Case Highlights Potential Protections for BSA Whistleblowers
A recent court opinion emphasizes the sensitive issues involved in terminating potentially difficult employees — or, from the employee’s or perhaps the government’s perspective, in terminating whistleblowers who were retaliated against for being willing to point out compliance failures. Although this competing dynamic applies across all industries, a recent opinion from the U.S. Federal District Court for the Eastern District of Louisiana, Kell v. Iberville Bank, addressed such a situation in the Anti-Money Laundering (“AML”)/Bank Secrecy Act (“BSA”) context, in which a bank’s former compliance officer sued her former employer for allegedly terminating her in retaliation for raising uncomfortable issues about claimed insider abuse and the alleged failure to file a Suspicious Activity Report (“SAR”).
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA“) forbids banks from terminating or discriminating against employees for providing information to federal agencies about a violation of law by the bank or its employees. 12 U.S.C. § 1831j. A whistleblower provision in FIRREA provides its own cause of action to the employee who is discriminated against. 12 U.S.C. § 1831j(b).
Under FIRREA, and even after finding that a protected disclosure was a contributing factor in an employee’s termination, a bank’s decision to terminate an employee is permissible if the bank demonstrates, by clear and convincing evidence, that it would have taken the same personnel action in the absence of the protected disclosure.
The Alleged Facts
In Kell, the plaintiff had been employed as the bank’s Regulatory Compliance Officer, responsible in part for the supervision and administration of the bank’s compliance with the BSA. After continuous excellent performance ratings, the bank promoted the plaintiff to Vice President. Then problems began.
On September 15, 2015, the President of the bank allegedly became aware of a $764,362 loss in the bank’s insurance division that was not collectible, and which a bank manager had been attempting to mask. Although — according to the plaintiff — the bank therefore was required under the BSA to file a SAR within 30 days regarding such “insider misconduct,” the plaintiff was not notified of the loss until October 19, 2015. Worse yet: upon notifying the plaintiff, the President told the plaintiff not to file a SAR, withheld information about the losses, and started criticizing the plaintiff’s performance. During this time, the bank allegedly also hired another employee to replace the plaintiff as the BSA compliance officer, and “reminded” the plaintiff that her employment was “at-will”.
On November 16, 2015, FDIC regulators began an exam at the bank. During its exit interview for the exam, regulators informed the bank that it was not completing its obligations under the BSA in a satisfactory manner. Specifically, regulators found that SARs were not being filed timely, which contributed to the evaluator’s conclusion that “[t]he BSA Office is unable to devote sufficient time to BSA-related duties because of other significant duties at the bank.”
Following the exam, the bank placed the plaintiff on a 90-day probation, purportedly due to the bank’s poor performance during the exam. That same day, the plaintiff called the FDIC and claimed that she believed that the bank was engaging in a cover-up regarding the insurance losses. Following this phone conversation, the plaintiff emailed the FDIC over 400 pages of documents concerning the loss in the insurance division. A week later, the bank’s internet technology (“IT”) manager discovered that the plaintiff had stored these sensitive documents in the Cloud, a violation of bank policy. The plaintiff was subsequently fired “because [Plaintiff] breached the Bank’s IT policy while on probation as a result of the FDIC’s . . . criticism of her performance as the bank’s BSA officer.”
The Legal Claim
The plaintiff filed suit for illegal retaliation for providing information to the FDIC. The bank moved for summary judgment.
As noted, under the FIRREA, even if a protected disclosure was a contributing factor in an employee’s termination, a bank may justify that termination if the bank shows, by clear and convincing evidence, that it would have taken the same personnel action in the absence of the protected disclosure.
In Kell, the court denied summary judgment because the bank was unable to show that it would have taken the same personnel action without the protected disclosure. Specifically, the court noted that the plaintiff had proven a prima faciecase due to the temporal proximity and circumstantial evidence that gave rise to the reasonable inference that the President knew of the plaintiff’s disclosure and that this was the main reason for termination. Specifically, the permissible inference was established by:
- The plaintiff’s continuous excellent performance reviews until the insurance loss;
- The timing of the conversation with the FDIC and the subsequent termination;
- The President mentioned the FDIC at the plaintiff’s employment probation meeting; and
- The likelihood that the President saw the contents of the documents in the Cloud allegedly demonstrating the bank’s wrongdoing.
Importantly, the plaintiff’s alleged violation of the bank’s IT policy was insufficient for the bank to obtain summary judgment, under the particular circumstances. As the court observed:
Defendant’s proffered reason for firing Plaintiff is that Plaintiff, while on probation, violated the bank’s IT policy by placing documents on the cloud. Storing these documents on an outside, unauthorized server was a security violation, which Plaintiff admits. . . . However, Defendant makes no attempt to address the fact that these were the same documents that Plaintiff sent to the FDIC in her whistleblowing e-mail.
The bank was unable to overcome the plaintiff’s prima facie case, at least for the purposes of a summary judgement motion, because the parties reasonably disputed whether the bank had terminated the plaintiff for the act of placing confidential bank information in Cloud, or because of the content of that confidential information, which the plaintiff disclosed to regulators. The court further explained that, “Unlike in the cited cases where the employers had persuasive reasons for firing that were independent of any whistleblower activity, here it is unclear who is at fault for the bank’s poor performance on the BSA examination.”
In contrast, the court noted that employers have been granted summary judgment in other cases when the employer was able to establish:
- The terminated employee received multiple warnings and bad performance reviews prior to termination;
- The termination and protected disclosure were not in temporal proximity;
- Evidence that the terminated employee was not performing satisfactorily for an extended period of time; and
- Affidavits the employee clashed with other employees and managers prior to termination.
Finally, the court dismissed the plaintiff’s whistleblower claim under the BSA, at 31 U.S.C. § 5328, which provides that it “shall not apply with respect to any financial institution or nonfinancial trade or business which is subject to section 33 of the Federal Deposit Insurance Act.” The court observed that this carve-out applies in cases like the case at hand, where this BSA whistleblower provision would be redundant with 12 U.S.C. § 1831j.
This is hardly the first time that a court has addressed a whistleblower claim relating to AML/BSA. Indeed, we previously blogged about a whistleblower complaint filed against another bank by its former internal auditor, relating to what the whistleblower believed was the bank’s wrongdoing when dealing with a loan customer in potential violation of the BSA, and in relation to responding to a subpoena from the Securities and Exchange Commission. However, the Kell case is particularly instructive because it provides a competing description of “dos” and “don’ts” in regards to considering the termination of an employee who may purport to possess and have shared information regarding regulatory violations. Ultimately, of course, it all redounds to corporate motive: was an employee terminated because she was a poor employee, or instead because she had an unacceptable habit of not overlooking possible legal violations?