This week, Congress will vote on the FY2021 Department of Defense Authorization bill, which includes the Anti-Money Laundering Act of 2020 (AMLA), a comprehensive overhaul of U.S. anti-money laundering laws.  The AMLA would establish a whistleblower reward program at the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) modeled on the successful Dodd-Frank SEC whistleblower program and create a private right of action for whistleblowers who suffer retaliation for disclosing potential violations of the Bank Secrecy Act (“BSA”), 21 U.S.C. 5311 et seq.  As demonstrated by the success of similar laws rewarding whistleblowing about various types of fraud, offering financial incentives to encourage potential whistleblowers to take the significant risk of coming forward would substantially enhance the government’s ability to detect and combat money laundering.

AMLA Reforms to Combat Money Laundering

As revealed in the FinCEN Files, Panama Papers and numerous studies, criminals and terrorists have been able to use shell companies to facilitate human trafficking, evade economic sanctions, funnel taxpayer dollars to intermediaries who pay bribes to foreign government officials, disguise weapons trafficking into conflict zones, evade taxes, and perpetuate financial crimes.  A March 2019 report by Global Financial Integrity reveals that, in all 50 U.S. states, more information is currently required to obtain a library card than to register a company.

The AMLA targets businesses that act as “fronts” or shell companies on behalf of those conducting illicit activities. It requires companies, including foreign entities registered to do business in the U.S. to disclose their true, beneficial owners to the U.S. Department of the Treasury (Treasury) at the time the company is formed and when ownership changes.  Additional anti-money laundering reforms in the AMLA include

• establishing an improved reporting system relating to beneficial ownership information, which includes protections to ensure that sensitive information is properly used and protected;

• imposing tough new penalties on those convicted of serious Bank Secrecy Act (BSA) violations, including additional penalties for repeat BSA violations;

• requiring more routine and systemic coordination and communication among financial institutions, regulators, and law enforcement to identify suspicious financial activities;

• expanding the BSA to safeguard national security;

• imposing stronger due diligence requirements; and

• strengthening routine reporting requirements to ensure that resources are directed effectively and that law enforcement, regulators, and financial institutions better communicate and coordinate on BSA-AML priorities, collection methods, and outcomes.

Beneficial ownership information maintained by Treasury will be kept confidential and treated as sensitive information and made available only to: (1) authorized Government authorities upon request, subject to effective safeguards to facilitate relevant national security, intelligence, and law enforcement activities; and (2) financial institutions, for purposes of complying with their customer due diligence requirements.

Anti-Money Laundering Whistleblower Reward Program

Section 6314 of the AMLA would create a whistleblower reward program at the Department of the Treasury, under which a whistleblower could obtain an award of up to 30 percent of collected monetary sanctions that Treasury recovers in a judicial or administrative action brought under the BSA that results in monetary 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).

The AMLA would significantly expand the current BSA whistleblower incentive law, which permits Treasury to pay a reward to an individual who provides original information about a BSA violation which leads to the recovery of a criminal fine, civil penalty, or forfeiture which exceeds $50,000.  31 U.S.C. § 5323(a).  Under the current law, awards are capped at $150,000 or 25 percent of the net amount of the fine, penalty, or forfeiture collected, whichever is less. And the decision to pay an award is discretionary.  The modest award cap has failed to encourage whistleblowers to jeopardize their careers by reporting BSA violations.

The whistleblower reward program that AMLA would establish is similar to the SEC whistleblower program that Congress enacted in the Dodd-Frank Act, which has proven successful in enhancing the SEC’s ability to detect and halt fraud schemes and protect investors, including hard to detect fraud happening abroad but impacting U.S. investors and the marketplace.

Since the inception of the SEC whistleblower program, whistleblower tips have enabled the SEC to recover more than $2.7 billion in financial remedies, most of which has been, or is scheduled to be, returned to harmed investors.  The SEC has issued awards totaling approximately $728 million to 118 individuals.  In FY 2020, the SEC issued awards totaling approximately $175 million, the highest amount of any year in the program’s history and received over 6,900 whistleblower tips, a 31% increase from FY 2018.  The SEC has received whistleblower tips from individuals in approximately 130 countries outside the United States.

“Original Information” Leading to Bank Secrecy Act Enforcement Actions

The AMLA whistleblower incentive provision would encourage whistleblowers to provide “original information,” i.e., information that is derived from the independent knowledge or analysis of a whistleblower or is not known to Treasury or Justice departments from any other source, unless the whistleblower is the original source of the information.  Providing information that is exclusively derived from an allegation made in a judicial or administrative hearing, in a governmental report, hearing, audit, or investigation, or from the news media would not qualify for a whistleblower award unless the whistleblower is a source of the information.

Option to Report Anonymously

To address well-founded concerns that disclosing money laundering can result in retaliation, the AMLA permits a whistleblower to report a BSA violation anonymously and qualify for an award where they are represented by counsel.  In addition, the AMLA requires Treasury and Justice to take steps to protect the confidentiality of whistleblower submissions.  Any officer or employee of either agency must not disclose information provided by a whistleblower “which could reasonably be expected to reveal the identity of a whistleblower,” except where the agency is required to disclose the information to a defendant in a public proceeding instituted by the agency and in accordance with the Privacy Act.

Whistleblowers Ineligible for an Award

There are three conditions that disqualify a whistleblower from being eligible for an award:

• the whistleblower is convicted of a criminal violation related to the judicial or administrative action for which the whistleblower otherwise could receive an award;

• the whistleblower fails to submit information to Treasury or Justice in the form required by Treasury regulations governing the AMLA whistleblower program; or

• at the time the whistleblower acquired the original information, the whistleblower (i) was an employee or officer of Treasury or Justice, an appropriate regulatory or banking agency, or a law enforcement agency; and they (ii) acquired the information while acting in the normal course of their job duties.

In contrast to the Dodd-Frank Act’s award eligibility rules, the AMLA does not limit award eligibility to whistleblowers who gain information through the performance of an audit of financial statements.  And it appears to permit compliance personnel to obtain whistleblower awards in that the term “whistleblower” includes an individual who provides information relating to a violation “including as part of the job duties of the individual.”

Monetary Sanctions Qualifying for an Award

The monetary sanctions collected in any judicial or administrative action that can qualify for an AMLA whistleblower award include any monies, including penalties, disgorgement, and interest ordered to be paid, but excludes (i) forfeiture; (ii) restitution; and (iii) any victim compensation payment.

An AMLA whistleblower may also qualify for a “related action” award, which is any judicial or administrative action brought by (i) any appropriate federal authority; (ii) a state attorney general in connection with any criminal investigation; or (iii) any appropriate state regulatory authority, when the action is based on the original information provided by the whistleblower and led to the successful enforcement of the action by Treasury or Justice.

Determining the Amount of an AMLA Whistleblower Award

To determine the amount of an AMLA whistleblower award, Treasury will consider:

• the significance of the information provided by the whistleblower to the success of the covered judicial or administrative action;

• the degree of assistance provided by the whistleblower and any legal representative;

• the programmatic interest of Treasury in deterring the particular violations that the whistleblower disclosed; and

• additional relevant factors that Treasury will promulgate, which will likely echo the factors that the SEC employs to determine the amount of an SEC whistleblower award.

Protecting Anti-Money Laundering Whistleblowers Against Retaliation

Section 6314(g) of the AMLA creates a private right of action for whistleblowers who have suffered retaliation for disclosing potential BSA violations.  It prohibits any employer from retaliating against a whistleblower for:

• providing information in accordance with the AMLA whistleblower program to (i) Treasury or Justice; (ii) a federal regulatory or law enforcement agency; (iii) any member of Congress or any committee of Congress; or (iv) a person with supervisory authority over the whistleblower, or such other person working for the employer who has the authority to investigate, discover, or terminate misconduct;

• initiating, testifying in, or assisting in any investigation or judicial or administrative action of Treasury or Justice based upon or related to the information that the whistleblower disclosed to the government;

• providing information regarding any conduct that the whistleblower reasonably believes constitutes a violation of any law, rule, or regulation subject to the jurisdiction of Treasury, or a violation of a criminal prohibition against money laundering (18 USC § 1956, 1957, or 1960) to— (i) a person with supervisory authority over the whistleblower at the employer of the whistleblower; or (ii) another individual working for the employer described in clause (i) who the whistleblower reasonably believes has the authority to investigate, discover, or terminate misconduct.

Note the following regarding the scope of protected whistleblowing:

• In contrast to Dodd-Frank’s whistleblower protection provision, AMLA protected conduct does not require a threshold showing that the whistleblower reported a potential BSA violation to the appropriate regulatory agency.Instead, 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.

• AMLA whistleblower protection is not limited to disclosures of actual BSA violations. Instead, Department of Labor (DOL) and federal court precedent construing similar whistleblower protection laws protect a whistleblower’s reasonable but mistaken belief that the conduct complained of constituted a violation of relevant law.  The whistleblower, however, must demonstrate that they had an objectively reasonable belief, which is assessed based on the knowledge available to a reasonable person in the circumstances with the employee’s training and experience.

• Participating in an employer’s internal investigation of a potential BSA violation or reporting a potential BSA violation to a corporate compliance program would be protected under AMLA.

• Although the AMLA’s whistleblower reward provision would apply extraterritorially, the anti-retaliation provision likely would not apply to whistleblowers outside the U.S.

• AMLA whistleblower protection is limited to lawful acts, and therefore a whistleblower should be careful to comply with prohibitions against the unauthorized disclosure of suspicious activity reports (SARs).  See, e.g., 31 USC § 5318(g)(2); Financial Crimes Enforcement Network: Confidentiality of Suspicious Activity Reports, 75 Fed. Reg. 75,593 (Dec. 3, 2010).

• Some disclosures protected under the AMLA could also implicate tax fraud, securities fraud, or violations of SEC rules, and therefore whistleblowers should consider preserving claims under the whistleblower protection provisions of the Taxpayer First Act and Sarbanes-Oxley Act.

Prohibited Retaliation Against Anti-Money Laundering Whistleblowers

Similar to the SOX whistleblower protection law, the AMLA prohibits a wide range of retaliatory acts, including 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.

The catch-all category of retaliation (“in any other manner” discriminating against a whistleblower) includes non-tangible employment actions, such as “outing” a whistleblower in a manner that forces the whistleblower to suffer alienation and isolation from work colleagues.  See Menendez v. Halliburton, Inc., ARB Nos. 09-002, -003, ALJ No. 2007- SOX- 5 (ARB Sept. 13, 2011).  An employment action can constitute actionable retaliation if it “would deter a reasonable employee from engaging in protected activity.”  Id. at 20.

Favorable Causation Standard for AMLA Whistleblowers

The whistleblower protection provision of the AMLA applies the causation standard and burden-shifting framework set forth in the AIR21 Whistleblower Protection Law.  Under that framework, the whistleblower prevails by proving that their protected whistleblowing was a contributing factor in the unfavorable personnel action taken by their employer.  The DOL ARB has emphasized that the standard is low and “broad and forgiving”; protected activity need only play some role, and even an “[in]significant” or “[in]substantial” role suffices.  Palmer v. Canadian Nat’l R.R., ARB No. 16-035, ALJ No. 2014-FRS-154, at 53 (ARB Sept. 30, 2016).  Examples of circumstantial evidence that can establish “contributing factor” causation include:

• temporal proximity;

• the falsity of an employer’s explanation for the adverse action taken;

• inconsistent application of an employer’s policies;

• an employer’s shifting explanations for its actions;

• animus or antagonism toward the whistleblower’s protected activity; and

• a change in the employer’s attitude toward the whistleblower after they engage in protected activity.

Once the whistleblower proves that their protected conduct was a contributing factor in the adverse action, 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.

Remedies for Successful Anti-Money Laundering Whistleblowers

A prevailing AMLA whistleblower is entitled to the following remedies:

• reinstatement;

• double back pay with interest;

• uncapped compensatory damages, which includes emotional distress damages;

• reasonable attorney fees, litigation costs, and expert witness fees; and

• any other appropriate remedy with respect to the conduct that is the subject of the complaint or action.

These remedies are substantially similar to the relief authorized in the anti-retaliation provision of the False Claims Act.  Neither statute authorizes an award of punitive damages, but double back pay and uncapped compensatory damages can be potent remedies.

AMLA Whistleblower Retaliation Administrative Exhaustion Requirement

AMLA retaliation claims must be filed initially with the Occupational Safety and Health Administration (OSHA), which will investigate the claim.  If OSHA determines that there is reasonable cause to believe that a violation occurred, it can order relief, including reinstatement of the whistleblower.  The whistleblower and the employer can appeal OSHA’s determination by requesting a de novo hearing before the DOL Office of Administrative Law Judges, but an employer’s objection to an order of preliminary relief will not stay the order of reinstatement.  Once an AMLA retaliation claim has been pending before the DOL for more than 180 days, the whistleblower can remove the claim to federal court.

An AMLA retaliation claim cannot be brought more than six years after the date on which the violation occurs or more than three years after the date on which when facts material to the right of action become known, or reasonably should have been known, by the employee alleging a violation.

Jury Trial Right

The AMLA clarifies that a whistleblower exercising their right to remove their claim from DOL to federal court can try their case before a jury.  AMLA retaliation claims are exempt from mandatory arbitration.

AMLA Does Not Preempt Additional Retaliation Remedies

The AMLA’s whistleblower protection provision does not diminish the rights, privileges, or remedies of any whistleblower under any federal or state law or under any collective bargaining agreement.

Limitation on Scope of Coverage

The anti-retaliation provision of the AMLA does not apply to employers that are subject to the whistleblower protection provisions in section 33 of the Federal Deposit Insurance Act, 12 U.S.C. § 1831j, or section 213 or 214 of the Federal Credit Union Act, 12 U.S.C. § 1790b, 1790c.  Accordingly, employees of credit unions and FDIC-insured depository institutions will have a fairly weak remedy to combat retaliation.

Prohibition Against Employer Restrictions on Whistleblowing

The rights and remedies provided for in the whistleblower rewards and protection provisions of the AMLA may not be waived by any agreement, policy form, or condition of employment, including by a predispute arbitration agreement.  In other words, companies are prohibited from including “gag clauses” in confidentiality agreements or confidentiality policies to prevent whistleblowers from reporting BSA violations to federal regulators or law enforcement.

Summary

If enacted, the whistleblower rewards and protection provisions of the AMLA will play a critical role in identifying and combating money laundering.

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