Countering Money Laundering

Far too many criminals are successfully hiding their ill-gotten gains by laundering them through the banking system. New legislation strengthens the U.S. government’s anti-money-laundering strategy in a host of ways – including giving whistleblowers a central role in the fight.

Whistleblowers are a critical part of any global effective enforcement strategy in countering money laundering as insiders often have the best insight and access to information about economic crimes. This is exemplified by the case of Howard Wilkinson, a Danske Bank employee who reported the largest money laundering case in history with more than $230 billion laundered from the former Soviet Union into Western banks using phony partnerships and shell companies.

That’s why in September 2019, a group of eight bipartisan members of the U.S. Senate Banking Committee introduced the Illicit Cash Act to improve corporate transparency, strengthen national security, and help law enforcement combat illicit financial activity being carried out by criminal networks around the globe. The Act originally included strong whistleblower provisions based on the most successful modern whistleblower reward programs.

In their press release, the members stated: “The Improving Laundering Laws and Increasing Comprehensive Information Tracking of Criminal Activity in Shell Holdings (Illicit Cash) Act, S. 2563, would, for the first time, require shell companies – often used as fronts for criminal activity – to disclose their true owners to the U.S. Department of Treasury. It would also update decades-old anti-money laundering and combating the financing of terrorism policies, by giving Treasury and law enforcement the tools they need to fight criminal networks. This includes improving overall communication between law enforcement, financial institutions, and regulators, and facilitating the adoption of critical 21st century technologies.”

In December 2020, the Illicit Cash Act was rolled into the annual National Defense Authorization (NDAA) bill as Title LXIII, Anti-Money Laundering and Countering the Financing of Terrorism. The goal of Title LXIII is to combat money laundering and terrorist financing. The bill authorizes the Financial Crimes Enforcement Network (FinCen) of the Treasury Department to expand disclosure requirements regarding the ownership of corporations and sets forth additional requirements regarding anti-money laundering and combating the financing of terrorism programs. Like the Illicit Cash Act, it contains whistleblower provisions. The 2021 NDAA conference report passed the Senate and the House in mid December and now goes to the President to sign.

NWC commends Congress for taking action to address money laundering and terrorist financing and for including protections for whistleblowers. As the FACT Coalition notes, “Experts have routinely ranked anonymous shell companies — where the true, ‘beneficial’ owners are unknown — as the biggest weakness in our anti-money laundering safeguards.  Virtually every national security and law enforcement official that has looked at the issue has called for an end to anonymous companies.  It’s the single most important change our nation can make to better protect our financial system from abuse. The corporate transparency provisions in the defense bill present a major opportunity to address this serious national security vulnerability.”

However, despite Congress’ best intentions, the whistleblower awards provision in Title LXIII fall short of other federal financial whistleblower award laws.

Whistleblower Provisions in Title LXIII

The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, which created the Securities and Exchange (SEC) and Commodity Futures Trading Commission (CFTC) whistleblower programs, set forth minimum and maximum award levels – not less than 10 percent and not more than 30 percent – that qualified whistleblowers were eligible to receive from recovered monetary sanctions. Conversely, Title LXIII of the NDAA 2021 only contains the Dodd-Frank award ceiling of 30 percent with no award minimum or floor. A whistleblower is only eligible to receive “in the aggregate amount equal to not more than 30 percent, in total, for what has been collected of the monetary sanctions…” (NDAA 2021, Section 6314. Updating Whistleblower Incentives and Protection p. 2936).

Failure to include an award minimum discourages rather than encourages whistleblowers to come forward to assist FinCen and law enforcement in exposing money laundering and terrorist financing.  It is highly unlikely that persons with relevant information relating to illegal money laundering and financing terrorism will risk their livelihoods, reputations and the potential of high litigation costs without reasonable financial assurances.  Moreover, not having an award minimum gives the Treasury Department significant discretion without oversight. For instance, there is nothing to prevent FinCen or Treasury from awarding a qualified whistleblower who assists in collecting money sanctions over the required $1 million a minimal amount, even a single dollar.

Given the weaknesses in Title LXIII, there is a clear need for future legislation that will strengthen whistleblower protections for those individuals with evidence of money laundering and terrorist financing. Other successful qui tam laws provide a powerful framework on which these protections can be based.

One of the most important of these qui tam laws is the False Claims Act, an extremely successful whistleblower law originally signed into law during the U.S. Civil War by President Abraham Lincoln. Since its modernization in 1986, the Act has become the model for all effective modern anti-fraud whistleblower laws, including the revisions to the Securities Exchange Act, Commodity Exchange Act, and Internal Revenue Act.

The best practices found in these major qui tam laws include:

  • Whistleblowers can raise their concerns anonymously and confidentially.
  • The information from the whistleblower must be “derived from the independent knowledge of analysis of a whistleblower.”
  • The information provided by the whistleblower is “not known to the Treasury, the Department of Justice, or an appropriate regulator, unless the whistleblower is the original source of information.”
  • The evidence of wrongdoing that “led to the successful enforcement” action must be “voluntarily provided” by the whistleblower.
  • When setting the amount of an award, the Treasury Department must take into consideration “the significance of the information provided by the whistleblower,” “the degree of assistance provided by the whistleblower,” and whether or not the whistleblower’s contributions aid in “deterring violations of the laws.”
  • The whistleblower provision sets a minimum reward level (10%) and maximum reward level (30%).
  • The Act also includes an anti-retaliation provision, similar to other federal anti-retaliation laws, providing some job protection to whistleblower, though retaliation cases are historically difficult to prove, and damages are limited.

Going forward, Title LXIII should be revisited to ensure money laundering whistleblowers also have all of these protections under law.

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