iToday the White House issued an anti-corruption directive to federal agencies to prioritize efforts to combat corruption, including money laundering. The directive recognizes that “[c]orruption threatens United States national security, economic equity, global anti-poverty and development efforts, and democracy itself” and requires federal agencies to develop recommendations to effectively prevent and counter corruption. To win this important battle against corruption, the Biden Administration should utilize whistleblower rewards programs at federal agencies to encourage whistleblowers to report bribery, money laundering, and other fraud schemes that would otherwise go undetected. And the Administration and Congress should provide civil and criminal law enforcement agencies with the resources required to investigate whistleblower tips and prosecute the violations of anti-corruption and anti-money laundering laws that whistleblowers courageously step forward to report.
Costs of Corruption and Money Laundering
The anti-corruption directive identifies the substantial burden that corruption imposes on the US economy and U.S. national security:
In financial terms alone, the costs of corruption are staggering. It has been estimated that acts of corruption sap between 2 and 5 percent from global gross domestic product. While such costs are not evenly shared worldwide, the abuse of power for private gain, the misappropriation of public assets, bribery, and other forms of corruption impact every country and community. The proceeds of these acts cross national borders and can impact economies and political systems far from their origin. Anonymous shell companies, opaque financial systems, and professional service providers enable the movement and laundering of illicit wealth, including in the United States and other rule-of-law-based democracies.
Indeed, several studies cited in a DOJ and SEC guide to the FCPA found that bribery increases the cost of doing business globally, inflates the cost of government contracts in developing countries, introduces significant uncertainty into business transactions, and puts honest businesses that do not pay bribes at a disadvantage. Whistleblower reward programs combat corruption by attracting high-quality tips that enable the government to uncover bribery, money laundering, and other fraud.
Whistleblowers Can Play a Critical Role in Combating Money Laundering
One of the specific objectives of the Biden Administration’s anti-corruption initiative is to “[c]ombat all forms of illicit finance in the United States and international financial systems, including by robustly implementing Federal law requiring United States companies to report their beneficial owner or owners to the Department of the Treasury; [and] reducing offshore financial secrecy.” As the criminal enterprises that foment corruption often launder their ill-gotten gains, incentivizing whistleblowers to report money laundering schemes is critical to the fight against corruption.
Fortunately, earlier this year, Congress enacted the Anti-Money Laundering Act of 2020 (AMLA), a comprehensive overhaul of U.S. anti-money laundering laws that includes a provision establishing a whistleblower reward program at the Department of the Treasury.
Under Section 6314 of the AMLA, a whistleblower who voluntarily provides information about a violation of the Bank Secrecy Act (BSA) can obtain an award of up to 30 percent of collected monetary sanctions that Treasury recovers in a judicial or administrative action brought under the BSA that results in collected monetary sanctions exceeding $1,000,000. The AMLA whistleblower incentive provision encourages whistleblowers to provide “original information,” i.e., information that is derived from the independent knowledge or analysis of a whistleblower or is not known to Treasury or Justice departments from any other source, unless the whistleblower is the original source of the information. A whistleblower can report an AML violation anonymously and qualify for an award where they are represented by counsel.
The new AMLA whistleblower reward program can be an effective tool to combat money laundering, but as reported in a recent Wall Street Journal article, the AML whistleblower program is struggling to get off the ground because it lacks some of the key features of the SEC whistleblower program. For example, the AMLA whistleblower rewards provision lacks a minimum award percentage and a funding mechanism to pay whistleblower awards from sanctions collected in AML enforcement actions. And the whistleblower protection provision in the AMLA includes a massive loophole that excludes from the ambit of protection employees of FDIC-depository institutions, i.e., employees of most U.S. banks. To effectuate the Biden Administration’s anti-corruption initiative, Congress should amend the AMLA to create a more effective whistleblower program.
The SEC Whistleblower Program Has Proven Successful in Combatting FCPA Violations
The Biden Administration’s anti-corruption initiative aims to bolster the capacity of domestic and international institutions and multilateral bodies to promote financial transparency, strengthen financial institutions’ frameworks to prevent corruption in development finance projects, and combat money laundering, illicit finance, and bribery. The SEC whistleblower program has already proven to be a critical tool to combat bribery in that whistleblower tips to the SEC have led to some of the largest FCPA enforcement actions in the past decade.
Under the SEC Whistleblower Program, the SEC will issue awards to whistleblowers who provide original information that leads to enforcement actions with total monetary sanctions (penalties, disgorgement, and interest) in excess of $1 million. In exchange for the valuable information, a whistleblower may receive an award of between 10% and 30% of the total monetary sanctions collected in an FCPA enforcement action. The whistleblower can get an award not only from the monetary sanctions collected by the SEC, but also from sanctions collected by the Department of Justice in a related action. The SEC permits whistleblowers to submit information anonymously to the SEC if represented by an attorney.
Enforcement actions taken based in part on whistleblower tips have resulted in orders for more than $3.5 billion in sanctions and the SEC has paid approximately $928 million to whistleblowers and has attracted more than 40,000 tips, including tips from individuals in 70 countries outside of the United States, as well as from every state in the United States.
The FCPA prohibits the payment of bribes to foreign officials to assist in obtaining or retaining business. The prohibition applies to:
- U.S. persons;
- U.S. and foreign public companies that are listed on the stock exchanges in the United States or that are required to file periodic reports with the SEC; and
- certain foreign persons and companies that are acting while in U.S. territory.
Courts have interpreted “foreign officials” broadly. For example, employees of State-owned or State-controlled entities are considered foreign officials under the FCPA.
The FCPA also requires issuers to maintain adequate internal controls that provide reasonable assurance that transactions are executed and that assets are accessed and accounted for in accordance with management’s authorization. Common violations of the FCPA internal-control provision include:
- falsifying documents to conceal bribery payments;
- fraudulently mischaracterizing bribes as normal business expenses;
- overbilling with an understanding that some of the payment is a bribe; and
- inappropriate hiring practices, such as hiring candidates solely based on referrals by client executives and government officials.
The SEC whistleblower program will continue to attract high-quality tips that enable the SEC and DOJ to investigate and prosecute FCPA violations.
Whistleblowers Can Supercharge the Battle Against Corruption
As the Biden Administration develops a strategy to significantly bolster the ability of the U.S. government to combat corruption, it should assess how whistleblower rewards programs can significantly enhance the ability of the government to identify bribery, money laundering, and other forms of fraud that undermine democracy and civil society both domestically and internationally.
