By John Arvanitis, Senior Managing Director, Global Financial Crimes Compliance and Kari Trautvetter, Manager, Treliant
The Anti-Money Laundering Whistleblower Improvement Act (the Act) was included in the budget presented to US President Joe Biden by Congress on December 23, 2022. This provision covers a broad range of institutions spanning 26 categories, such as banks, foreign bank branches and agencies, broker-dealers, insurance companies, credit-card system operators, mutual funds, select casinos and travel agencies. The Act expands the scope of the law to encompass the reporting of financial-management rule violations by executive agencies, sanctions against foreign nations, and entities or individuals classified as enemies of the United States. The Act establishes a funding structure and minimum rewards for successful whistleblowers. These modifications raise the probability that employers engaging in financial activities, operating internationally in regions subject to US sanctions and/or having obligations to comply with the laws mentioned above will receive increased numbers of reports from employees claiming to be whistleblowers.
The Anti-Money Laundering Act of 2020 (AMLA) whistleblower provision seeks to introduce several important amendments that will bring financial institutions in line with other effective federal whistleblower programs, such as the False Claims Act,1 the U.S. Securities and Exchange Commission (SEC) whistleblower program2 and the Internal Revenue Service (IRS) whistleblower program3 operating today. One of the most significant aspects of this program calls for the establishment of robust legal protections for whistleblowers against retaliation and provisions for reinstatement, back pay and compensatory damages for those coming forward. The statute seeks to prompt financial institutions to set up programs to incentivize whistleblowers to come forward with information that leads to the identification of illicit activity, failures to address regulatory-compliance findings or enhancements, and recovery of funds involved in financial crimes. This strategic approach is similar to other successful whistleblower programs targeting tax and securities fraud, yet AML (anti-money laundering)-compliance professionals naturally will have questions about what the impacts of this amendment to the Bank Secrecy Act (BSA) will be in the future relating to money laundering, terrorist financing, and implementing and maintaining robust and effective AML-compliance programs.
The AMLA represents a major step forward in protecting and encouraging whistleblowers to report financial wrongdoing, which could significantly reduce financial crimes and increase transparency. The AMLA legislation not only strengthens legal protections for whistleblowers but also streamlines reporting processes and provides incentives to those who come forward. The law mandates that whistleblowers who provide original information leading to successful enforcement are entitled to receive awards ranging from 10 to 30 percent of the monetary sanctions collected as a result of relevant actions brought forth. To ensure efficient award payments, the AMLA established the Financial Integrity Fund in the United States Department of the Treasury, which is exclusively reserved for this purpose and cannot be used for personnel or administrative expenses. The provisions of the AMLA are designed to promote greater awareness and prevent financial wrongdoing by incentivizing whistleblowers to report illegal activities. By offering significant rewards for those who come forward with credible information, the act seeks to enhance transparency and integrity in the financial industry. As a result of these provisions of the statute, the potential rewards available under the BSA whistleblower program are potentially now comparable to those available under other federal statutes, which have historically provided some of the largest whistleblower awards. This means that individuals who come forward with useful information on financial crimes are now eligible for significant rewards, which can serve as powerful incentives.
The AMLA recognizes that training, education and communication are critical components of successfully implementing the whistleblower provision within the financial industry. Inside a financial institution, the goal is to raise awareness among individuals and departments about the purpose and scope of the provision and provide guidance on how to comply with its requirements. Organizations subject to the provision are encouraged to provide training and education to their employees, contractors and agents on how to move forward with any allegations or concerns. Impactful training will ensure that individuals are aware of the provision’s protections and requirements, including identifying potential violations of AML laws and reporting procedures, as well as the legal protections available to those bringing forward claims. By promoting awareness and education about the whistleblower provision, the AMLA encourages individuals and organizations to report financial misconduct and help prevent and combat money laundering within their organizations and the industry. Understanding and implementing this type of robust whistleblower program within an organization or the industry will significantly impact the promotion of change, transparency and integrity in the financial sector.
It is crucial for institutions to stay updated and compliant with their AMLA whistleblower programs by seeking guidance from their institutions’ legal counsel relating to implementing, monitoring and actioning allegations brought forward. By developing and reviewing compliance programs and policies, providing insight on potential legal risks and suggesting best practices for mitigating any allegations within their organizations, attorneys are positioned to address whistleblower allegations should they be brought forward by individuals associated with their institutions. To manage the risks posed by the whistleblower program, creating a culture of compliance is critical. Institutions should encourage employees to report concerns internally and take prompt actions to investigate and address any AML lapses before regulatory scrutiny occurs. Organizations can take several proactive steps to create a culture of compliance that encourages employees to come forward with information regarding potential violations of AML statutes:
- Establishing a whistleblowing policy that outlines how employees can report potential violations of AML laws, along with the procedures for handling and investigating such reports. This policy should be clear, easily accessible and widely disseminated throughout the organization. By providing clear and accessible policies, organizations encourage employees to report potential violations without fear of retaliation.
- Providing regular training and education to employees, contractors and agents on identifying potential violations of anti-money laundering laws and how to report them. This training should be tailored to each employee’s specific roles and responsibilities and emphasize the importance of reporting potential violations. By providing regular training and education, organizations can ensure that employees are aware of the potential risks and are equipped to identify and report potential violations.
- Creating a supportive environment that encourages and supports whistleblowers is critical. This can involve establishing clear communication channels for reporting potential violations, providing protection against retaliation, and recognizing and rewarding employees who come forward with information. By creating supportive environments, organizations can build trust with their employees and encourage them to report potential violations.
- Conducting regular risk assessments to identify potential vulnerabilities in their AML-compliance program is critical. By implementing regular risk assessments, organizations ensure that their compliance programs remain effective and up-to-date, mitigating risks accordingly.
The accountability behind the whistleblower provision serves as a powerful deterrent against retaliation and promotes transparency. The AMLA provision encourages individuals and organizations to report potential violations of anti-money laundering laws and provides them with the legal protections and rewards necessary to do so. With the support of regulatory agencies and proper implementations by organizations, the whistleblower provision has the potential to reduce money laundering and its impacts on the global financial industry significantly.
The AMLA represents a crucial milestone in the fight against financial crimes. By offering robust legal protections and incentives for whistleblowers to come forward with information on illicit activities, its amendments enable the financial system to prevent and detect wrongdoing more effectively. To ensure the success of these measures, institutions must establish streamlined and impartial internal investigation processes that promptly address any whistleblowers’ reports. Thus, disciplinary actions should be taken against any individuals found to have engaged in misconduct, and these allegations should be reported in a timely manner to law enforcement or regulators.
By promoting awareness, education and communication, efforts associated with the whistleblower provision will foster compliance with the regulatory requirements that safeguard the financial system and prevent money laundering. Recent history has shown that expanding whistleblower programs can significantly impact the number and intensity of enforcement actions related to financial crimes. By encouraging individuals with valuable information to come forward, this provision will uncover and prevent money-laundering schemes that might otherwise go undetected. The increased transparency and accountability that result from this provision will ultimately deter would-be criminals or those knowledgeable of their activities from turning blind eyes to money laundering and other illicit financial activities, thus making the global financial system more secure and less vulnerable to bad actors.
1 U.S. Department of Justice/Civil Division: The False Claims Act, updated April 4, 2023.
2 U.S. Securities and Exchange Commission (SEC): Office of the Whistleblower.
3 Internal Revenue Service (IRS): Whistleblower Office, reviewed and updated September 30, 2022.