Major Changes in AML Compliance and Enforcement – Whistleblower Provisions

Thomas Fox - Compliance Evangelist

Compliance Evangelist

2020 was a most significant year in anti-corruption enforcement, from Airbus SE to Goldman Sachs Group, Inc., and numerous matters in between. Further, there were two significant pieces of information from the US government in the form of the 2020 Update to the Evaluation of Corporate Compliance Programs and the FCPA Resource Guide, 2nd edition. In the anti-money laundering (AML) arena, we had even bigger news the last week of the year with the passage of the National Defense Authorization Act (NDAA) and, as part of that legislation, the enactment the Anti-Money Laundering Act of 2020 (AMLA) into law. The AMLA is the most comprehensive set of reforms to AML laws in the United States since the USA PATRIOT Act was passed in 2001, in response to 9/11. Today, I continue my exploration of the changes to the Bank Secrecy Act (BSA) and changes in enforcement authority to Financial Crimes Enforcement Network (FinCEN) in the AMLA by reviewing the whistleblower provisions.

AMLA establishes a whistleblower reward program for suspected BSA violations. Well-known whistleblower counsel Jason Zuckerman, in conjunction with Matthew Stock, wrote, “The AMLA incentivizes whistleblowers to report money laundering by requiring Treasury to pay an award of up to 30 percent of collected monetary sanctions that it recovers in a judicial or administrative action brought under the BSA that results in sanctions exceeding $1,000,000. To be eligible for an award, the whistleblower must voluntarily provide original information to their employer, Treasury, or the Department of Justice (Justice).” Moreover, “In contrast to the Dodd-Frank Act’s award eligibility rules, the AMLA whistleblower reward law does not impose limitations on award eligibility for whistleblowers who gain information through the performance of an audit of financial statements.”

But as Matt Kelly has noted, “Here’s the kicker: as the statute reads right now, compliance officers themselves could qualify as whistleblowers for information you obtain through your normal compliance duties. You would not first need to report your concerns through internal management channels.”

Who Can Be a Whistleblower?

The most controversial provisions in the new law is around who can be a whistleblower, which plausibly allows an AML specialist, Chief Compliance Officer (CCO) or internal auditor to report illegal conduct under the law. The section defines a whistleblower as follows:

The term “whistleblower” means any individual who provides, or two or more individuals acting jointly who provide, information relating to a violation of this subchapter or subchapter III to the employer of the individual or individuals, including as part of the job duties of the individual or individuals, or to the [Treasury] Secretary or the Attorney General.

Compare this language with how the Dodd-Frank Act defined a whistleblower:

The term “whistleblower” means any individual who provides, or two or more individuals acting jointly who provide, information relating to a violation of the securities laws to the Commission, in a manner established, by rule or regulation, by the Commission.

There has already been the gnashing of teeth by corporate types who basically want to cut back on whistleblowing, whistleblower rights and getting any information to the government which might show illegal activity or even fraud, waste and abuse. The claims are two-fold. First, that those in charge of compliance should not have the right to go to the government because their corporate position is to remedy any situation which is illegal or might become illegal. The formal response is along the lines of the need for an increased criteria for compliance professionals and internal auditors to qualify for an award. The second excuse is that allowing compliance professionals to go directly to the regulators diminishes the impact of a compliance program. Greg Keating, chairman of the whistleblower defense group at the law firm Choate Hall & Stewart LLP, quoted in the Wall Street Journal, said, “it invites an end-run of a legitimate compliance program and a company’s legitimate expectations that those tasked to flag and remediate a problem cannot help do the job and fix the problem”.

Chip Poncy, Global Co-Head Financial Crimes Risk Management practice and member of K2 Integrity’s Board, responded to both straw men arguments by stating, “at the end of the day, we have seen too many institutions in which compliance interests have been frustrated and that has been a signature of the enforcement environment over the past several years.” Moreover, this provision “provides an additional option and strengthens the hand of those that  are trying to empower within these institutions to allow those institutions to better understand and implement effective AML program.” Poncy does not see it as coming at the expense of internal cooperation, but rather it “should further empower those individuals and trying to resolve things internally by giving attention to have that avenue of recourse through the statute. I think that’s really important.”

Kelly was even blunter stating, “That tells me that lawmakers were aware of their whistleblower brainfart in Dodd-Frank, and took steps to avoid it in AMLA.”

Whistleblower Protections

The AMLA also has more robust protections for whistleblowers. As Zuckerman noted, “it creates a private right of action for whistleblowers who have suffered retaliation for disclosing potential BSA violations to Treasury or Justice, a federal regulatory or law enforcement agency, Congress, or a person with supervisory authority over the whistleblower.” This is in contrast to the Dodd-Frank’s whistleblower protection provision, which requires evidence that the whistleblower reported a potential violation to the Securities and Exchange Commission (SEC).  Finally, “internal whistleblowing alone is protected. Moreover, the whistleblower need not meet the AMLA requirements for award eligibility to be protected under the anti-retaliation provision.”

The definition of retaliation is expanded and now includes, “directly or indirectly discharging, demoting, suspending, threatening, blacklisting, harassing, or in any other manner discriminating against a whistleblower in the terms and conditions of employment due to the employee’s protected whistleblowing.” Finally, the “causation standard in an AMLA retaliation claim is favorable to the whistleblower. To prevail, the whistleblower need only demonstrate that their protected whistleblowing was a contributing factor in the unfavorable personnel action taken by their employer. Once the whistleblower demonstrates contributing factor causation, the employer can avoid liability only if it proves by clear and convincing evidence that it would have taken the same adverse action in the absence of the whistleblower engaging in protected conduct.”

The awards available to a whistleblower are more robust as well. Under the AMLA, a “whistleblower is entitled to reinstatement, double back pay with interest, uncapped compensatory damages, reasonable attorney fees, any other appropriate remedy with respect to the conduct that is the subject of the action. AMLA retaliation claims must be filed initially with the Occupational Safety and Health Administration, and 180 days after filing, the whistleblower can remove the claim to federal court and try the case before a jury.”

This expanded whistleblower section is a welcome addition to the federal arsenal to protect those who try to prevent and expose illegal action, including corruption, and punish those companies which try to retaliate against employees who do the right thing.

For additional K2 Integrity Resources on the AMLA check out their Dedicated Online Financial Integrity Network (DOLFIN) by clicking here.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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