US anti-financial crime laws already had broad transnational application, evidenced by the recent $2 billion sanction against Danish bank Danske, for fraud and AML violations initiated in Estonia. Similarly, FinCEN took AML enforcement action against Russian cryptocurrency exchange BTC-E, which demonstrated that even if a crypto exchange has no direct operations in the US, if American citizens use it, it can be penalised under US AML laws.
While these examples show that the US is already flexing its global muscle when it comes to clamping down on financial crime, the new law offers much greater anonymity, and potentially highly profitable implications for whistleblowers.
Whistleblowers will now receive greater protection and receive potentially huge financial rewards for their actions
One of the most striking features of the Act is that it enables any employee, in any organisation that deals in dollars, to report violations anonymously and confidentially, which instantly makes it a truly transnational law.
But what really makes it a gamechanger, is the fact that whistleblowers will qualify for mandatory rewards of between 10% – 30% of any financial sanction triggered by the disclosure. This is regardless of the size of the fine, so rewards could reach millions or even tens of millions of dollars in the biggest cases.
The new Act builds on the US Whistleblowing Programme, which has already become a powerful weapon against financial crime.
To give an idea of the potential scale of future fines and the resultant financial rewards on offer, since its inception in 2011 information given to the Securities and Exchange Commission (SEC) Whistleblower Programme has led to $6.3 billion in sanctions, with a staggering $1.3 billion in rewards paid to whistleblowers.
The additional protections offered by the new Act combined with its extended global reach, means that it is likely that in the future financial sanctions will increase exponentially, as will the rewards paid out to whistleblowers.
“The broadest transnational application of any existing whistleblower or anti-corruption law”
Stephen Kohn, founding partner at specialist law firm Kohn, Kohn & Colapinto, has represented some of the world’s biggest whistleblowers and is author of ‘Rules for Whistleblowers: A Handbook for doing what’s right’.
He claims the new Act will ramp up action on transgressors with “the broadest transnational application of any existing whistleblower or anti-corruption law.”
He highlights the fact that the Financial Crimes Enforcement Network (FinCEN) isn’t the only authority that uses transnational laws, “FinCEN has already sanctioned non-US companies – but this is only the beginning.”
“The Internal Revenue Service (IRS) and Department of Justice (DoJ) have sanctioned numerous non-US banks under the tax and money laundering laws. The SEC and DoJ have done the same under the Foreign Corrupt Practices Act. And the Commodity Futures Trading Commission has sanctioned companies based outside the US for market manipulation.”
As a result, the long arm of the US law now has multiple ways of indicting and prosecuting organisations found to have committed violations.
Could the new Act turn compliance officers into whistleblowers?
The new Act has wide and deep provisions for anyone reporting violations of money laundering, terrorist financing, sanctions violations, bribery, and corruption laws.
Employees who detect signs of a violation will be empowered and protected to speak up, leading to much greater risk of enforcement against firms, both financial and non-financial.
It also raises the spectre of compliance officers turning whistleblowers if their employers violate rules or attempt to circumnavigate them.
Eric Young, senior managing director at global compliance, investigations and security consultancy Guidepost Solutions, commented, “Crucially, the Act covers non-US employees, including compliance officers, rewarding them if the information they report leads to successful enforcement of US laws such as AML and Office of Foreign Assets Control (OFAC) sanctions laws.”
“This greatly empowers compliance officers to report weaknesses in controls, or criminal and other misconduct. And it protects the whistleblower against retaliation. This Act effectively compels international organisations – and their supply chains – to comply fully across their global network of offices, employees, and compliance officers.”
As such, the new Act is likely to immediately impact the way many banks and other financial institutions run their AML programmes.
Kohn emphasised that FinCEN has broad enforcement authority, which includes ability to impose civil penalties; issue summons and administrative rulings; and take ‘any other reasonable actions necessary’ for enforcement.
“Compliance teams worldwide should understand that if they turn their back on AML rule violations they risk being sanctioned, criminally or civilly,’ he said. ‘Whistleblowers will be incentivised to report, and given the generous bounty, the risk of detection will increase significantly.”
Organisations across the world must respond to a new reality
To counter these higher risks, Kohn said any financial institution required to implement AML rules, including KYC and suspicious activity report requirements, must review its internal procedures and ensure full compliance with US law.
“Employees who know about violations need to consider whether they can confidentially and anonymously file a complaint and qualify for a financial reward. That’s the new reality institutions need to adjust to”, said Kohn.
Eric Young stressed that firms must consider upgrading their global network of compliance programmes, including how violations are reported, and their own protections for whistleblowers.
He added, “This should include investing meaningfully and continuously in appropriate compliance structures, skills, and surveillance and reporting regimes to ensure robust compliance, strengthen culture and shape the right conduct from top down.”
One thing is for sure, organisations across the world should take heed of the increased powers that the new Act has unleashed, or face the consequences, at potentially enormous cost.
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