Bloomberg Law: Banks With Russia Times Targeted by US Treasury Whistleblowers
This article features Government Accountability Project legal director, Tom Devine, and was originally published here.
A US law passed after Russia invaded Ukraine has given a boost to a flawed Treasury Department program that lawyers claimed deterred whistleblowers from providing tips on the role of banks in sanctions and anti-money laundering violations.
As a result, Treasury’s Financial Crimes Enforcement Network, or FinCEN, has gotten more than 100 whistleblower submissions over a three-week period this year, according to people familiar with the matter. The agency fielded just 100 tips in the program’s first two years and made no payments to whistleblowers.
Under the law enacted Dec. 29, whistleblowers can report violations of economic sanctions like those imposed on Russian oligarchs to FinCEN. Tipsters whose information leads to financial recoveries will now get minimum payments, replacing a system with no guaranteed awards.
The new law is enticing informants to provide information on a variety of misdeeds, including how banks secretly help Russian President Vladimir Putin conduct his war in Ukraine.
“It is going to hit Putin and his cohorts where it hurts,” said attorney Stephen Kohn.
Kohn represents two whistleblowers outside the US who claim a bank caters to sanctioned Russian oligarchs and entities and may have failed to flag suspicious flows of Russian money through the US, according to a redacted complaint filed with regulators. The Washington lawyer wouldn’t identify the bank or his clients, citing concerns about retaliation.
The FinCEN changes come as the Justice Department’s “KleptoCapture” task force hunts for yachts, private jets and hidden cash tied to sanctioned Russians. At first, the program only focused on violations of the Bank Secrecy Act, the anti-money laundering law that requires financial institutions to know their customers, report suspicious activities to FinCEN, and monitor high-risk transactions.
Read more: Russian Oligarchs Running Out of Hiding Places for Jets, Yachts
President Joe Biden signed the Anti-Money Laundering Whistleblower Improvement Act as part of the $1.7 trillion funding bill. Poppy Alexander, a lawyer specializing in whistleblower cases, said she previously turned away potential clients with information on sanctions violations, including the flow of tainted Russian money through banks. Now, she’s expecting some of those tipsters to return.
“The potential global impact of this law is gigantic,” said Alexander.
Whistleblowers may reap as much as 30% of money collected by the government based on violations identified by a tipster. The new law set a minimum reward of 10% and authorized tipsters to collect from a revolving pool of fines imposed by regulators.
Republican Senator Chuck Grassley said minimum awards and a dedicated fund will “ensure whistleblowers who step up to expose money laundering and US sanctions violations receive fair compensation, and will incentivize others to call out corruption.”
SEC Incentives
The incentives mirror what the Securities and Exchange Commission offers through its whistleblower program, which has grown dramatically in a decade. After a year, the agency got 3,000 tips and made its first award. In the past two fiscal years, the SEC awarded $793 million to whistleblowers, or 61% of the $1.3 billion paid overall. The SEC also got a record 12,300 tips in fiscal 2022, an increase of more than 300%.
But whistleblower advocates say FinCEN needs more employees to handle the submissions and draft regulations.
“There is an utter lack of resources there,” said attorney Jason Zuckerman. “It is not just a matter of corporate crime, it also implicates US national security.”
FinCEN, which received an 18% boost in its budget, expects to expand the three-person whistleblower staff. It’s hired “key personnel” and referred tips to the Justice Department and the Office of Foreign Assets Control, which enforces Treasury sanctions, said a spokeswoman.
“The office will eventually be staffed with a cadre of enforcement officers who will assess and investigate, where appropriate, whistleblower tips and information and process applications for awards,” the spokeswoman said. “FinCEN is actively meeting with whistleblower advocates, reviewing tips, and referring appropriate matters for investigation.”
Some whistleblower advocates say the new law remains flawed because most employees who bring claims won’t be adequately protected from retaliation by their employers.
Employees at institutions backed by the Federal Deposit Insurance Corporation, which insures deposits in US banks, must rely on anti-retaliation laws from more than three decades ago. Advocates say those laws, among other problems, don’t do enough to protect employees if they report problems internally.
“It is unacceptable that people don’t have any credible rights to defend themselves when they stick their neck up,” said Tom Devine, legal director at the Government Accountability Project, a nonprofit that represents whistleblowers.