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.").

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.
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