Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
On December 29, 2022, President Biden signed a new whistleblower law that significantly increases the risk and cost of whistleblower claims for domestic and overseas financial services institutions that must be cognizant of anti-money laundering (AML) laws and regulations. This covers 26 categories of institutions, including banks, branches and agencies of foreign banks, broker-dealers, insurance companies, operators of credit card systems, mutual funds, certain casinos, and travel agencies. (The full list of covered entities appears at 31 U.S.C. § 5312.)
The Anti-Money Laundering Whistleblower Improvement Act (the “Act”) significantly strengthens the Anti-Money Laundering Act (AMLA), portions of which were enacted on January 1, 2021, which provided incentives and protections to whistleblowers who report original information to their employer, the Secretary of the Treasury, or the Attorney General that leads to the successful enforcement of an AML action and a monetary sanction exceeding $1 million.
The Act broadens the scope of the law to cover reporting of violations of financial management rules for executive agencies; sanctions on foreign nations, entities, or individuals identified as enemies of the United States; and sanctions on foreign narcotics traffickers. The Act also provides for a funding structure and statutory minimum awards to successful whistleblowers.
Each of these changes increases the likelihood that employers that perform work in the financial sector, have international operations in regions that are subject to U.S. sanctions or are otherwise responsible for compliance with the covered laws will receive more reports from employees claiming to be whistleblowers.
The previously passed AMLA covered actions brought by the Secretary of the Treasury or the Attorney General under Subchapters II and III of Title 31, Chapter 53 of the U.S. Code, which primarily addressed AML issues. The Act now expands the definition of covered actions to include actions brought under Subchapter II (AML); Title 31, Chapter 35 (accounting for executive agencies); 50 U.S.C. §§ 4305, 4312 (foreign sanctions); and the Foreign Narcotics Kingpin Designation Act (sanctions on foreign narcotics traffickers).
There appears to be no requirement that a whistleblower be a U.S. employee, which means that individuals working for an employer in another country are also protected and eligible for an award if original information they provide leads to successful enforcement and major monetary sanction.
The Act’s new structure for awards to whistleblowers provides a stronger incentive for employees to make reports regarding suspected violations. These changes were modeled after a similar structure incentivizing whistleblowers regarding securities law violations under the Dodd-Frank Act (15 U.S.C. § 78u-6). Previously, the AMLA provided that whistleblower awards could not exceed 30% of the amount recovered in the action, but otherwise, the actual award amount was subject to the discretion of the Secretary of the Treasury and hypothetically, could even be zero.
The Act now provides a 10% minimum whistleblower award unless the whistleblower is eligible for payment through another whistleblower award program. The Act also establishes a revolving fund specifically designated for payment of whistleblower awards under the statute, funded by monetary sanctions collected in covered actions and the fund’s investment income, whereas the awards were previously subject to the congressional appropriations process. This change creates more stability and certainty around the payment of awards to successful whistleblowers.
The transparent intent of the Act is to provide a strong financial incentive and thereby encourage potential whistleblowers to make reports of a broader range of compliance issues to serve national interests in AML, sanctions enforcement, and anti-drug trafficking efforts. For employers whose work is regulated by these laws, this means an increased likelihood of reports by employees, which may point to serious issues, as well as claims of retaliation for making such reports.
To protect themselves, employers will need to maintain strong compliance practices to avoid violations of law, respond appropriately to reports that may demand further investigation, and ensure that any employee who raises a report is protected from retaliation for doing so.