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Clifford Chance

Clifford Chance

Regulatory Investigations and Financial Crime Insights

Expansion of AML Whistleblowing to Include Sanctions Whistleblowing

Pending legislation opens door to more bounties for tips on sanctions violators anywhere in the world.

Congress is getting closer to enacting whistleblower bounties for reports of OFAC sanctions violations by amending the Anti-Money Laundering Act of 2020 ("AMLA"), which had been enacted previously to enhance the bounty program for reports of AML violations. The changes would also lead to the creation of a Financial Integrity Fund (the "Fund") to be sourced not from appropriations, as is the case under existing AMLA provisions, but instead through deposits to the Fund from the proceeds of enforcement penalties collected under the AML and sanctions laws. The changes would also establish minimum amounts for such awards.

The pending statutory changes may be the reason the US Treasury Department and the Financial Crimes Enforcement Network ("FinCEN") have been holding off on issuing regulations to implement the whistleblowing provisions of AMLA as originally drafted. Once the legislation passes, the FinCEN rules should have been developed enough by now to be proposed in fairly short order. FinCEN Acting Director Himamauli Das referenced work on drafting the regulations during his April 28, 2022 testimony before the House Committee on Financial Services and a Notice of Proposed Rulemaking was expected to be issued in August 2022. However, given the proposed inclusion of bounties for sanctions violations, it is likely that FinCEN and the Office of Foreign Assets Control ("OFAC"), both under the US Treasury Department, will need to issue separately tailored regulations, and it remains to be seen precisely how Treasury will handle the situation.

With respect to the financial sector, FinCEN will need to take into account the fact that most US financial institutions are already required to report suspicious activity to FinCEN under the Bank Secrecy Act. US persons also are required to report instances of rejecting and blocking sanctioned property to OFAC. In this case, FinCEN and even OFAC would benefit from robust public comment on any proposed rules to avoid unintended consequences. Depending on how the programs are implemented, whistleblowing incentives may negatively impact certain aspects of AML and sanctions compliance regimes, including the voluntary sharing of information allowed among financial institutions in support of suspicious activity reporting.

The pending language in H.R. 7195 and S. 3316 will modify 31 USC 5323 to add government action under the International Emergency Economic Powers Act ("IEEPA"), the Trading with the Enemy Act ("TWEA") and the Foreign Narcotics Kingpin Designation Act to the list of covered judicial or administrative actions for which whistleblowing may be rewarded. In addition to domestic persons, persons outside the United States, including non-US citizens, will be eligible to receive awards for tips to their employer, to Treasury, or to the US Department of Justice that include original information leading to penalty assessments of over $1 million. Per the proposed changes, the amounts awarded to one or more informants cannot be less than 10 percent of the penalty amount derived as result of the penalty assessed on a violator based on the information provided. Note that the inclusion of IEEPA means that the whistleblowing bounties could also be available under any federal program authorized and enforceable under the President's emergency economic powers, as is the case with respect to certain export control restrictions.

The potential under AMLA, as amended, for incentives to anyone in the world for providing information leading to enforcement action by the US government may accelerate whistleblowing in several jurisdictions. The inclusion of sanctions violations increases the need for companies beyond the financial sector to be prepared for the increased likelihood of internal whistleblowing or whistleblowing directly to the US government by those seeking to obtain a bounty, which may impact the risk calculus on voluntary disclosure decisions.

In the EU, companies will have to comply with complex requirements on how they handle whistleblowing, while maintaining required confidentiality and enterprise-wide best practices. In March 2022, the EU Commission announced the EU Sanctions Whistleblower Tool, which can be used to report EU sanctions violations as well as attempts to circumvent the EU sanctions regulations. Unlike the proposed US program, the EU program does not provide financial awards to whistleblowers. Information from overseas whistleblowers may also lead to use of US subpoenas applicable to non-US banks and expanded under other provisions of AMLA. See our previous briefing here.

For further discussion of the potential impact of these whistleblowing provisions on compliance programs, see here.

Clifford Chance's Sanctions and Global Whistleblowing Intersection Team is able to discuss with clients a number of difficult scenarios they may face in the operation of AML and sanctions compliance programs, and in connection with various internal investigation requirements, confidentiality requirements, worker protection requirements and enterprise-wide governance best practices considering the different, and often conflicting, laws in the jurisdiction(s) where they operate. While all industries are affected by whistleblowing legislation, particularly with the potential addition of awards for tips on sanctions on violations, the financial sector may face added complexity given the variety of circumstances in which financial transaction records may be the basis for an informant seeking a reward from the US Government.

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