New Defense Bill Creates Incentives for Anti-Money Laundering Whistleblowers

The National Defense Authorization Act (NDAA) proposes an overhaul of the Bank Secrecy Act, which would incentivize anti-money laundering whistleblowers by offering enhanced protections and awards. The NDAA secured bipartisan support from the House and the Senate but was vetoed by the president in mid-December. Now, both chambers will likely vote to override the veto.

The 4,517-page bill authorizes $740 billion for defense spending over the next fiscal year. According to Majority Leader Mitch McConnell, the Senate will vote on overriding Donald Trump's veto on December 29.

The expansion of our nation's defense portfolio may have made more headlines than the bill's anti-money laundering (AML) provisions, but the latter is nonetheless significant. As recent investigations into the funding of terrorism have shown, AML legislation can significantly impact national security.

When the Bank Secrecy Act was passed, the world was a very different place. Today’s geopolitical forces and emerging threats are very dissimilar to what our nation faced 50 years ago. Money launderers have found new paths for ill-gotten funds, terrorism is rampant, and even U.S. defense contractors have been found to finance terrorist acts.

The NDAA vows to "bring the United States into compliance with international anti-money laundering and countering the financing of terrorism standards." For example, to counter the use of shell companies to launder assets, it requires certain companies doing business on U.S. territory to report information about their beneficial owners to FinCEN.

"The new legislation's reporting requirements are welcome," whistleblower attorney Steven Halperin remarks, "but these types of measures alone will not stop money laundering, and the NDAA proposes the creation of a new whistleblower program to encourage insiders to report AML violations."

A nationally recognized authority on whistleblower litigation, Halperin is the author of a guide for SEC whistleblowers. "The new AML legislation will greatly enhance America's anti-corruption regulatory framework," Halperin comments. "The Act's whistleblower provisions will close enforcement gaps in the landscape of whistleblower programs run by various agencies. Neither the IRS nor the SEC has sufficient jurisdiction over cross-border money laundering schemes. By authorizing the payment of larger whistleblower awards, the NDAA will encourage many tipsters to come forward. Blowing the whistle about AML violations can be dangerous, and rewards can be critical to help informers overcome adversity."

The new legislation offers enhanced protections for AML whistleblowers, who often live in fear of retaliation. The financial industry has been known to marginalize informers, who often find it hard to secure a new position after being fired by their employers.

Under the new NDAA's AML provisions, whistleblowers who provide original information about Bank Secrecy Act violations to the Treasury Department, the Department of Justice, or their employer may be eligible for awards whenever the resulting monetary sanctions surpass $1 million. This rule mimics the SEC whistleblower program. Like SEC whistleblowers, AML whistleblowers can report misconduct anonymously.

One crucial aspect of the new regulations involves award percentages. Under the current legislation, the maximum award an AML whistleblower can receive is $150,000. When the NDAA is signed into law, there will be no cap on awards, and successful tipsters will receive up to 30 percent of the monetary penalties collected. "The problem," Halperin says, "is that there is no minimum award, so it would be perfectly legal for the Treasury to award $1,000 to a whistleblower who helped recover $100 million. This will have to change eventually. It is simply not good enough to prevent AML violations."

One section of the new bill that will interest would-be whistleblowers is the one that refers to anti-retaliation protections. Under the Act, whistleblowers cannot be demoted, suspended, or blacklisted for speaking out. Legal remedies are also available for retaliation victims, who can sue for reinstatement, attorney fees, compensatory damages, and double back pay with interest.

As it enhances protections for whistleblowers, the new bill also includes stricter penalties for wrongdoers. BSA rule violators will have to pay an additional fine equal to the profits gained through their misconduct. This fine will be tripled in the case of repeat offenders. In the case of egregious violations, the individuals involved will be barred from integrating the board of directors of a U.S. financial institution for 10 years.

The success of the SEC's whistleblower program over the past decade has proven that awards and protections can result in massive recoveries for both the government and wronged investors. Detecting AML violations requires years of diligent work. Whistleblowers must sometimes remain on their jobs for years after learning about misconduct to gather sufficient evidence. If the House and the Senate effectively override the presidential veto, insiders will have new tools to aid prosecutors in their money-laundering investigations.

"It is not an easy decision to quit a lucrative job in finance to embark on the uncertain journey of trying to bring money launderers to justice," Halperin comments. For the seasoned whistleblower attorney, the new legislation is only the beginning. "As soon as new would-be whistleblowers see that others have managed to inform prosecutors, remain anonymous, and receive a significant award, more and more individuals will come forward. I commend legislators for passing the bill, but they will certainly need to guarantee a minimum award percentage if they want tipsters to risk their livelihood to expose AML violations."

If you have inside information about an employer’s fraud against the state or federal government, speak to a knowledgeable attorney at Halperin Bikel, PLLC at 929.290.1266 or online. We have recovered more than $10 billion in whistleblower cases. We can provide the advice and guidance necessary to present a compelling case that maximizes your potential reward.


Steve Halperin

New York trial attorney Steve T. Halperin is a well-known litigator with extensive knowledge of whistleblower laws and the New York False Claims Act. He has 28 years of experience as one of New York’s top tier attorneys. From the Manhattan offices of HalperinBikel, Steve’s whistleblower cases can run the gamut from lawsuits against healthcare. Whistleblowers: A New Yorker’s Step By Step Guide systems and providers cheating on New York Medicaid to private companies providing worthless services, or false billings by government contractors. With hundreds of winning verdicts and favorable settlements in healthcare and corporate cases, attorney Halperin’s meticulous preparation, courtroom acuity, and client-centered professionalism create remarkable outcomes.

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