AML and Sanctions Whistleblower Awards

It has been a busy spring for the Financial Crimes Enforcement Network (FinCEN), the U.S. Treasury Department agency responsible for administering and enforcing U.S. anti-money laundering (AML) laws. At the end of March, the agency announced a settlement with a broker-deal for $80 million, one of the larger penalties FinCEN has ever imposed. On April 7, the agency issued a proposed rule to encourage financial institutions to develop “risk-based” AML compliance programs. And on March 30, FinCEN issued an Advisory urging financial institutions to be vigilant to risks of facilitating healthcare fraud.

Below, we examine yet another FinCEN action: a proposed rulemaking issued on April 1, to formalize a whistleblower mechanism for AML and economic sanctions violations. The proposed rule would establish procedures for submitting tips, define award eligibility, outline application and adjudication processes, and describe available protections. In the context of the multiple recent actions taken by FinCEN, the proposed rule is further evidence that Treasury is prioritizing the detection and prevention of AML violations, including matters implicating U.S. sanctions. 

Proposal Tracks Established Whistleblower Models 

At a basic level, the proposed rule would establish a fully operational enforcement tool for Bank Secrecy Act (BSA) and sanctions-related violations. The structure of the whistleblower mechanism mirrors programs maintained by the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC), including percentage-based awards and anti-retaliation protections, both in place pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. 

The proposal follows the full lifecycle of a whistleblower’s interaction with the government: submission, eligibility, award determination, and appeals. The proposal also makes clear that confidentiality is protected, but there is “No Amnesty”— i.e., blowing the whistle on oneself does not confer immunity. To facilitate reports, FinCEN has launched a dedicated whistleblower portal. 

Broad Scope Covers Both AML and Sanctions Violations 

While the rule contemplates reports made under the BSA, the rule also specifically references reports related to violations of U.S. sanctions statutes, including the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA).

Under the proposed rule, the term “whistleblower” would be defined as one or more natural persons who provide information about potential violations, including information obtained through job duties. Both U.S. and non-U.S. individuals may qualify; entities such as corporations would not. 

Awards Amount and Eligibility Are Well-Defined 

Awards would be available where information leads to a “covered action,” meaning a successful judicial or administrative action by Treasury or the Department of Justice (DOJ) resulting in monetary fines or penalties exceeding $1 million. Covered amounts include penalties, fines, settlements, disgorgement, and interest, but exclude forfeiture, restitution, and similar payments. Amounts attributable to the whistleblower’s own misconduct, or to any entity the whistleblower directed or controlled, would also be excluded. 

Whistleblowers may also receive awards tied to “related actions” brought by other authorities based on the same information, provided FinCEN determines that the related action was based on the original submission. 

Eligibility requires more than simply providing information. Submissions must be voluntary, original, and lead to successful enforcement. Whistleblowers must also cooperate with the Treasury or the DOJ if requested. If information is first reported internally, to DOJ, or to another Treasury component, it must also be reported to FinCEN within a reasonable time to preserve eligibility. 

Consistent with SEC and CFTC programs, FinCEN proposes awards ranging from 10% to 30% of the covered amount collected. Thus, for example, if the recent $80 million AML-related resolution qualified under these whistleblower award rules, a whistleblower could have been eligible for between $8 million and $24 million. Claims must be filed within 90 days of FinCEN’s notice of a covered action, and within 180 days for related actions. 

A notable feature is a presumption favoring maximum awards in smaller cases: where 30% of sanctions equals $15 million or less, FinCEN would generally award the full 30% unless doing so would undermine program goals. 

Determination of Awards Based on Specific Factors 

FinCEN proposes structured criteria for determining award amounts. Factors that may increase awards include: 

• The significance of the information 
• The degree of assistance provided 
• The government’s interest in deterrence 

Conversely, factors that may lead to a lower award include: 

• The whistleblower’s involvement in the misconduct 
• Unreasonable delay in reporting
• The whistleblower used or undermined the entity’s internal compliance or reporting systems 
• Relevant findings by other authorities 

Internal Reporting and Anonymous Submissions 

The proposal attempts to balance incentives for internal and external reporting. If a whistleblower first reports internally and later provides the same information to FinCEN, eligibility is preserved, even if the employer subsequently reports the issue. However, certain individuals – including officers, directors, compliance personnel, and auditors – would be subject to a 120-day waiting period before reporting externally, so their organization has an opportunity to internally address the issue.

Whistleblowers may file anonymously directly or through counsel, but an attorney is required if anonymity is maintained through the award application stage. In such cases, counsel must retain identifying documentation and disclose the whistleblower’s identity to FinCEN upon request before payment. 

Proposal Includes Important Limitations Related to Ineligibility and “No Amnesty” 

Whistleblowers would be ineligible if they obtained information through privileged attorney-client communications or protected work product, unless disclosure is otherwise permitted. 

FinCEN would also have authority to permanently bar individuals who make materially false statements, submit false documentation, or otherwise mislead authorities.

The proposed “No Amnesty” provision makes clear that participation in the program does not confer immunity. Individuals who report misconduct remain subject to potential enforcement for their own actions. 

But the rule is likewise clear that whistleblowers have the benefit of anti-retaliation protections.

Takeaway: Easier Reporting Mechanism Increases Importance of Internal Compliance Measures 

The proposed rule establishes a more structured and incentivized mechanism for surfacing AML and sanctions compliance issues. Given that the rule aligns with existing SEC and CFTC processes, once the rule comes into effect, the reporting process should be road-ready.

Correspondingly, regulated entities need to ensure internal reporting systems are robust, well-communicated, and readily available to personnel. When reports are submitted, an appropriate, timely investigation must be conducted. Maintaining a credible reporting process is the best way to ensure that personnel seek to address matters internally instead of blowing the whistle to the government.