New law increases incentives for anti-money laundering whistleblowers—and prospects for funding
- Ken Epstein
- Investment Manager and Legal Counsel - United States
For many years, the incentive for employees at regulated financial institutions to blow the whistle on money laundering activities was capped at $150,000, an amount that was paid out only at the discretion of federal officials. But a new law enacted in January has significantly increased the amounts that whistleblowers may receive in connection with these cases, tying such awards to the level of monetary sanctions. This change in the law, which could translate into higher awards for whistleblowers, may help whistleblowers and their counsel find financial support from dispute funders for the costs of litigation and in some cases, early monetization of awards for the whistleblowers themselves. This is important because whistleblowers often find themselves unable to find work in their chosen profession due to their courageous choice to call out illegal activities.
The Anti-Money Laundering Act of 2020, passed as part of the omnibus National Defense Authorization Act, created a new program to be administered by the U.S. Department of the Treasury that provides mandatory awards to whistleblowers who provide information about money laundering activities in violation of the Bank Secrecy Act (BSA).
Under provisions of the Anti-Money Laundering Act, whistleblowers can now receive rewards of up to 30 percent of monetary sanctions that exceed $1 million. The actual amount of the award is set by the Secretary of the Treasury and will be determined based upon the significance of the information and degree of assistance provided by the whistleblower, as well as the Treasury Department’s interest in deterring such violations. While there is no minimum amount proscribed by statute, if this program is administered similar to the SEC and IRS whistleblower programs, the awards may be substantial.
To be eligible for an award, an individual must provide information voluntarily to their employer, the Department of the Treasury, or the U.S. Department of Justice; the information must be original in nature and lead to a successful enforcement action; and the end result of the enforcement action must be a recovery of more than $1 million.
If the past is any guide, the dramatic increase in the size of a potential award may trigger a corresponding rise in enforcement activity. Such an increase occurred in the wake of the creation of the SEC whistleblower program, for example, which was authorized under the Dodd-Frank Act in 2010.
The Dodd-Frank program may be instructive as to the potential size of awards that could be at stake under the Anti-Money Laundering Act. In its most recent annual report to Congress on the whistleblower program, the SEC noted that it paid out $175 million to 39 individuals in the 2020 fiscal year. And on Oct. 22, 2020 (just after the federal fiscal year’s close), the SEC issued a record $114 million to an individual, an amount more than double the previous largest award.
It is still unclear whether the Anti-Money Laundering program will reach the overall number of awards of the SEC program. Nevertheless, the potential for large payouts still exists. The universe of potential whistleblowers under the new law may be greater than Dodd-Frank. For instance, unlike Dodd-Frank, insiders who work in compliance roles—including in-house counsel—are eligible for whistleblower status and awards. So, too, are company “outsiders” who have independent knowledge of wrongdoing or who conduct an independent evaluation of publicly available data that had not been previously analyzed by the government.
A whistleblower may provide information about violations that have occurred, that are currently ongoing, or that will soon occur. Violations could include the failure of a financial institution to implement an effective overall compliance program; failures in specific components of a compliance program; or recurring or systematic violations of the Bank Secrecy Act.
How funding can help
While the new law provides a cause of action for workers who face retaliation in the wake of whistleblowing activity, individuals will still face major risks when informing the government of wrongdoing. Employees may encounter intimidation, termination, and loss of income—and years may pass before they receive an award for their information—if one is granted.
Their counsel can face considerable risks, as well. Whistleblower cases are often taken on a contingency basis, and a firm may need to make a multi-year, out-of-pocket investment before it sees a return.
Dispute funding can help bridge the gaps and assist individuals and the lawyers who represent them by providing financing that pays the legal fees and costs of expensive whistleblower litigation. Funding is non-recourse, which means there is no repayment obligation if the case is unsuccessful. And it can be obtained using an anticipated single case award as collateral, or using a portfolio of potential awards as collateral.
Depending on the circumstances, funding can help pay the living or business expenses of individuals while claims are pending, particularly in situations where a company’s retaliatory behavior has prompted financial difficulties. And for law firms, a large portion of out-of-pocket spend can be immediately recouped or paid on an ongoing basis as the case progresses, thus greatly reducing the potential risk to the law firm’s bottom line.
Because funders put substantial sums at risk in return for a percentage of the overall recovery, the case must be of a certain scale to attract their interest. Larger awards under the new Anti-Money Laundering Act could make it easier for whistleblowers and their counsel to meet basic criteria funders use to evaluate litigation investments.
At Omni Bridgeway, for instance, whistleblower cases must meet the following criteria:
• The case must have anticipated relator awards exceeding 10x the requested funding amount.
• The case must arise under U.S. federal or state whistleblower laws.
• The case must show a strong likelihood of government intervention.
• The case must have strong prospects of success for the whistleblower.
• The case must include opposing parties with a clear ability to pay.