Why FinCEN Should Quickly Establish Regulations for the New AML Whistleblower Program
The nascent AML whistleblower program promises to boost enforcement in a difficult area, but FinCEN must swiftly develop regulations to ensure that it launches the program in the most robust way possible.
Created by the Anti-Money Laundering Act of 2020 (AMLA), passed as part of the FY21 National Defense Authorization Act (NDAA), the program went into immediate effect. Motivated by retaliation protections and the potential for rewards, whistleblowers ready to assist the agency’s critical enforcement mission have undoubtedly already made submissions to FinCEN. But without regulations in place, would-be whistleblowers face some uncertainty that may hold them back from participating in what should be a huge boon to AML enforcement. Regulations also allow FinCEN the opportunity to strengthen the program with proper interpretation of the statutory provisions.
The Program
The new AML whistleblower program rewards whistleblowers who provide information that results in the recovery of monetary sanctions for violations of the Bank Secrecy Act (BSA). As long as FinCEN or the Department of Justice recover at least $1 million in sanctions, qualifying whistleblowers are entitled to an award of up to 30% of the sanctions collected. The AMLA also created retaliation protections for qualifying whistleblowers.
Why FinCEN Needs to Issue Regulations
Although the program went into immediate effect, swift promulgation of regulations would show FinCEN’s commitment to the program. Potential whistleblowers are understandably reluctant to risk their careers, so a strong signal from the enforcement agency that it is dedicated to protecting and rewarding them would go a long way to motivate people to come forward.
As the Wall Street Journal recently reported, the National Highway Traffic Safety Administration (NHTSA) has not yet promulgated regulations for its similar whistleblower program, leaving some whistleblowers in limbo. FinCEN should take the necessary steps to avoid repeating this scenario.
FinCEN has demonstrated its ability to do so. It should be lauded for its quick action in issuing the Advance Notice of Proposed Rulemaking for the Underlying Beneficial Owner (UBO) provisions of the AMLA. It has moved swiftly in response to the statute and anticipates final regulations by the start of 2022, as the law requires. Even absent a statutory deadline, FinCEN should move with the same alacrity to stand up to the AML whistleblower program and issue necessary regulations.
Done correctly, regulations could also materially improve the program in three other ways.
Regulations Should Set Out FinCEN’s Vision for Award Ranges
Most critically, FinCEN should use regulations to shore up a grave failure in the program.
The statute does not provide for a guaranteed minimum award amount. As a result, although an award is mandatory when the criteria are met, FinCEN would theoretically have the discretion to award only a nominal sum. We trust that the Treasury will acknowledge the contributions of whistleblowers and the risks they face, but we know from experience that whistleblowers always hesitate to come forward if there is a chance that they would not receive compensation to offset their potential loss of livelihood.
Every successful whistleblower program guarantees award minimums: the SEC (10% minimum); the CFTC (10% minimum); and the IRS (15% minimum). For good reason. All these agencies had prior whistleblower programs that were discretionary, with no minimums, and they were largely ignored by whistleblowers.
The AML program needs to avoid a similar fate. While Congress should act to establish a minimum, FinCEN can do a lot through regulation. It should promulgate regulations setting out how it intends to calculate awards under the statutory factors, perhaps including a starting default with an explanation of potential adjustments based on the factors. The SEC has recently done something similar for smaller awards, setting out a presumption of the statutory maximum. Regardless of the details, FinCEN could provide much-needed certainty to hesitant whistleblowers.
Regulations Can Partially Repair a Congressional Misjudgment
The statute, unfortunately, excludes from the award base sanctions that are labeled as restitution, forfeiture, or victim compensation. Congress should act to include those amounts, which could otherwise unfairly leave whistleblowers at the mercy of the vagaries of how the government chooses to structure its settlements.
Even in the absence of Congressional action, however, FinCEN can clear up one interpretive uncertainty: it should clarify that overlapping remedies do not disqualify an award, even if one falls into the excluded categories. Otherwise, a fine deemed satisfied by a separate restitution order, like FinCEN’s $184 million fine of Western Union in 2017, could be pulled outside the scope of the program. That would inject uncertainty and undermine the program, to no benefit.
Regulations Should Clarify How FinCEN Wants the Program to Work
Regulations would also provide procedural certainty in a new program. Recent changes to the SEC’s procedures for whistleblower rewards raised concerns among attorneys who represent whistleblowers, who noted that adding a new timing requirement for formal compliance with the rules would run the risk of leaving some whistleblowers in the lurch.
FinCEN can avoid potential similar problems by quickly making public its vision for how the program will work procedurally. How do whistleblowers file tips? What forms do they fill out? How does the agency plan to handle the standard practice of previewing potential matters with enforcement staff? Will FinCEN provide any ongoing communication on status? What is the process for applying for an award in the event of a successful action? Having answers to these questions will lower the burden on would-be whistleblowers, further incentivizing them to come forward.
Constantine Cannon Will Continue to Advocate for a Strong Whistleblower Program
Constantine Cannon’s whistleblower lawyers have played a key role in advocating for the creation of this program, from publishing numerous op-eds to drafting model legislation for the program in the Financial Times’ 2020 Legal Hackathon. We will continue to advocate and monitor the new program as it takes shape.
If you would like more information or would like to speak to a member of Constantine Cannon’s whistleblower lawyer team about this program, please contact us for a confidential consultation.
Read More
- The AML Whistleblower Program
- The New BSA Whistleblower Provision – From the Whistleblower’s Perspective
- The FinCEN Files Prove We Need an Anti-Money-Laundering Whistleblower Program
- Project Proposes Legislative Action to Protect and Incentivize AML Whistleblowers: Article about Global Legal Hackathon proposal by Constantine Cannon, Offshore Alert, and the Association of Certified Financial Crime Specialists
- Constantine Cannon Attorneys Eric Havian and Michael Ronickher Published on Need for Whistleblowers in Anti-Money Laundering Enforcement
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- The Constantine Cannon Whistleblower Team
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