The recently enacted Anti-Money Laundering Act significantly increases the potential value of awards for whistleblowers under the Bank Secrecy Act. The challenge for a financial services employer is to establish that discipline against an employee in a compliance role is supported by evidence that the decision was based on the employee's incompetence or other inappropriate behavior, and that any whistleblowing activity he or she engaged in was not a consideration. Philip M. Berkowitz explores the issues in this edition of his Employment Issues column.
By Philip Berkowitz | March 10, 2021
Compliance personnel increasingly bring retaliation and whistleblower claims against their employers. Their job, after all, is to help their employers comply with legal and regulatory obligations. If they are disciplined for poor job performance, however, they may claim that the discipline is based on their having brought regulatory violations to their employers' attention, and not their own job performance problems.
On Jan. 1, 2021, Congress enacted the Anti-Money Laundering Act (AMLA). The AMLA establishes new whistleblower protections for employees of financial services institutions. Among other things, the AMLA significantly increases the potential value of awards for whistleblowers under the Bank Secrecy Act (BSA).
While courts (and regulators) are protective of whistleblower rights, they also understand and are respectful of an employer's right to remove personnel, when the employer can demonstrate that they are incompetent or insubordinate, or where their presence may even present an impediment to effective regulatory compliance.
The challenge for a financial services employer is therefore to establish that discipline against an employee in a compliance role is supported by evidence that the decision was based on the employee's incompetence or other inappropriate behavior, and that any whistleblowing activity he or she engaged in was not a consideration.
The AMLA and the Bank Secrecy Act
The AMLA bars employers from discharging, demoting, threatening or harassing employees who provide information relating to money laundering and violations of the Bank Secrecy Act (BSA) to their employer, or to the attorney general, secretary of the treasury, regulators and others. AMLA §6314 (adding 31 U.S.C.§5323(g)).
The AMLA amends and strengthens the BSA, which had limited this protection only to employees who provided information to a federal supervisory agency. (In Taft v. Agricultural Bank of China, Ltd., 2016 WL2766661 (S.D.N.Y. 2016), the court held that a whistleblower's report of possible violations of law under the BSA is protected if she brings the complaint either to the Governors of the Federal Reserve Board or to those acting under their authority and on their behalf, such as (in that case) the Federal Reserve Board of New York.) Thus, it protected only complaints to the government, as opposed to internal complaints.
Now, though, the AMLA protects as whistleblowers those individuals who complain only to their employers. If the employer retaliates for bringing these claims, the employee can file a civil lawsuit and seek reinstatement, compensatory damages, counsel fees, double back pay with interest added, and other appropriate remedies regarding the prohibited conduct.
Whistleblowers must file complaints initially with the United States Department of Labor. If they are not resolved within six months (assuming that the delay was not caused by claimant's bad faith), employees can??le actions in federal court and have a jury trial.
The AMLA also establishes a whistleblower reward program modeled on the Dodd-Frank SEC whistleblower program. To be eligible for an award, the whistleblower must voluntarily provide original information to their employer, the Department of Treasury, or the Department of Justice.
The BSA award program had capped government awards to whistleblowers at $150,000 but afforded the Treasury Department discretion in deciding whether to issue an award in any amount up to that limit. In contrast, to incentivize reporting, the AMLA replaced the BSA's $150,000 award cap with a mandatory payment ceiling of 30% of the government's collection, if the monetary sanctions imposed exceed $1 million.(Certain individuals, like regulatory and law enforcement officials and those who participated in the wrongdoing, are disqualified from receiving an award.)
The AMLA covers a wide range of financially based organizations, including banks, branches and agencies of foreign banks, broker-dealers, insurance companies, operators of credit card systems, mutual funds, certain casinos, and travel agencies, among the 26 covered categories. (The full list of covered entities appears at 31U.S.C. §5312.) In addition, the law now places under the BSA's purview any person or business that engages in the transmission of currency, funds or value that substitutes for currency, meaning that organizations dealing in cryptocurrency now come within the statute's reach. Persons involved in the sale of antiquities are also now covered.
Defending a Claim
Generally speaking, to state a whistleblower retaliation claim, an employee must show that: (1) he or she was retaliated against for reporting inappropriate activity; (2) he or she reported that information to the employer and/or the government, depending on the particular statute's purview; and (3) the disclosure was required or protected by that law, rule or regulation. Further, the employee must establish that he or she had a subjectively and objectively reasonable belief that the conduct in question violated the law.
In most instances, an employee need only establish that his or her protected activity was a contributing factor, not necessarily a motivating factor, for the adverse employment action. "Contributing factor" means any factor that, alone or in connection with other factors, tends to affect in any way the outcome of the decision.
On the other hand, an employer can normally avoid liability if it can establish by "clear and convincing "evidence that it would have taken the same adverse action against a complainant absent his or her protected activity. Thus, even if the employee can establish that he or she was retaliated against in violation of these laws, the employer can prevail if it demonstrates that it would nevertheless have taken the same action against the employee because of conduct unrelated to their whistleblower activities.
Regardless of the test, for an employer to prevail in a whistleblower claim, it will need to establish that it took adverse action against the alleged whistleblower for reasons unrelated to any protected whistleblower activities in which she may have engaged. Instead, the employer will need to argue and prove that any disciplinary action the Bank took against the employee was based upon job performance problems or other non-protected activities.
Importance of Investigation and Corporate Compliance Programs
Federal and state regulators have made clear, in recent years, that employers must implement and follow well designed investigation protocols to root out claims of retaliation and protect whistleblowers.
For example, in January 2019, the New York State Department of Financial Services (DFS) issued a new directive on whistleblower policies. DFS articulated 10 "pillars," emphasizing the need to have in place reporting channels that are independent, well-publicized, easy to access, and consistent, with strong protections for a whistleblower's anonymity.
DFS requires that the employer have in place established procedures for identifying and managing potential conflicts of interest, and that staff members are adequately trained to receive whistleblowing complaints, determine a course of action, and competently manager any investigation, referral, or escalation.
Further, DFS demands that employers establish procedures for investigating allegations of wrongdoing, ensuring appropriate follow-up to valid complaints, protecting whistleblowers from retaliation, and providing confidential treatment of these complaints.
DFS recommends, as well, that regulated employers give appropriate oversight of the whistleblowing function to senior management, internal and external auditors, and the Board of Directors. Perhaps most important, DFS demands that the employer have in place a top-down culture of support for the whistleblowing function.
Also, in 2019, the U.S. Department of Justice Criminal Division (DOJ) issued an "updated" Evaluation of Corporate Compliance Programs Guidance. DOJ's Guidance emphasizes three main questions for prosecutors to consider during a criminal investigation: (1) Was there a well-designed compliance program;(2) Was the compliance program effectively implemented; and (3) Did the compliance program work as intended.
Prosecutors assess, among other things, whether policies, training and communication are sufficiently robust to encourage a culture of compliance and responsibility. The company's reporting process should emphasize disclosure of suspected misconduct and dissuade any fear of retaliation. There is also the need to respect the confidentiality of whistleblower complaints.
Importance of Documentation of Performance Problems
The relevant cases underscore the importance of documenting performance or disciplinary issues before taking adverse action against an employee who may have engaged in protected activity. In Johnson v. ACE Limited, ARB Case No. 10-052 (Jan. 30, 2012), a case brought under the Sarbanes-Oxley Act, the Department of Labor Arbitration Review Board (ARB) found that although the alleged whistleblower had engaged in protected activity, the employer had demonstrated by clear and convincing evidence that it would have fired him anyway because of his incompetence, his outside business interests and his insubordinate behavior when questioned about the outside business.
In Giurovici v. Equinix, ARB Case No. 07-027 (Sept. 30, 2008), the ARB found that even if the former employee could establish that he had engaged in protected activity, his claim would have failed because the company offered clear and convincing evidence it would have fired him anyway because of his well-documented record of poor performance and insubordination.
Similarly, in Pardy v. Gray, 2008 U.S. Dist. LEXIS 53997, at **17-18 (S.D.N.Y. July 15, 2008), the court held that the employer company established by clear and convincing evidence that it discharged employee for undisputed record of poor performance.
An assessment of the strength of the anticipated defense therefore must take into account the quality of contemporaneous documentation of the alleged whistleblower's performance issues.
The AMLA and other whistleblower laws make clear, then, that employers must always follow basic human resources precepts:
- document job performance problems;
- give employees prompt and appropriate feedback on areas in which they must improve, providing written performance improvement plans, where appropriate with clear guidelines on how to improve;
- implement a strong policy encouraging employees to come forward with any concerns about alleged violations of law or regulations, or breaches of the employer's code of conduct;
- be sure that your internal complaint and investigation policies comply with those recommended by your regulator; and
- promptly investigate any such complaints, while preserving the confidentiality of the whistleblower's identity to the extent practicable.
Involving human resources professionals and employment attorneys at an early stage of a complaint or investigation can help resolve employee complaints successfully, and provide good evidence for defending any complaints that, despite the employer's best efforts, turn into a dispute or litigation.
Philip M. Berkowitz is a shareholder of Littler Mendelson and co-chair of the firm's U.S. international employment law and financial services practices.
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Reprinted with permission from the March 10, 2021 edition of the New York Law Journal©
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