5 Things to Know About the New AML Whistleblower Law

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Among a bank board of directors’ many obligations is the responsibility to assure the bank complies with Bank Secrecy Act and other anti-money laundering laws and regulations.

This includes providing oversight for senior management and the BSA compliance officer, staying abreast of internal AML developments and reporting within the bank, and considering external market factors and regulatory developments. But even in a regulatory environment where penalties for BSA/AML violations have increased in amount, frequency and reputational importance, some boards are slowly reacting to recent Congressional legislation designed to further incentivize bank employees to blow the whistle on perceived or actual AML lapses. Here are five things bank boards need to know one year after the implementation of the Anti-Money Laundering Act of 2020 (AMLA).

1. Congress uncapped whistleblower awards
Congress enacted the AMLA in January 2021, which significantly revised the existing whistleblower provisions of the BSA and sought to bolster AML enforcement. Prior to the AMLA, the BSA’s whistleblower provisions were sparse and rarely invoked. The prior law allowed whistleblower rewards for information relating to a violation of the BSA, but capped the award amount at $150,000, which contributed to the law being underutilized. The new law removed that cap; now, whistleblowers who voluntarily provide original information to their employer or the departments of Treasury or Justice could collect up to 30% of amounts collected in actions where over $1 million in sanctions are ordered. As the industry knows, 30% of recent fines is substantial. If a whistleblower qualified in connection with the three 2021 actions from the Financial Crimes Enforcement Network, or FinCEN, their awards could have amounted up to $2.4 million, $30 million and $117 million, respectively.

2. Looking to prior precedent.
The new AML whistleblower program is largely modeled on the Securities and Exchange Commission’s successful program established under the Dodd-Frank Act, which may provide a window into the future of AML enforcement. The SEC’s program has been a resounding success over the past 10 years, resulting in more than 52,400 tips as well as $1.2 billion awarded to 238 individuals. According to the SEC’s recent Annual Report to Congress, fiscal year 2021 was a record-breaking year for the program in terms of tips received and amounts awarded to whistleblowers: $564 million was awarded to 108 individuals.

3. Employees can blow the whistle to their managers
Unlike the SEC’s program, a “whistleblower” under the new AML program includes employees who provide information to an employer — including as a part of their job duties — in addition to those who report to Treasury or DOJ. This means employees can blow the whistle if they observe compliance failures, and everyday interactions between management and financial intelligence unit investigators could be deemed whistleblower tips that trigger anti-retaliation protections and a possible award.

4. Tips are already being filed
Even though FinCEN has not issued rules implementing this new whistleblower law, tipsters do not need to wait to file a complaint with their employer or the government. Banks should react accordingly. In fact, it was recently reported that a tip has already been made to FinCEN detailing a wide-ranging money laundering scheme, and one lawyer has reported several inquiries received from internal compliance personnel interested in blowing the whistle. There is also recent precedent that the government does not need to wait until regulations are written to provide awards: In November 2021, the National Highway Traffic Safety Administration announced a $24 million award — its first ever — even though the agency is still writing its rules. In other words, the doors are open to AML whistleblowers now.

Number of SEC Whistleblower Tips

The table below shows the number of whistleblower tips received by the SEC on a yearly basis since the inception of the whistleblower program. (Source: SEC 2021 Annual Report to Congress, Whistleblower Program)

5. Boards should not wait to act
Boards should consider the implications and the expanded legal risk of the AMLA whistleblower law on their existing whistleblower programs. Among other steps that can be taken now, boards should provide oversight to senior management in:

  • Developing enterprise-wide training tailored to specific positions within the bank, including for directors, that covers how to identify a tip for purposes of the new AML law, how to respond to an internal whistleblower and best practices to protect the bank from retaliation lawsuits.
  • Reviewing and updating policies and procedures for internal whistleblowers.
  • Assessing internal reporting structures, including hotlines and other channels.
  • And triaging recent internal tips and conducting reviews of the response, where appropriate.

Five Trends in AML Compliance in 2021

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This year has been a significant and active one in the world of anti-money laundering (AML) compliance. Digital payments are taking the world by storm, regulators are cracking down on new types of fraud and the U.S. government has pledged to be more proactive in enforcing AML laws.

Regulators have not been idle, issuing fines to banks around the globe totalling $10.6 billion in 2020. But it hasn’t been enough to deter fraud rates. What can banks expect for AML regulations for the remainder of 2021, and how can they prepare? Here are the main trends in AML compliance of 2021, and their impact on financial institutions.

1. Much-Needed Updates From Anti-Money Laundering Act of 2020
The Anti-Money Laundering Act of 2020 (AMLA) is arguably the most transformative AML law in a generation. AMLA amends the Bank Secrecy Act (BSA) for the first time since 2001 and modernize it for today’s money-laundering and fraud climate. For several years, regulators have focused on modernizing AML compliance programs at banks, encouraging innovation and improving the coordination and transfer of information between financial institutions. AMLA could have a significant impact toward these goals when coupled with regulators’ ongoing efforts.

Financial institutions are now required to have AML officers who can quickly incorporate reports into their transaction monitoring programs. It brings even more pressure for banks to modernize their operations through better technology. AMLA also allows the U.S. to subpoena records related to any account at foreign banks that maintain correspondent accounts in the United States, enabling the regulators and the government to fight money launderers who seek to take advantage of the lack of communication between countries to commit international crimes.

2. Tightening UBO Laws
Under the AMLA, the Financial Crimes Enforcement Network (FinCEN) requires certain companies to file information on the beneficial owner of the reporting company, along with the identity of the person who has applied to form or register the company. This is part of the overarching trend of gathering more information on your customers.

Customer due diligence is now a more complex and lengthy process to gather the right types of information. This goes hand in hand with the Corporate Transparency Act (CTA), which requires financial institutions to verify customer information against FinCEN’s Ultimate Business Owner (UBO) registries. Verifying UBO information can be costly and time-consuming, especially since most countries have not published public ownership registers.

3. Better Software, Better Tech
Regulators around the world are pushing banks to use better software and incorporate emerging technologies. As financial fraudsters get more intelligent with their approaches, the only way for banks to fight back is with technology that matches those capabilities and can adapt to new threats. Compliance teams are increasing in size and expense. The benefit of better software is that many of these processes can become automated, which helps keep costs down.

4. Crypto Regulation
The novelty of virtual currencies allows fraudsters use them to their advantage while escaping regulators’ purview. According to Chainanalysis’ 2021 Crypto Crime Report, 270 cryptocurrency addresses received $1.3 billion in illicit digital coins in 2020.

How is the U.S. approaching the regulation of cryptocurrencies? Several agencies have been involved with the regulation of virtual assets, including the U.S. Securities and Exchange Commission, Commodity Futures Trading Commission and FinCEN. From an AML perspective, the biggest change has been to require cryptocurrency exchanges to complete a Know-Your-Customer (KYC) process for every customer.

5. SAFE Banking Act
The SAFE Banking Act aims to normalize cannabis banking and reduce the risk of liability for banks that offer services or loans to MRBs (marijuana-related businesses). To date, the SAFE Act has not been passed into law, and payment processing remains a confusing space for banks and MRBs alike. Under the administration of President Joseph Biden, however, there is hope that the industry will see a marijuana policy that reduces confusion at the federal level.

What are the overarching trends this year? AML laws are encouraging financial institutions to be more transparent, implement better technology and build more comprehensive customer profiles. Banks that want to be proactive will need to ensure their policies are up-to-date with the new regulations, their infrastructure can integrate more data sources and their KYC processes are automated, while also offering a great customer experience.