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Congress Creates Enhanced Whistleblower Program for AML Violations

December 18, 2020

As part of a modernization of the nation’s anti-money laundering regime, the Anti-Money Laundering Act of 2020 creates enhanced whistleblower rewards that are likely to lead to increased enforcement action.

The US Senate passed the 2021 National Defense Authorization Act (NDAA) on December 11, 2020. The annual defense-spending bill was previously passed by the US House of Representatives and now goes to President Donald Trump’s desk for his signature. Although President Trump has threatened to veto the NDAA, the House and Senate vote margins were large enough to overcome a veto.

As part of the NDAA, Congress included sweeping anti-money laundering reforms that strengthen the country’s financial crimes monitoring system. The Anti-Money Laundering Act of 2020 (AMLA) is a wide-ranging reform effort that seeks to modernize the country’s anti-money laundering regime, including by providing enhanced rewards and protections for whistleblowers who come forward with potential violations of the Bank Secrecy Act (BSA).

Modernizing the Anti-Money Laundering Regime

The AMLA provides an overhaul of important financial security controls meant to identify and prevent money laundering and other illicit activity conducted through financial transactions. Among numerous other things, the AMLA seeks to:

  • improve coordination and information sharing among the agencies tasked with administering anti-money laundering (AML) and countering the financing of terrorism requirements (CFT), the agencies that examine financial institutions for compliance with those requirements, federal law enforcement agencies, national security agencies, the intelligence community, and financial institutions;
  • modernize AML/CFT laws to adapt to new and emerging threats;
  • encourage technological innovation and the adoption of new technology by financial institutions to more effectively counter money laundering and the financing of terrorism;
  • reinforce that the AML/CFT policies, procedures, and controls of financial institutions shall be risk-based; and
  • establish uniform beneficial ownership information reporting requirements.

These changes received broad bipartisan support and the support of law enforcement, national security experts, business associations, and financial services associations, and will have a major impact on institutions with BSA reporting requirements.

For more details, on the new beneficial ownership requirements imposed by the AMLA, read our LawFlash on the Corporate Transparency Act.

Enhanced Whistleblower Incentives

One of the most significant features of the AMLA from a regulatory and law enforcement perspective is likely to be the enhanced AML/CFT whistleblower incentives the AMLA provides.[1] Although an AML/CFT whistleblower program already exists, its financial incentives – capped at the lesser of 25% of a resulting financial penalty or $150,000[2] – were generally deemed insufficient to incentivize whistleblowers to come forward.

The whistleblower program in the AMLA, on the other hand, is modeled after the whistleblower reward programs of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), which were created by the Dodd-Frank Act in 2010. Significantly, the AMLA revises the reward structure for whistleblowers, providing rewards for covered actions that result in over $1 million in sanctions ordered. Like the SEC and CFTC programs, whistleblowers will be able to receive up to 30% of the money collected by the government in an enforcement action. Unlike the SEC and CFTC programs, where awards to eligible whistleblowers must range from 10% to 30% of the total recovery,[3] the Secretary of the Treasury can issue awards to whistleblowers who bring original information leading to an enforcement action to any percent below the 30% threshold.

The Success of the SEC and CFTC Whistleblower Programs

Since its first award in 2012, the SEC has awarded approximately $728 million to 118 individuals who provided information and assistance that led to successful enforcement actions. SEC enforcement actions from whistleblower tips have resulted in over $2.5 billion in ordered financial remedies, including more than $1.4 billion in disgorgement.

Further, the pace and size of SEC whistleblower awards has increased dramatically in the last three years, as the program has matured. In FY2020 alone, the SEC made a record 39 individual awards of approximately $175 million. This marked a 200% increase in the number of individuals awarded in a single year and, at the time, 31% of the total monies awarded in the program’s history.[4] Stephanie Avakian, the SEC Director of Enforcement, attributed this sharp increase to efforts within the division to “steamline and substantially accelerate the evaluation of claims for whistleblower awards.” This included a series of amendments to the SEC rule approved in September of 2020 addressing issues such as a presumption of the statutory award amount for certain awards of $5 million or less, allowing awards where relief is a deferred prosecution agreement or non-prosecution agreement by the DOJ. The amended rule also creates summary disposition procedures for award denials.

The increased pace and size of awards has continued into FY2021, including an October 2020 award of $114 million, the largest award to date.[5] The $114 million award consisted of an approximately $52 million award in connection with the SEC case and an approximately $62 million award arising out of the related actions by another agency.[6] “After repeatedly reporting concerns internally, and despite personal and professional hardships, the whistleblower alerted the SEC and the other agency of the wrongdoing and provided substantial, ongoing assistance that proved critical to the success of the actions.”[7]

The CFTC program has also seen increasing success. In FY2020, the CFTC received 1,030 whistleblower reports, more than a 35% increase from its prior high of 760 reports in 2018.[8] In this most recent fiscal year, the CFTC awarded approximately $20 million to 16 individuals who provided information or analyses that led to successful enforcement actions. In FY2018, the CFTC paid $75 million in whistleblower awards, including its largest ever individual award of approximately $30 million.[9] Since the inception of the whistleblower program in 2012, the CFTC has granted 25 whistleblower awards totaling more than $120 million. Those actions have resulted in financial penalties totaling approximately $1 billion.

Increased Enforcement Action Likely

If past is prologue, increased enforcement action will likely follow the implementation of these new whistleblower incentives. As the success of the SEC and CFTC programs have demonstrated, whistleblowers are important resources for regulators and law enforcement. Given the proven track record of whistleblower programs, we expect that enforcement in the AML/CFT space to pick up, as well. Financial institutions and others with AML responsibilities should redouble their AML compliance efforts and internal whistleblower processes to ensure that any deficiencies are identified early and remedied effectively.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Chicago
Megan R. Braden
Tinos Diamantatos

Dallas
Sheila A. Armstrong
Danny S. Ashby
Steve Korotash

Miami
Alison Tanchyk

New York
Kelly A. Moore
Martha B. Stolley
Daniel B. Tehrani

Philadelphia
Meredith S. Auten
G. Jeffrey Boujoukos
John C. Dodds
Lisa C. Dykstra
Rebecca J. Hillyer
Matthew J.D. Hogan
Ryan P. McCarthy
Zane David Memeger
John J. Pease, III
Kenneth A. Polite, Jr.
Margaret Erin Rodgers Schmidt
Shevon L. Scarafile
Eric W. Sitarchuk

Washington DC
Charles M. Horn
Ignacio A. Sandoval
Douglas W. Baruch
Giovanna M. Cinelli
Matthew S. Miner
Sandra Moser
Kenneth J. Nunnenkamp
Amanda B. Robinson
Jennifer M. Wollenberg


[1] NDAA § 6314.

[2] 31 U.S.C. § 5323(a).

[3] 15 U.S.C. § 78u-6(b)(1); 7 U.S.C. § 26(b)(1)

[4] SEC Division of Enforcement, 2020 Annual Report (November 2020), at 5.

[6] Id.

[7] Id.

[8] CFTC, Whistleblower Program & Customer Education Initiatives, 2020 Annual Report (October 2020).

[9] CFTC, Annual Report on the Whistleblower Program and Customer Education Initiatives (October 2018).