Countering Money Laundering

Far too many criminals are successfully hiding their ill-gotten gains by laundering them through the banking system. New legislation is needed to strengthen the global anti-money-laundering strategy in a host of ways – including giving whistleblowers a central role in the fight.

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Money laundering is the “processing of criminal proceeds to disguise their illegal origin.” Due to the illegal nature of money laundering, precise estimates of the scope of money laundering are difficult to produce. However, a study by the United Nations Office of Drugs and Crime (UNODC) estimated that in 2009 criminal proceeds around the world account for 3.6% of global GDP, with 2.7% laundered, equivalent to USD 1.6 billion.

This crime has major impacts on leading environmental and other concerns around the world, including the climate crisis and wildlife trafficking, but many major financial institutions profit from this practice. Corruption accelerates illegal deforestation and unsustainable fossil fuel extraction, while depriving local communities of the benefits. By failing to flag or by facilitating suspicious financial transactions, banks could further fuel the climate crisis by disguising the proceeds of illegal logging or hiding evidence of bribery in corrupt oil deals.

In 2020, the International Consortium for Investigative Journalists (ICIJ) revealed in the FinCEN files that, in the past twenty years, global banks have knowingly moved trillions of dollars in payments they knew were suspicious, even after being fined by U.S. authorities for earlier failures to stop these transactions. The figures include $514 billion at JPMorgan Chase and $1.3 trillion at Deutsche Bank.

Various measures have been implemented to combat this practice, including beneficial ownership registration. However, a recent investigation by Transparency International and the Anti-Corruption Data Collective found that investment funds in Luxembourg, which is home to the largest number of investment funds in Europe and the second largest in the world after the United States, are extremely opaque. Of the more than 4.5 trillion euros in assets under management, 81% of the funds registered did not declare any beneficial owners, according to the definition laid out by the Luxembourg authorities, potentially in violation of the law, and that over 15% of the funds reviewed submitted conflicting information to the US and Luxembourg authorities.

The U.S. and Europe are the two main hubs of illicit financial flows. According to UNODC, the scale of money laundering in the U.S. is over 1 trillion and it is close to 1 trillion in the EU as well. Despite recent anti-money laundering reforms in both regions, it is clear that there is still significant opacity around who the real end-investors are and “whether the funds they invest are of legitimate sources”.

New laws including whistleblower incentives and protections could be key to enacting lasting change and countering money laundering. Whistleblowers are a critical part of any global effective enforcement strategy in countering combatting financial crimes 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.

This is why NWC is currently working to strengthen whistleblower laws that could be used to combat money laundering in both the U.S. and Europe.

Strengthening Money Laundering Laws in the U.S.

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.

However, 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.

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.

Title LXIII of the NDAA 2021, or the Anti-Money Laundering Act (AML Act), 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.

Additionally, as leading whistleblower attorney and NWC Board Chairman Stephen M. Kohn notes, though the AML Act contains anti-retaliation provisions modeled after Sarbanes-Oxley and the IRS anti-retaliation law and broadly defines protected disclosures, it exposes all employees at FDIC or Credit Union insured institutions to severe retaliation.

Under the current act, 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 effectively excludes employees at all U.S. banks. Kohn predicts that this exclusion will create massive confusion for those who want to report money laundering and will force employees to seek protections under older laws that have proven ineffective.

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

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Strengthening Money Laundering Laws in Europe

The Danske Bank and Luanda Leaks scandals, among others, encouraged the European Parliament to enact stronger whistleblower protections laws.

In April 2019, the European Parliament passed the Whistleblower Directive, formally organizing reporting channels and providing greater protection against retaliation for whistleblowers. The European Union is currently in the process of implementing the provisions from the directive, which would provide greater clarity on the channels available for whistleblowers to make disclosures, as well as protect whistleblowers from dismissal or demotion by their employers for making disclosures. The provisions are required to be implemented by December 2021.

Additionally, in May 2020, the European Commission adopted an action plan to combat money laundering in the European Union. The action plan includes adopting the uniform whistleblower protection rules and building on them further as part of a collaborative effort between the European Union member states.

This action plan contains three main elements:

  1. Introduction of stronger rules to ensure that safeguards apply everywhere in Union
  2. Introduction of new level of supervision to ensure consistent enforcement of new rules
  3. Improved mechanisms for financial intelligence unit support

This built upon a previous 2013 Directive aimed at countering money laundering that applied to financial services, products and markets. However, these voluntary actions lack the force and effect of law; this creates significant opportunities to work with each European Union country to strongly implement these provisions.

At present, several EU states have also implemented their own money laundering laws, including Belgium, Cyprus, and Poland. These laws contain many whistleblower law best practices, including confidentiality and protections against discriminatory actions by employers, though there is room to improve including the implementation of reward provisions.

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