The U.S. Treasury Department and the Financial Crimes Enforcement Network (FinCEN) are in the midst of drafting regulations to implement the anti-money laundering (AML) whistleblower program. The program, established in 2021 by the AML Act of 2020 and reformed in 2022 with the AML Whistleblower Improvement Act, offers monetary awards and anti-retaliation protections to whistleblowers who provide original information about money laundering or sanctions violations.
Given the transnational reach of the AML Act’s whistleblower provisions, the global nature of money laundering, and the central role money laundering plays in enabling corruption to flourish, the AML whistleblower program is primed to play a central role in the United States’ global anti-corruption efforts. Therefore, it is essential that FinCEN craft regulations that will ensure that whistleblowers have an incentive to report in a manner consistent with the needs and customs of international whistleblowers.
The central role of money-laundering whistleblowers in the United States’ anti-corruption efforts is laid out clearly in the United States Strategy on Countering Corruption (the “Strategy”). Approved by the White House in December 2021, it provides clear direction for constructing an effective AML whistleblower office that plays a critical role in combating international corruption. By following the mandates of the Strategy in drafting regulations, FinCEN will be able to set up a whistleblower program that protects and compensatea whistleblowers in extreme danger worldwide
The AML Whistleblower Improvement Act was modeled off the whistleblower provisions of the Dodd-Frank Act, which established the successful whistleblower programs of the Securities and Exchange Commission (“SEC”) and Commodities and Futures Trading Commision (“CFTC”). The regulations for these programs were adopted without input from international anti-corruption organizations and with little consideration for the whistleblower laws’ transnational impact. Since these regulations were enacted, however, thousands of international whistleblowers have used Dodd-Frank to report corrupt activities worldwide.
There is no doubt that the AML whistleblower program will likewise appeal to whistleblowers across the globe. Furthermore, numerous governmental and nongovernmental organizations, active in combating corruption, will also play major roles in providing assistance to whistleblowers and will be reporting violations based on whistleblower disclosures. Developing regulations that harmonize the implementation of the AML Whistleblower Act with the transnational use of this law is important.
United States Strategy on Countering Corruption
The U.S. Strategy on Countering Corruption is the first whole-government approach to combating corruption world-wide. The Strategy was approved after a careful review by all major federal departments involved with combating international corruption.
A focus of the Strategy was to increase the United States’ ability to fight “transnational” corruption in the “U.S. and international financial systems,” and to stop money laundering (i.e., actions “to hide assets and launder the proceeds of corrupt acts.”)
A number of provisions of the Strategy are directly applicable to combating money laundering and sanctions violations. For example, the Strategy’s Strategic Objective 2.1 is “Address Deficiencies in the Anti-Money Laundering Regime.”
The Strategy specifically mentions the importance of monetary awards for anti-money laundering whistleblowers: “The United States will implement newly established tools for investigating and prosecuting money laundering offenses. For example, the Department of Justice (DOJ) and its investigative partners now have expanded subpoena power . . . as well as financial rewards to incentivize reporting on Bank Secrecy Act violations in financial institutions and for information leading to the identification and seizure of illicit proceeds.”[1]
Furthermore, the report repeatedly mentions the need for the U.S. to protect whistleblowers and other anti-corruption activists, including journalists: “When anti-corruption activists, whistleblowers, and investigative journalists challenge corrupt power structures, the corrupt often fight back with physical threats and legal harassment. The United States stands in solidarity with these reformers…”[2]
The Strategy makes clear that a strong anti-money laundering whistleblower program is a key component in the United States’ anti-corruption efforts. The Strategy requires FinCEN to ensure that their final rules implement the letter and spirit of the Strategy.
FinCEN’s Rulemaking and the Strategy
FinCEN must incorporate the Strategy’s objectives into the core purposes of the AML whistleblower regulations. It must craft the regulations to recognize the unique situation of international whistleblowers and the many ways these individuals may choose to disclose their information.
By incorporating civil society, human rights defenders, and journalists into whistleblower regulations, FinCEN can go a long way toward fulfilling the Strategy’s objectives. The AML law provides this authority. Its definition of “original information” includes information that originates from a whistleblower, but is either publicly reported in the news media or referred to the DOJ or FinCEN from various third parties, such as foreign law enforcement agencies, anti-corruption organizations, U.S. embassy personnel, or civil society.
The final rules implemented by FinCEN must incorporate civil society actors, both as potential whistleblowers and entities where whistleblowers will make initial disclosures. In promulgating the final rules, FinCEN must contemplate that international whistleblowers will make initial reports to “external partners.” Rules defining a voluntary disclosure need to include disclosures to “external partners,” “academia,” the “private sector,” “civil society,” and the “media.” Rules for filing whistleblower complaints, referred to as “TCR” requirements, also need adjusting. They should ensure that initial filings with these nongovernmental entities can be fully credited, if the original information provided is forwarded to FinCEN or the DOJ and an investigation triggered.
The Dodd-Frank regulations published by the SEC and CFTC provide coverage when whistleblowers report to “private sector actors”: corporate compliance programs or corporate-oversight bodies, like FINRA. But these regulations are silent concerning reports to civil society and the news media. Through FinCEN’s AML regulations, the agency should ensure that voluntary reports to civil-society organizations or the news media are “voluntary” disclosures under the regulations.
Additionally, FinCEN’s rules must allow for disclosures to the Department of State, including embassy personnel or representatives from USAID. The Strategy mandates that “State, the Treasury, and DOJ will engage governments to detect and disrupt kleptocracy and foreign bribery, and to deny corrupt actors the ability to hide ill-gotten gains through the adoption of real estate transparency, beneficial ownership transparency, and other anti-money laundering measures.”[3]
Procedures are needed to facilitate the coverage of disclosures to the State Department and DOJ and promote information sharing. Furthermore, whistleblower disclosures to foreign law-enforcement officials must be considered protected disclosures under the AML law. Specific steps are required to accomplish this goal, including: (a) Ensuring that disclosures made voluntarily to foreign law enforcement or regulatory officials are considered “voluntary” under the regulation’s definition; (b) Undertaking efforts to facilitate the forwarding of these disclosures to U.S. authorities (e.g. DOJ, FinCEN); (c) Implementing procedures to ensure that disclosures lawfully made to foreign government officials are classified as “original information,” provided that the information is accessed by the United States, and used to sanction AML or sanctions violations.
Conclusion
If FinCEN follows the mandates of the Strategy, it can protect and compensate whistleblowers in extreme danger worldwide. Many whistleblowers are unable to live normal lives after exposing wrongdoing. Often subjected to life-threatening retaliation, they have limited employment prospects and often deserve police protection, due to the reprisals they may face from organized crime and corrupt government officials.
The Strategy references the need for the U.S. government to protect, create incentives for, and stand in solidarity with whistleblowers. The importance of using the Dodd-Frank reward structure is directly referenced in the section on money laundering, and the need to update regulations to accomplish the goals of the Strategy is also mentioned. As the Strategy explains, “countering corruption is not a simple task” and “changing embedded cultures of corruption requires significant political will.” Because of these realities the Strategy mandates that “the United States will increase support to state and non-state partners committed to reform, boost the capacity of other governments to tackle corruption, and empower those, including activists, investigative journalists, and law enforcement on the front lines of exposing corrupt acts.”[4]
It is with these objectives in mind that FinCEN must develop effective regulations that will bolster the United States’ ability to work successfully “with our most committed allies and partners,” who are often non-governmental actors like whistleblowers, members of civil society, and journalists, along with anti-corruption officials.
ENDNOTES
[1] See The White House, United States Strategy on Countering Corruption (2021), at 25.
[2] Id. at 34.
[3] Id. at 28.
[4] Id. at 8.
This post comes to us from Steven M. Kohn, a partner at the law firm of Kohn, Kohn & Colapinto LLP.