The Anti-Money Laundering Act of 2020 (AMLA) included significant advancements in anti-money laundering (AML) whistleblower programs for financial institutions. The provisions are designed to encourage individuals to report misconduct within AML programs and provide robust incentives and protections for doing so. In December 2022, President Biden signed into law the Anti-Money Laundering Whistleblower Improvement Act, which enhanced AMLA’s whistleblower language by providing stronger provisions and increased protections for individuals reporting money laundering and sanctions violations.
BSA Whistleblower Provision: What it means for financial institutions
July 9, 2024
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Understanding the regulatory expectations
The Anti-Money Laundering Act of 2020 (AMLA) included significant advancements in anti-money laundering (AML) whistleblower provisions for financial institutions.
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Takeaway 1
AMLA and the Whistleblower Improvement Act established a whistleblower program that encourages the reporting of fraud, corruption, and other malpractices within financial institutions.
Takeaway 2
Under the BSA Whistleblower provisions, eligible tips can now lead to up to 30% of penalties collected, promoting more reports of AML violations.
Takeaway 3
Financial institutions should be proactive and implement clear whistleblower policies, encourage internal reporting, and address compliance deficiencies.
Anti-Money Laundering Act of 2020
Whistleblower provisions
Whistleblower provisions
Role and importance of AML whistleblowers
AML whistleblowers are people who report information about violations of the Bank Secrecy Act (BSA) and AML laws to their regulators, the U.S. Department of the Treasury, or the U.S. Attorney General. With new protections and financial incentives for whistleblowers, financial institutions must understand the updated protections and regulatory changes, strengthen their whistleblower program, and prepare for their subsequent regulatory examination. Under the Acts, an eligible whistleblower includes:
- Employees: Current or former employees of financial institutions who report violations of the Bank Secrecy Act (BSA) and AML laws
- Contractors: Individuals or entities that provide services to financial institutions and report AML violations
- Insiders: Individuals with access to information on AML violations due to their position or relationship with the financial institution
- Third Parties: Other individuals who possess independent knowledge of violations, including consultants, auditors, and analysts.
Eligibility extends to any person who can provide original information about violations of AML laws and regulations, leading to successful enforcement actions. Original information can be provided on an existing tip, provided that the information is new to the case.
AMLA whistleblower legislation
Intent of the whistleblower provisions
The enhanced AMLA whistleblower legislation is meant to help curb systemic BSA issues within financial institutions and bring the AML industry more in line with what the Securities and Exchange Commission (SEC) has done for the securities markets. Once the SEC whistleblower program was passed by Congress in 2010 as part of the Dodd-Frank Act, reports to the SEC continued to increase year over year to more than 18,000 in 2023. The SEC issued whistleblower awards totaling nearly $600 million in 2023, the most ever awarded in one year, including a record-breaking $279 million awarded to one whistleblower. To put this comparison in perspective, FinCEN currently receives approximately 50 complaints per year.
A BSA whistleblower case study
A notable example of a successful BSA whistleblower case involves Danske Bank. In January 2023, Danske Bank pled guilty to charges of bank fraud related to significant AML failures. This case was initiated by whistleblower Howard Wilkinson, who exposed the bank's involvement in transferring billions of dollars from high-risk jurisdictions without proper AML controls. As a result, Danske Bank was ordered to forfeit $2 billion and placed on probation for three years. This case demonstrates the impact of whistleblower programs in ensuring financial institutions adhere to AML regulations and maintain transparency in their operations.
Types of violations and enforcement actions
Violations can manifest in several ways, including:
- The lack of an effective overall compliance program by a covered financial institution
- Deficiencies in specific components or "pillars" of the compliance program
- Persistent and systemic noncompliance with BSA requirements
Recent regulatory enforcement actions show a typical pattern with AML deficiencies, including:
- Customer due diligence deficiencies
- Lack of AML resources, both staffing and technical
- Insufficient alert, SAR, and case management
- Lack of AML suspicious activity monitoring system optimization
- Inadequate third-party vendor risk management, specifically Banking as a Service (BaaS)
- Insufficient Board of Director oversight of the AML program
Because these deficiencies threaten the safety and soundness of financial institutions, FinCEN expects that a strengthened whistleblower program will help address these issues early, preventing them from developing into unsafe practices.
The Whistleblower Improvement Act further enhanced AMLA and mandated vital revisions, including:
- Change to payout language: The whistleblower payout language was changed from "may" to "shall," ensuring that original whistleblowers receive payment.
- Increased awards: The maximum award increased significantly, from $150,000 to 30% of the total recovery over $1 million, though the exact payout amount remains discretionary.
- Funding for payouts: Award funding was established to ensure that sufficient resources are available to compensate whistleblowers. 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.
Future steps and preparation
There are some missing pieces to the BSA whistleblower provisions. The regulatory framework is still awaiting a Notice of Proposed Rulemaking (NPRM), which is expected to detail:
- Reporting mechanisms: Although the program is already up and running, there are no current reporting mechanisms for whistleblowers. Whistleblowing is challenging to maneuver logistically without the guidance of an attorney. Within the NPRM, FinCEN is expected to issue clear procedures and forms for whistleblowers to report misconduct. This reporting structure should make it easy for anyone to go online and report with confidence.
- Confidentiality promises: The NPRM will ensure that whistleblowers' identities and details are kept confidential to protect their safety and privacy. Without this, the program will likely not be effective.
Conclusion
The enhanced BSA whistleblower provisions of the AMLA and the Whistleblower Improvement Act mark a significant step forward in combating financial crime. By encouraging more individuals to report wrongdoing and providing them with greater protections and incentives, these legislative changes will create a more transparent and accountable financial system. Financial institutions must embrace these changes, fostering a culture that supports and values whistleblowers, leading to improved compliance and integrity within the industry.
Financial institutions should consider providing legal and compliance support for potential whistleblowers to ensure they understand their rights and the reporting process. Implementing mechanisms to gather feedback on the whistleblower program will help improve an institution’s program based on input from employees and other stakeholders.
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