Loopholes Doom Money Laundering Anti-Retaliation Law

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Given the loopholes in the whistleblower law, is it any wonder why the big banks endorsed the AML Act?

With much fanfare and the full support of all major banks, Congress included whistleblower protections as part of its overhaul of the nation’s money laundering laws. This overhaul, known as the Anti-Money Laundering Act (“AML”), was intended to modernize protections for employees who report AML violations. However, major problems have been identified in the new AML law, including legislative defects that seriously undermine the reward provisions of that law. But nowhere are the loopholes so irrational and prejudicial as those that expose all employees at FDIC or Credit Union insured institutions to severe retaliation.

The AML whistleblower law contains a detailed anti-retaliation section modelled on laws such as the Sarbanes-Oxley Act and the recently approved IRS anti-retaliation law. These laws protect whistleblowers who report to law enforcement, Congress, and those who make internal disclosures to supervisors or compliance programs. They prohibit mandatory arbitration. Sounds good? The only problem is that the law also contains an exemption. Employees at banks that are covered under the Federal Deposit Insurance Act or 214 of the Federal Credit Union Act are not protected under the AML Act.

This exclusion will create massive confusion as employees seek protection under laws that do not cover them, and other employees are left without any effective remedies because they are forced to file claims under older laws that do not work in practice.

Congress must fix this mess.

The New Protections

(That Don’t Cover Employees at FDIC or FCUA Insured Institutions)

The new AML Act includes an anti-retaliation law modelled on the “best practices” included in most modern whistleblower protection laws. These include the following rights and procedures:

  • Cases are initially filed with the U.S. Department of Labor (“DOL”), which must conduct an investigation. Whistleblowers who prevail at the investigatory stage obtain “preliminary relief,” i.e., an immediate reinstatement order effective even before there is a merits-based hearing.
  • Whistleblowers have a right to request a full evidentiary hearing either before a DOL Administrative Law Judge (this is a faster, less formal, and less expensive procedure), or they can have their cases removed to federal court for a jury trial.
  • Mandatory arbitration agreements cannot be enforced.
  • Remedies include reinstatement, back pay, special damages (compensatory damages), restoration of benefits, and payment for all attorney fees and costs.

Significantly, the AML Act broadly defines protected disclosures covered under the new law. Protected disclosures include reporting violations of AML and bank secrecy laws to the Secretary of Treasury, Attorney General, any federal regulatory or law enforcement agency, or the U.S. Congress. Moreover, the law covers internal whistleblowing to any “person with supervisory authority over the whistleblower” or any “other person working for the employer who has the authority to investigate, discover, or terminate misconduct.” Employees who file claims with the Secretary of Treasury seeking monetary rewards are also protected from retaliation.

Similarly, prohibited adverse actions include almost any form of job discrimination. The statute states that employees may not “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 [of whistleblowing] done by the whistleblower.”

The new anti-retaliation provisions will be codified as 31 U.S.C. § 5323(g). These legal protections look fine on paper. But they do not apply to the majority of employees potentially covered under the AML law.

The AML Whistleblower Protection Law Does not Apply to Employees at FDIC Insured Institutions or Insured Credit Unions

The AML Act contains a “carve-out” to its anti-retaliation law. This carve-out explicitly excludes coverage of two classes of employees from the new law and requires them to use these three older laws to protect themselves from being fired: 12 U.S.C. §§ 1790b and 1790c (employees at insured credit unions) and 12 U.S.C. § 1831j (employees at FDIC insured institutions).

The carve-out reads as follows:

This subsection [(31 U.S.C. § 5323(g)] shall 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).

Beyond being extremely confusing (and potentially causing employees to file wrongful discharge cases in the wrong forum), this carve-out will have devastating consequences on AML whistleblowers.

First, the scope of the carve-out is vast: All FDIC insured financial institutions and insured credit unions. Given the fact that U.S. employment laws are not generally applied overseas (how can a U.S. Court order a Russian bank to reinstate a whistleblower?), the FDIC/Credit Union carve-out effectively excludes employees at all U.S. banks from protection against wrongful discharge under the new AML law.

Second, the older AML anti-retaliation laws have not worked in practice and are completely ineffective. The problems of these older laws are insurmountable for most workers. Some of the problems include:

  • The laws do not contain protections for internal disclosures. Most whistleblowers report violations to supervisors or compliance departments. These types of disclosures are not covered under the FDIC and credit union whistleblower laws.
  • These older laws do not cover reports to the Secretary of Treasury, the IRS, or FinCEN. These three agencies are significant responsibility for policing money laundering.
  • Unlike every other major anti-retaliation law, the FDIC and credit union laws do not contain a statutory attorney fee provision guaranteeing prevailing employees payment for the attorney fees.
  • The definition of adverse employment actions and potential recoverable remedies are far more limited under the older laws. Former employees and blacklisting are not included in the definition of adverse action.
  • There are no provisions for anonymously or confidentially filing reports of misconduct under the older laws.
  • Employees who prevail in claims are not entitled to attorney fees and costs.
  • There is no prohibition against the enforcement of mandatory arbitration agreements.

The narrow scope of protected disclosures under the older laws completely conflicts with the types of protected disclosures being encouraged under the new AML Act. The new law clearly encourages employees to file claims directly with the Secretary of Treasury or FinCEN. In fact, to qualify for a reward, employees must file with Treasury.

However, the anti-retaliation laws covering FDIC and Credit Union regulated institutions do not protect employees from retaliation if they make a disclosure to the Department of Treasury or FinCEN. Instead, their coverage is extremely limited. In order to be protected under 12 U.S.C. § 1831j (the law covering FDIC insured institutions), employees must file their concerns with one or more of the following agencies: the FDIC, the Federal Housing Finance Agency, the Federal Reserve Board, the Comptroller of Currency and/or the Attorney General. Under 12 U.S.C. §§ 1790b and 1790c, employees at insured credit unions must raise their allegations of banking law violations with the National Credit Union Administration Board and/or the Attorney General.

Strange Bed Fellows

The AML law was included as part of the massive National Defense Authorization Act of 2020 (“NDAA”) that became law on January 1, 2021. As Congress was finalizing the NDAA, the largest banks in the United States publicly endorsed the AML law. The American Banker said it clearly: “Banks can Smell Victory on Key Anti-Laundering Measure.” The AML reform law was endorsed by the U.S. Chamber of Commerce (which has aggressively fought every whistleblower law for over 25 years) and the Bank Policy Institute. The BPI is the leading trade association of the largest banks in the world, many of whom are the worst money laundering institutions in the world. Its executive board is a who’s who of the Big Banks, including the Chief Executive Officers of and Bank of America, BYN Mellon, Citigroup, Wells Fargo, JP Morgan Chase, Comerica Bank, and Barclays.

Given the loopholes in the whistleblower law, is it any wonder why the big banks endorsed the AML Act?

Congress clearly wanted to protect and incentivize whistleblowers and use their invaluable insights and evidence to help combat money laundering. The original Senate version of the AML law did not contain any carve-outs. Its provisions mirrored the highly effective Dodd-Frank Act. Although the Senate unanimously approved its DFA-based AML law, something went wrong when the NDAA went into conference and was further amended behind closed doors. Without input from groups like the National Whistleblower Center, very specific changes were made to the law that undermined Congress’s intent. The law must be amended to conform to the DFA, and the loophole exposing employees at U.S. banks, financial institutions, and credit unions to retaliation must be closed.

*

A founding partner at Kohn, Kohn & Colapinto, Stephen M. Kohn is widely recognized as one of the nation’s leading qui tam and whistleblower attorneys.

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