Articles

BankThink: Treasury Should Model New AML Whistleblower Rules on SEC’s

American Banker

March 21, 2023

By Raymond M. Sarola and Regina D. Poserina

The Treasury Department has a rare opportunity on its hands. Significant changes to its anti-money-laundering whistleblower program have the potential to cripple money-laundering networks by altering the landscape for financial services professionals. The question is — will it work in practice?

The answer depends on how the Treasury implements these new laws and if the program will provide sufficient incentives to ensure that whistleblowing is both confidential and financially rewarding.

The AML whistleblower program was created in 2020, though the Treasury has not yet issued regulations to specify exactly how the program will work. With amendments added in January, the program’s significant potential to aid law enforcement is far more viable. These new amendments require the government to pay whistleblowers a minimum award and establish a dedicated fund for the payments of those awards. Today, an eligible whistleblower who provides the Treasury or Department of Justice with information that leads to an AML enforcement action and monetary recovery of over $1 million is entitled to an award of at least 10% and up to 30% of the recovered amounts.

A recent history of enforcement actions illustrates the substantial value this updated whistleblower program could produce for both the government and financial professionals who blow the whistle on AML violators.

On Jan. 5, Danske Bank was ordered to forfeit over $2 billion after admitting that it failed to report to the Financial Crimes Enforcement Network that it used U.S. banks to process at least $160 billion of funds obtained at its Estonia location with little to no oversight by AML compliance programs. If a whistleblower had brought this information to the government’s attention through the AML whistleblower program, he or she could have received a minimum award of $200 million.

Coinbase reached a $100 million settlement in January 2023 with the New York State Department of Financial Services for failure to develop a functional compliance program, problems with customer due diligence programs and lack of screening required by Treasury’s Office of Foreign Assets Control. A qualified whistleblower here could have received at least $10 million.

In October 2022, Bittrex, an online crypto exchange platform and a virtual-asset service provider, was assessed a $29 million penalty by Fincen for failure to maintain an effective AML program and to effectively address virtual-asset risks, including failure to monitor anonymity-enhanced cryptocurrencies, transactions from sanctioned jurisdictions subject to OFAC, and exposing U.S. financial systems to darknet markets and ransomware attackers. The minimum whistleblower award in this scenario could have totaled nearly $3 million.

Individuals with information about AML violations are a valuable resource for prosecuting money laundering violations. It’s clear from these and other examples that AML violations are widespread, and whistleblowers can play a role in stopping them in the future, while being rewarded for their actions.

A successful whistleblower program communicates clear rules to whistleblowers to provide financial incentives for coming forward, and provisions to protect the confidentiality of their whistleblowing. The Treasury need look no further for a great example of a modern-day whistleblower program than at its sister federal agency, the Securities and Exchange Commission. Since it was established in 2010, the SEC’s whistleblower program has received tips that have led to over $6.3 billion of recoveries and the payment of over $1.3 billion in awards to over 300 whistleblowers.

The AML amendments importantly provide that a whistleblower who meets all the criteria for an award is entitled to receive at least 10% of the monetary recovery from an enforcement action and can receive up to 30% of that amount. But rules to describe how the award will be determined within that range have yet to be developed. The Treasury should follow the lead of the SEC and issue regulations that list the factors it will consider in determining an award percentage, such as the nature and quality of the information provided, the importance of the action to the agency’s enforcement priorities, and whether the whistleblower facilitated or impeded the agency’s investigation.

The Treasury should also consider making it crystal clear, as the SEC recently did, that it will not use a large monetary recovery as a reason to lower the award percentage that a whistleblower would otherwise receive. This rule is critically important to ensure that whistleblowers who have information regarding the most damaging frauds are fully incentivized to participate in the program.

Read BankThink: Treasury Should Model New AML Whistleblower Rules on SEC’s.