BSA-AML Compliance Officers, take heed! A new whistleblower rewards program was approved by the U.S. Congress last week with important implications both for financial institutions and for foreign government officials trying to hide their stolen money in the United States.
The U.S. Kleptocracy Asset Recovery Rewards Act (the “Kleptocracy Act”) was filed as an amendment to the National Defense Authorization Act for 2021 (NDAA), a historic bill that introduces several significant reforms to anti-money laundering rules.
Among other provisions, the NDAA appoints the Financial Crimes Enforcement Network (FinCEN) to establish and maintain a beneficial ownership federal registry that banks may, in turn, consult when conducting customer due diligence requirements.
The Kleptocracy Act, in particular, will set up a whistleblower rewards program for people who report information to law enforcement leading to the seizure, forfeiture, and repatriation of foreign stolen assets.
Kleptocracy – the theft of public funds by corrupt government officials – thrives in lax environments that offer easy access to anonymous shell companies, luxury real estate & assets, and other money laundering facilitating mechanisms.
Kleptocrats flee their countries with the stolen funds when their grip on power collapses and lead opulent lives in exile.
About 10 years ago, the U.S. Department of Justice (“DOJ”) published the Kleptocracy Asset Recovery Initiative, which aimed to “redouble commitment on behalf of the United States Department of Justice to recover” assets obtained by foreign government officials through bribes and kickbacks.
Under this initiative, the DOJ targeted many corrupt officials through forfeiture actions, otherwise considered outside the scope of the Foreign Corrupt Practices Act (“FCPA”).
One relevant example would be the 2014 forfeiture of $480 million in corruption proceeds hidden in bank accounts belonging to the Nigerian dictator Sani Abacha and his co-conspirators – many of the bank accounts were in the United States.
The Kleptocracy Act aims to continue preventing financial institutions in the U.S. from hiding foreign officials’ stolen assets.
The U.S. Treasury Secretary will administer the rewards program, in consultation, as appropriate, with the Secretary of State, the Attorney General, and other relevant departments and agencies’ heads.
The Kleptocracy Act expands whistleblower protections and provides substantial monetary rewards (up to $5M) to whistleblowers who provide information on foreign government corruption that leads to successful asset recovery.
The U.S. recognizes that whistleblowers who come forward to expose foreign governmental corruption and kleptocracy often do so at significant risk to their safety and that of their immediate family. They may face retaliation from persons who exercise foreign political or governmental power.
As such, monetary rewards aim to provide an incentive to expose corruption and provide financial means to provide for their well-being and avoid retribution.
At present, the multitude of existing U.S. whistleblower rewards programs have minimal control over cross-border money laundering schemes. None of the existing rewards programs specifically provide monetary incentives for identifying and recovering stolen assets linked solely to foreign government corruption, as opposed to criminal prosecutions or civil or criminal forfeitures.
In parallel, the Kleptocracy Act aims to provide whistleblowers with protective measures, including asylum for the whistleblower and their immediate family.
Ineligible for the Rewards
Not every whistleblower will be eligible for a reward however, these two categories have a strong chance to be denied:
(1) An officer or employee of any entity of Federal, State, or local government or of a foreign government who, while in the performance of official duties
(2) an individual who knowingly planned, initiated, directly participated in, or facilitated the actions that led to assets of a foreign state or governmental entity being stolen, misappropriated, or illegally diverted or to the payment of bribes or other foreign governmental corruption. Suppose such individual is convicted of criminal conduct arising from the role described in the preceding sentence. In that case, the Secretary shall deny or may seek to recover any reward, as the case may be.
What does this signify for banks & other financial institutions?
1- This new rewards program is likely to attract would-be whistleblowers from abroad. Therefore financial institutions ought to keep track of their foreign activities.
2- There is always a risk that employees might blow the whistle directly to the Authorities rather than internally if they conclude they have information about foreign government corruption. On the other hand, the financial institution’s failure to alert the authorities about possible handling of stolen assets may expose the institution to penalties under the BSA.
Therefore, a culture of compliance is necessary – FIs ought to ensure that employees trust the reporting process, feel comfortable speaking up when facing suspicious activity and believe there will be proper handling of their concerns.
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