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The Anti-Money Laundering Act (AMLA): Defending Whistleblower Claims in the Financial Services Industry

This article first appeared in the Banking Law Committee Journal. We invite you to read the rest of our Spring 2021 Edition.

On January 1, 2021, Congress enacted the Anti-Money Laundering Act (AMLA). The AMLA establishes new whistleblower protections for employees of financial services institutions. General counsel, employment attorneys, and human resource professionals need to be aware of these changes.

In recent years, the United States has seen many compliance personnel bring retaliation and whistleblower claims against their employers. The actions of financial institutions with respect to their compliance personnel are often under a microscope, as these institutions may be operating under a Consent Decree (or the threat of a Consent Decree) by virtue of regulators’ concerns about compliance with risk-related laws and regulations.

Nevertheless, while courts (and regulators) are protective of whistleblower rights, they also understand and are respectful of an employer’s right to remove personnel when the employer can demonstrate that the employee is indeed incompetent or insubordinate, and  may even be an impediment to effective regulatory compliance.

The challenge for a financial services employer, then, is to establish that discipline against an employee in a compliance role was based on the employee’s incompetence or other inappropriate behavior, and that any whistleblowing activity he or she engaged in was not a consideration.

1. Principal Financial Services-Related Whistleblower Laws

A. Bank Secrecy Act

The Bank Secrecy Act (“BSA”), 31 U.S.C. 5323 et seq., prohibits financial institutions from discharging or otherwise discriminating against an employee because the employee (or any person acting pursuant to the request of the employee) provided information to any federal supervisory agency regarding a possible violation by the financial institution or any director, officer or employee of the financial institution of certain specified laws. The BSA also authorizes government payments to whistleblowers who provide original information leading to the government’s collection of fines, civil penalties or forfeitures relating to BSA violations.

The BSA, prior to passage of the AMLA, protected only complaints to the government, as opposed to internal complaints. Any employee or former employee has two years from the date of the alleged retaliatory act to file a civil complaint in federal district court. Remedies include reinstatement, compensatory damages, and any other “appropriate actions” to remedy the past discrimination.

These protections do not apply to any employee who deliberately causes or participates in the alleged violation, or who knowingly or recklessly provides substantially false information in the employee’s report. Further, these protections do not apply to FDIC insured banks.

Pre-AMLA, the BSA capped government payments at $150,000, however, and affords the Treasury Department discretion in deciding whether to issue an award in any amount up to that limit. These aspects have curtailed the impact of the BSA on money-laundering enforcement and made it much less effective than the bounty program established by the SEC under the Dodd-Frank Act (DFA).

B. FDIA

The Federal Deposit Insurance Act (“FDIA”) provides that no Federal banking agency, Federal home loan bank, Federal reserve bank, or any person who is performing, directly or indirectly, any function or service on behalf of the [FDIC] may discharge or otherwise discriminate against any employee with respect to compensation, terms, conditions, or privileges of employment because the employee (or any person acting pursuant to the request of the employee) provided information to any such agency or bank or to the Attorney General regarding any possible violation of any law or regulation, gross mismanagement, a gross waste of funds, an abuse of authority, or a substantial and specific danger to public health or safety. 31 U.S.C. § 5328

C. FIRREA

The Financial Institutions Reform, Recovery, and Enforcement Act, 12 U.S.C. § 1831k (“FIRREA”), enacted during the savings and loan crisis of the late 1980s, permits a whistleblower to file a declaration with the U.S. Department of Justice (DOJ) describing one or more violations of FIRREA “affecting” a depository institution insured by the FDIC or any other agency or entity of the U.S. The declaration is not filed in court and is kept confidential by the DOJ for at least one year (and maybe longer). The DOJ is charged with investigating and (if successful and eligible for an award) the whistleblower can receive 20%-30% of any recovery up to the first $1 million recovered, 10%-20% of the next $4 million recovered, and 5%-10% of the next $5 million recovered.

In a FIRREA case, the Attorney General also has the discretion to award a whistleblower a portion of any criminal recovery under FIRREA, in addition to or instead of a civil penalty.

D. Dodd Frank

The Dodd-Frank Wall Street Reform and Consumer Protection Act, 15 U.S.C. § 78u-6(a)(6), protects whistleblowers who provide information regarding (or cooperate in the investigation of) any potential violation of U.S. securities laws. An employer may not discharge, demote, suspend, threaten, or harass, directly or indirectly, or in any other manner discriminate against an individual based on his or her whistleblowing. 

Dodd-Frank only protects the employee against retaliation if the federal violation falls within the SEC’s jurisdiction. Examples of violations that fall within the SEC’s jurisdiction include accounting fraud, providing false information, insider trading and other violations of securities law. The statute of limitations is six years. Remedies include reinstatement, double the back pay owed, plus interest, reasonable attorneys’ fees, litigation costs, and expert witness fees.

E. Sarbanes Oxley

The anti-retaliation protections of the Sarbanes-Oxley Act (“Sarbanes Oxley” or “SOX”) protect employees of public companies[1] against retaliation in the terms and conditions of employment as a result of their providing information, causing information to be provided, or otherwise assisting in an investigation of alleged violations of mail fraud, wire, radio, or television fraud, bank fraud, securities fraud, any rule or regulation of the Securities and Exchange Commission (“SEC”), or any provision of federal law relating to fraud against shareholders. 18 U.S.C. § 1514A(a)(1)

To be protected, an employee must provide such information or assistance to, or the investigation must be conducted by, a Federal regulatory or law enforcement agency; any member or committee of Congress; or a person with supervisory authority over the employee (or other such person working for the employer who has authority to investigate, discover, or terminate misconduct).

An employee is not required to demonstrate that a violation has actually occurred. Rather, in order to be protected, an employee must demonstrate that he or she “reasonably believes” that a violation is occurring.

In Lawson v. FMR LLC, 134 S. Ct. 1158 (2014), the Supreme Court held that SOX may also provide whistleblower protection to employees of private contractors of publicly traded companies and their subsidiaries. Since Lawson, courts have generally limited the ruling’s application, holding that the contractor must have been integrally involved in the transaction to be covered by SOX.[2]

F. Federal False Claims Act and New York False Claims Act and the New York False Claims Act

The federal False Claims Act prohibits the knowing submission of false or fraudulent claims to the United States, or to a third party if the government has provided a portion of the money or will reimburse the third party. 31 U.S.C. § 3729. The application of this statute depends on the degree to which a bank is engaged in business with the federal government. Banks with government insured loans are covered by the FCA.

The NY False Claims Act closely tracks the federal FCA. It imposes penalties and fines on individuals and entities that file false or fraudulent claims for payment from any state or local government. N.Y. Fin. L. 91

2. Burdens of Proof

Generally speaking, a plaintiff in a whistleblower retaliation claim, a plaintiff must show that: 1) he or she was retaliated against for reporting inappropriate activity; 2) he or she reported that information to the employer and/or the government, depending on the particular statute’s purview; 3) the disclosure was required or protected by that law, rule or regulation within the SEC’s jurisdiction. Further, the employee must establish that he or she had a subjectively and objectively reasonable belief that the conduct in question violated the law.

If a Bank has entered into a consent decree, and if the compliance whistleblower raises issues around alleged inappropriate activity that was the subject of the consent decree, it is likely that a court would grant that the employee indeed had both a subjectively and objectively reasonable belief that unlawful conduct took place.

In most instances, an employee need only establish that his or her protected activity was a contributing factor, not necessarily a motivating factor, to the adverse employment action. The words “contributing factor” mean any factor which, alone or in connection with other factors, tends to affect in any way the outcome of the decision.

On the other hand, an employer can normally avoid liability if it can establish by “clear and convincing” evidence that it would have taken the same adverse action against a complainant absent his or her protected activity. Thus, even if the employee can establish that he or she was retaliated against in violation of these laws, the employer can prevail if it demonstrates that it would nevertheless have taken the same action against the employee because of conduct unrelated to their whistleblower activities.

In essence, this reverses the normal burden of proof under discrimination actions in which the burden always remains on the plaintiff.

Regardless of the test, for an employer to prevail in a whistleblower claim, it will need to establish that it took adverse action against the alleged whistleblower for reasons unrelated to any protected whistleblower activities in which she may have engaged. Instead, the employer will need to argue that any disciplinary action the Bank takes taken against the employee was based upon job performance problems or other non-protected activities.

Depending on the particular statute, a whistleblower who prevails in a retaliation claim can recover lost wages, the value of benefits, attorney’s fees, expert witness fees, compensation for emotional distress, punitive damages, liquidated damages, and, under some statutes, a percentage of any recovery the Government obtains in a criminal prosecution against the employer. Additionally, a court can order a terminated employee reinstated.

3. The AMLA

The AMLA bars employers from discharging, demoting, threatening or harassing employees who provide information relating to money laundering and BSA violations to the attorney general, secretary of the treasury, regulators and others, including their own employer.

The AMLA strengthens the incentive program because it (1) narrows the government’s discretion to pay an award, (2) increases the potential amount of whistleblower awards, and (3) implements protections specific to money-laundering whistleblowers, in a manner largely modeled after Dodd-Frank.

The AMLA covers a wide range of financially based organizations, including banks, branches and agencies of foreign banks, broker-dealers, insurance companies, operators of credit card systems, mutual funds, certain casinos, and travel agencies, among the twenty-six covered categories. (The full list of covered entities appears at 31 U.S.C. §5312.)

In addition, the law now places under the BSA’s purview any person or business that engages in the transmission of currency, funds or value that substitutes for currency, meaning that organizations dealing in cryptocurrency now come within the statute’s reach. Persons involved in the sale of antiquities are also now covered.

A. AMLA Whistleblowing Protection and Procedure

The AMLA defines “whistleblower” as any individual (or two or more people acting jointly) “who provides information relating to a violation of this subchapter … to the employer of the individual or individuals, including as part of the job duties of the individual or individuals, or to the [Treasury] Secretary or the Attorney General.”[3]

In other respects, the anti-retaliation provisions resemble protections under Dodd-Frank and the Sarbanes-Oxley Act. Complaints are filed initially with the Department of Labor and if they are not resolved within six months (assuming that the delay was not caused by claimant’s bad faith), employees can file actions in federal court and have a jury trial. Available relief can include reinstatement with no loss in seniority, compensatory damages, counsel fees, double back pay with interest added, and other appropriate remedies regarding the prohibited conduct.

B. Expanded Financial Incentives for Whistleblowers

The new statute provides that the secretary of the treasury “shall” pay an award to those who provide original information leading to successful enforcement of various money-laundering laws, if the SEC obtains sanctions of $1 million or more. As with Dodd-Frank, certain individuals, like regulatory and law enforcement officials and those who participated in the wrongdoing, are prohibited from receiving an award. To incentivize reporting, the AMLA replaced the BSA’s $150,000 award cap, which was discretionary in any event, with a payment ceiling of 30% of the government’s collection, if the monetary sanctions imposed exceed $1 million and which is now mandatory unless the reporting individual is disqualified.

Again, like Dodd-Frank, factors to be taken into consideration by the government when deciding the amount of the award include the significance of the information, the degree of assistance provided and the programmatic interest of Treasury in deterring violations. Treasury retains the discretion to make nominal payments, and there is no right to appeal the amount awarded. However, the “monetary sanctions” figure on which the reward will be based excludes forfeiture, restitution and victim compensation payments, and since the government frequently seeks large forfeiture judgments when resolving money-laundering actions, this provision may significantly limit whistleblower awards.

C. Importance of Investigation and Corporate Compliance Programs

Federal and state regulators have made clear, in recent years, that employers must implement and follow well designed investigation protocols to root out claims of retaliation and protect whistleblowers.

In January 2019, the New York State Department of Financial Services (“DFS”) issued a new directive on whistleblower policies (“DFS Guidance”). A few short months later, the U.S. Department of Justice Criminal Division (“DOJ”) issued an “updated” Evaluation of Corporate Compliance Programs Guidance (“DOJ Guidance”).

The DOJ Guidance emphasizes that there are three main questions for prosecutors to consider during a criminal investigation:

1) Was there a well-designed compliance program?

2) Was the compliance program effectively implemented?

3) Did the compliance program work as intended?

Prosecutors assess, among other things, whether policies, training and communication are sufficiently robust to encourage a culture of compliance and responsibility.

The company’s reporting process should emphasize disclosure of suspected misconduct and dissuade any fear of retaliation. There is also an emphasis on confidential reporting options.

The DFS Guidance articulated ten “pillars,” emphasizing the need to have in place reporting channels that are independent, well-publicized, easy to access, and consistent, with strong protections for a whistleblower’s anonymity.

The DFS Guidance also requires that the employer have in place established procedures for identifying and managing potential conflicts of interest, and that staff members are adequately trained to receive whistleblowing complaints, determine a course of action, and competently manager any investigation, referral, or escalation.

Further, the DFS Guidance demands that employers establish procedures for investigating allegations of wrongdoing, ensuring appropriate follow-up to valid complaints, protecting whistleblowers from retaliation, and providing confidential treatment of these complaints.

The DFS Guidance recommends, as well, that regulated employers give appropriate oversight of the whistleblowing function to senior management, internal and external auditors, and the Board of Directors. Perhaps most important, the DFS Guidance demands that the employer have in place a top-down culture of support for the whistleblowing function.

D. Importance of Documentation of Performance Problems

 The relevant cases underscore the importance of documenting performance or disciplinary issues before taking adverse action against an employee who may have engaged in protected activity. In Johnson v. ACE Limited, ARB Case No. 10-052 (Jan. 30, 2012), a case brought under Sarbanes-Oxley, the Department of Labor Arbitration Review Board (“ARB”) found that although the complainant had engaged in protected activity, the employer had demonstrated by clear and convincing evidence that it would have fired him anyway because of his incompetence, his outside business interests and his insubordinate behavior when questioned about the outside business.

In Giurovici v. Equinix, Inc., ARB Case No. 07-027 (Sept. 30, 2008), the ARB found that even if the former employee could establish that he had engaged in protected activity, his claim would have failed because the company offered clear and convincing evidence it would have fired him anyway because of his well-documented record of poor performance and insubordination.

Similarly, in Pardy v. Gray, 2008 U.S. Dist. LEXIS 53997, at **17–18 (S.D.N.Y. July 15, 2008), the court held that the employer company established by clear and convincing evidence that it discharged employee for undisputed record of poor performance. 

An assessment of the strength of the anticipated defense therefore must take into account the quality of contemporaneous documentation of the alleged whistleblower’s performance issues.

[1] Companies with a class of securities registered under Section 12 of the Securities Exchange Act of 1934, or which are required to file reports under Section 15(d) of the Securities Exchange Act of 1934.

[2] We can posit a scenario where a bank is financing a transaction for a publicly traded company, and a bank employee claims that there is securities fraud in the processing of the transaction—for example, he or she could claim that individuals at the bank are using confidential information to engage in insider trading around the transaction. In that case, the employee reporting that activity might be a protected whistleblower under SOX.  

[3] Institutions that are insured by the Federal Deposit Insurance Corporation (FDIC) and Federal Credit Union Act (FCUA) are exempt from these new protection provisions, but employees of those entities can still rely on existing whistleblower protections, like those provided by the Federal Deposit Insurance Act and the Federal Credit Union Act, when seeking redress from suspected retaliation.

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