Whistleblower programs and the AML Whistleblower Improvement Act

Prior to the AML Whistleblower Improvement Act, financial services organizations have been required to have a whistleblower program. Title 31 of USC 5323, “Whistleblower Incentives and Protections” provides clarity on whistleblower definitions, awards, protections against retaliation, and confidentiality, as summarized here:

Definitions. Whistleblowers are defined as individuals who provide information relating to Bank Secrecy Act (BSA) and AML violations to their employer including as part of their job duties, or to the U.S. Department of the Treasury (Treasury) Secretary or the U.S. Attorney General.

Awards. Awards will be paid to whistleblowers who voluntarily provide original information to their employer, the Treasury Secretary, or the Attorney General that leads to the enforcement actions in an aggregate amount equal to not more than 30%, in total, of what is collected of the monetary sanctions imposed in the action or related actions. The amount of the award is determined by the Secretary using the following criteria: significance of information provided by the whistleblower; degree of assistance provided by the whistleblower; programmatic interest of Treasury in deterring violations; and additional relevant factors established by rule or regulation.

Protection of whistleblowers. Retaliation against whistleblowers is strictly prohibited. They are protected from harassment, demotion, suspension, firing, and any other backlash while employed and if they leave the organization. If whistleblowers believe they have experienced retaliation, they may seek relief by filing a complaint with the Secretary of Labor or bringing an action against the employer in the appropriate court of the United States.

Confidentiality. Whistleblower confidentiality is protected. Information about whistleblowers’ identities and information they provide will not be disclosed until required by public proceedings.

The AML Whistleblower Improvement Act

A key priority of the AML Whistleblower Improvement Act is enhancing whistleblower protections and providing a robust whistleblower program and new anti-retaliation protections. The recent updates to the whistleblower awards and protections against retaliation place more pressure on executives to emphasize – in practice – a strong culture of compliance focused on encouraging employees to report AML violations, issues, and discrepancies internally.

The AML Whistleblower Improvement Act includes payment of awards to individuals providing information to authorities to enforce money laundering laws, and it more clearly defines a floor and cap on whistleblower awards by amending Title 31, Section 5323 of USC (as amended by Section 6314 of the AML Act). It stipulates that whistleblowers who willingly report violations can receive at least 10% and no more than 30% of monetary sanctions that exceed $1 million.

Additionally, the AML Whistleblower Improvement Act specifies that the source of awards will derive from the Financial Integrity Fund established by Treasury and act as a revolving fund. These funds will be available to the Secretary and used for payment of awards to whistleblowers.

Financial services organizations should take note of the AML Whistleblower Improvement Act, as its requirements will come under greater regulatory focus and protection will need to be provided to whistleblowers coming forward in good faith. Financial services organizations that do not abide by the provisions of the AML Whistleblower Improvement Act could incur large fines, as whistleblowers might go directly to regulators instead of internally reporting the AML deficiencies. As well, organizations that do not create systems and controls to comply with the act risk their reputations.

How is FinCEN preparing? 

In June 2021, in response to the passage of the AML Act, FinCEN established eight priorities to help financial services organizations meet obligations under laws and regulations designed to combat AML and counter foreign terrorism.

In today’s heightened regulatory environment, regulators and enforcement agencies expect advanced and robust compliance programs, and the same will apply to whistleblower programs. The AML Act and the AML Whistleblower Improvement Act both have mobilized FinCEN to focus on the importance of whistleblower programs.

• FinCEN recommends that financial services organizations establish whistleblower programs and direct referrals to appropriately pay eligible individuals who have voluntarily provided FinCEN or the Department of Justice with information on BSA violations.
• While the financial services industry generally recognizes three lines of defense as business, compliance departments, and auditors, FinCEN’s whistleblower program represents a fourth line of defense. Its primary objective is to proactively incentivize whistleblowers to share valuable information to contribute to FinCEN’s overall enforcement efforts.
• For a whistleblower program to succeed, retaliation in any way or form must be prohibited. Whistleblowers sharing information and AML violations to regulators in good faith will be protected. According to Himamauli Das, then acting director of FinCEN: “The protections afforded a whistleblower are quite robust and include the right to bring a cause of action before the Department of Labor or in court where a whistleblower can seek compensatory damages, reinstatement, and two times the amount of any back pay they are owed…These guardrails are important because they provide whistleblowers with the confidence and protection they need to come forward and blow the whistle when they see or suspect BSA violations.”
• To help financial services organizations effectively implement whistleblower programs, FinCEN has proactively created the Office of the Whistleblower. This new office is staffed with key professionals building and leading the whistleblower program and enforcement officers responsible for assessing and investigating incoming cases. FinCEN is also developing a formal intake system to facilitate gathering whistleblower tips more effectively and efficiently.
• The U.S. Senate’s spending bill for 2023 will include funding mechanisms for a program that FinCEN built to generate tips. Payouts to whistleblowers will be drawn from the Financial Integrity Fund, and the bill allocates FinCEN a final operating budget of $190 million for fiscal year 2023. 

Actions to consider

Financial services organizations should assess whether they have documented and currently support a strong culture of compliance, and a nonretaliation policy in their whistleblower programs. FinCEN is making it extremely clear that a whistleblower program will be an area of focus for the foreseeable future.

Boards of directors and executives of financial services organizations might consider revamping their whistleblower programs and adopt a “speak-up” culture to avoid regulatory scrutiny. Such a culture starts at the top with board and executive leadership promoting ethical conduct in the context of the organization’s mission, vision, purpose, structure, and strategy. Management can also support a speak-up culture by:

• Emphasizing that employees are the first line of defense and play a critical role in proactively preventing, detecting, and reporting wrongdoing early on.
• Developing and implementing processes to encourage open reporting to enable employees to feel comfortable and confident in raising issues and concerns.
• Proactively communicating and demonstrating that retaliation is not acceptable, and individuals who engage in retaliatory acts will be dismissed.
• Providing training to management on how to effectively handle situations in which employees come forward with concerns. It is essential for management to demonstrate that it takes such concerns seriously to ensure integrity and a culture of compliance.
• Incentivizing employees who demonstrate a strong culture of compliance, including speak-up culture. Such incentives can be tangible (bonuses) or nontangible (certificates to advance knowledge and skills).

When companies encourage and empower employees to internally report concerns related to compliance, they create an environment that supports and even expects ethical behavior throughout the organization.

A culture of compliance supporting whistleblowers

It is vital for financial services organizations to create a strong culture of compliance and controls that complies with the AML Whistleblower Improvement Act and in which employees feel empowered to speak up. Financial services organizations are required to have whistleblower programs in which employees feel comfortable and confident in reporting potential issues and in which retaliation against whistleblowers is prohibited. Such programs can help management timely address problems and issues and possibly prevent litigation, lawsuits, violations of law, or hefty fines.

With regulatory scrutiny increasing, now is the time for financial services organizations to truly embrace, implement, and promote an open reporting process for whistleblowers.