Webinar: FinCEN Money Laundering Whistleblower Program

August 26, 2022

Transcript for FinCEN Money Laundering Whistleblower Program

Nick Gallo: Hello, everybody. Welcome to the EthicsVerse. This is Nick, your host, and I’m here with Mary Inman. We have an amazing show today. Sorry, I’m late. Don’t hate me. I had some real tech issues today. So, if you can wipe the slate clean, and forgive me, then we can get started. So, I’m going to assume that I just got blessed with a bunch of forgiveness. I’m here with Mary. Mary, what’s happening?

Mary Inman: I’m happy to be here on the EthicsVerse. Your backdrop feels very Ethics-versey.

Nick: Yeah, it’s super spacey today. I’m getting real spacey today. Okay. So, we are going to be talking about FinCEN and that whole thing. It’s a super exciting development. Before we get into that, as always, drop into the chat, where you’re from, what kind of questions you have, we’re going to be fielding those throughout the conversation.

As always, the world-famous EthicsVerse book giveaway is going to be in full effect for the people with the best contributions, the best questions, and the best participation. So, drop that in. And yeah, I’m super excited about today. Mary, you are one of my favorite people in this community. I learned so much from you. Our last episode was highly rated. Always a blast talking with you. And yeah, so let’s back up. We ran into each other at Compliance Week.

Mary: We did. In-person. In-person, in the flesh.

Nick: You had probably the best outfit that I had seen, definitely the best shoes easily. And we were talking about doing something together because it had been a while since we did… I think we did a whistleblower webinar that was a little spicy. It was a little heated, which was fun. And we were thinking, what are some cool new topics? And you had done a couple of different sessions at the conference so why don’t you start by telling us about that?

Mary: Yeah, so I got to do a panel on the new EU whistleblowing directive, and that’s part of the reason we just did the last session together, which was really, really fun. And then actually my law partner, Poppy Alexander, was… Well, the other thing I got to do at Compliance Week was, fulfill a fantasy, which is, I got to interview John Carreyrou, who’s the author of the book Bad Blood, which is about the Theranos scandal.

Nick: Right.

Mary: And my client is Tyler Shultz, one of the three whistleblowers who helped expose it. So, that was really a dream come true, because I have a lot of admiration for John. He’s a Pulitzer Prize-winning journalist anyway. So it was fabulous. But then what relates to today is that my law partner, Poppy Alexander, took the stage and talked about what we are going to talk about today, which is the newest entrant in the ever-growing list of whistleblower reward programs, which is the FinCEN program.

So, as you know, we’re all well familiar with the fact that the IRS, the SEC, the CFTC, all have very well-established programs where they accept tips from whistleblowers. And if those whistleblowers help them to impose a fine, those whistleblowers are entitled to, in the case of SEC, and CFTC, 10% to 30%, in the case of the IRS, 15% to 30%.

So, because of the success of those programs, we’ve now seen other agencies, including FinCEN, say, “Wow, we don’t want to be left out. We really want to be able to leverage the power of whistleblower information to help our enforcement regime and our enforcement actions.” So, FinCEN adopted what Congress passed as part of the 2021 NDAA, National Defense Authorization Act, which is an omnibus bill which gets the kitchen sink in it. Somewhere embedded in there is the Anti-Money Laundering Act, which included, for FinCEN, a whistleblower reward program.

Nick: So, what is special about this thing? Why is this…? Why are we doing this webinar today? I want this to be kind of explained to me like I’m 5. It’s not going to be much of a stretch, but explain to me like I’m 5, why is this special, and why are we here today?

Mary: Well, it’s special for a number of reasons. And it actually was passed before the Ukraine war. So, it’s actually almost very fortuitous that it was passed. So, the reason that it’s… So, I think it’s probably helpful to talk a little bit about the origin of the program. So, a number of senators and representatives had been trying to pass similar legislation for years, but what happened is there was something called the FinCEN files.

So, we’re all familiar with the Pandora Papers, the Paradise Papers, the Panama Papers, Lux Leaks, right. ICIJ, the International Consortium of Investigative Journalists is now a magnet for huge data dumps of information. And so FinCEN files is actually one of their investigations. There was a whistleblower inside of FinCEN, and FinCEN stands for the Financial Crimes Enforcement Network.

FinCEN had an employee who actually basically leaked over 2,000 suspicious activity reports. Her name was Natalie Edwards. She actually was imprisoned for this behavior because you’re not allowed, as an employee of FinCEN to leak that information, give it to the press. She did.

And it allowed Buzzfeed News and ICIJ to do a very scathing report on the fact that FinCEN, who is in charge of making sure that banks and financial institutions and money transmitters that they’re supposed to be taking very good care, to make sure that no money laundering happens, that when they’re onboarding clients, they can’t take on people who are Politically Exposed Persons, are called PEPs, they can’t take on individuals where we think the money came from terrorist financing or other illegal activities.

We’ve seen…all of us have seen many TV shows about drug money being washed through money laundering. So, the FinCEN requirements, one of the acts that they enforce, is called the Bank Secrecy Act. And the Bank Secrecy Act is what requires financial institutions to have controls in place to make sure that when they’re onboarding customers or that when they have existing customers, that they make sure that the monies that are being put in their institution are clean, that they aren’t the result of money laundering.

So, anyway, what Natalie Edward showed with this data is that it seemed like a lot of banks with these 2,000 suspicious activities, reports that banks had submitted, were really slow walking their obligations to file these in order to allow those clients to exist, right? If you’re a bank, and you have some really nice high-net-worth individuals, who may have a sketchy background, it’s really difficult for you to have those conversations with those clients, because you want that money in your bank. That’s a lot for your…these are high-net-worth people.

So, we were seeing, and that what Natalie exposed, was that a lot of these banks were not filing those reports in a timely way and were allowing these clients to be on-boarded and the transactions to happen. So, anyway, this is what gave the impetus to get Congress to finally say we’re going to pass something called the Anti-Money Laundering Act. And one of the provisions of that is, we want to allow whistleblowers to help us uncover these types of frauds and wrongdoings within banks who are not adequately doing checks to make sure that dirty money doesn’t get in their system.

Nick: So, think about the fact that this wasn’t in place and these protections weren’t there, I mean, that’s a breeding ground for the moral hazard that I think was sort of evidenced by these papers, right?

Mary: Absolutely. So, with the papers, I think what we realized is that FinCEN was not getting… FinCEN was not really doing what it should be doing in terms of…

Nick: Yeah.

Mary: These reports were filed with them…these suspicious activity reports ultimately were filed with FinCEN, that’s who they have to lodge them with. And so it really did shine a light that FinCEN was kind of falling down on the job. And so the idea was, it’s hard for FinCEN to fall down on the job when they have whistleblower insiders typically, but they can be outsiders too, who are bringing information to them about this wrongdoing. It makes it a lot harder when they’ve created…

And what FinCEN now has is an office of the whistleblower, just like the SEC has an office of the whistleblower, where whistleblowers now know they can bring tips. They can even bring them anonymously if they want. And then the FinCEN is obligated to act on them. So that’s the big game changer is that there’s more accountability for FinCEN to do their job because now they are getting tips. And those tips have to be…they get filtered through the office of the whistleblower, and then they’re headed, sent over to the enforcement section if they’re legitimate, and they have to act on them. There’s a lot more accountability now.

Nick: So, FinCEN is supposed to be the watcher and now there’s an opportunity for someone to start watching the watcher a little bit.

Mary: Right, exactly.

Nick: So, how did this FinCEN whistleblower program come to be in the sense of, what did they borrow from other programs that are in place? Is there an amalgamation? Is there a mix of things? Is it really kind of a whole cloth new program?

Mary: It’s a great question, and it will not surprise you to learn that it is largely the same. They basically have cut and pasted what has worked in the past for the SEC and the IRS, and the CFTC, but there are a couple of major differences. So, the first major difference is that all of the other whistleblower reward programs that we’re talking about within agencies, the IRS, CFTC, SEC have a floor.

So, they say a whistleblower can get at least 10, but not more than 30%, of any fine imposed. The problem with the existing FinCEN legislation is they didn’t put a floor on it. So, they basically said a whistleblower who gives us original information that we’re able to use, is entitled to up to 30% of any sanctions we impose.

Nick: It could be zero.

Mary: That could be some trivial amount, could be a dollar, right? And that kind of uncertainty is basically really bad for whistleblowers, right? Whistleblowers need to know that if they’re going to put all of this on the line, right, we know that they undertake enormous risks to speak up, they don’t want to go for the uncertainty of getting a dollar.

So, what has happened, and what is interesting is that in Congress right now there’s a bill that has come out of the House Committee, that’s going to now go to the House floor, we think it will be passed, that tries to fix this, that is actually going to put a 10% floor there. So, that was the first thing that was different, but hopefully it’s going to be fixed by Congress.

The other one is actually an expansion. They’ve gone beyond what the SEC, IRS, CFTC have done. And they actually allow people, and this is really important for your audience, people who work in compliance can be whistleblowers. So, under the SEC program, compliance officers, they are in very limited circumstances are they allowed to be whistleblowers. It has to be sort of an extreme case of something very, very serious.

And so I think it’s really interesting to watch these programs as they evolve to keep getting to sort of a better, and to my view, a better and better gold standard, sort of best case standards for what these kinds of programs should look like. And we very much believe that compliance officers should be allowed to be whistleblowers and that the SEC was wrong to limit it.

So, it’s very interesting that they have expanded it in this way. So, that’s really probably the two most significant ways in which the FinCEN program is different from the IRS SEC, and CFTC programs.

Nick: So, now we’re going to move into speculation-ville, where I live. And why do you think that 10% floor was left off? Is there an argument for it to be left off or does it… I guess I can get kind of draconian about it on why it was left off, to make it kind of a paper lion type of a situation?

Mary: Yeah. I mean, it may be part of what allowed it to get passed through…

Nick: Right. Oh, okay.

Mary: …to agree to it, right? If you sort of declawed a little…take the fangs out of it a little bit, then maybe certain less enforcement promoted…people who really like enforcement…people who are a little anti-enforcement might be happier that it’s not as robust as it could be. So, that might be why. I don’t really know how it happened but it is not best practice, right? Best practice is to put a floor in place.

Nick: Yeah, totally.

Mary: And luckily it looks like we’re going to get a correction.

Nick: Well, that’s good.

Mary: So, is it an omission? I don’t know. I don’t know.

Nick: So, I’m a little naïve, as you know. As you’ve gotten to know me, I’m famous for my naiveté. But what do you think the arguments are against having this kind of mechanism in place?

Mary: So, I mean, I think that the financial institutions really don’t want to have people in their organizations incentivized to come forward, right? And just like the SEC program and the IRS and CFTC programs, you don’t have to report internally first, right? So, I think there’s a fear on the part of financial institutions who are basically the targets of the people who are regulated by the Bank Secrecy Act.

I don’t think that they’re very fond of the idea that their employees could, if they’re not doing their job properly, if they don’t have adequate controls in place for money laundering, that they could then bring this information forward to FinCEN. I think those would be the people who would be the…they have the most to lose. And I think that that is probably…those are the detractors of this kind of a program.

Nick: And they have sort of these special interests, and they have sort of ways to influence those on the floor who are maybe arguing against it or building the bill, or whatever.

Mary: Absolutely. But what has happened, and I alluded to this earlier, in the intervening period since this law was enacted in January 2021, we now have the Ukraine conflict, right? So, this program allows people who have information about Russian oligarchs who are hiding monies and banks…mostly the banks that are helping them and facilitating this, the banks who are enabling the oligarchs, now we have a tool that allows whistleblowers to help in this. So, I don’t see Congress react…

Nick: That’s pretty cool.

Mary: Yeah, I mean, I think it came at just the right time. And what’s interesting, this bill that I alluded to, in addition to fixing the floor and putting a floor for the whistleblower reward amount, it also is seeking to expand this FinCEN program to also allow whistleblowers to bring information about sanctions violations.

So, that means if you’re a whistleblower and you know that someone’s doing business with someone on the sanctions list, and we know that that sanctions list is ever increasing and growing because of the Ukraine conflict, in particular, they can then bring that information as well. So, that’s really interesting, right? I think that is just recognizing that Congress sees this tool as really helpful, especially for Ukraine, and why don’t we expand it even more?

Nick: Yeah, and I mean, it’s…so there’s a lot in that piece of the puzzle. You can kind of start…a lot of what we talk about in ethics and compliance at large is this ability to sort of crowdsource risk management in your organization. And a lot of what…a lot of the tools that we provide, allow an ethics and compliance Officer, in their little jurisdiction or their little bubble of their company, to turn on these human sensors within their organization who feel sort of empowered and feel safe to raise their hand and speak up, and say, “Hey, there’s a problem over here.”

But it sounds like what this expansion of this FinCEN regulation allows for is kind of the translation of that topic sort of on a more global scale, where we can start to sort of democratize fighting against the…kind of getting people involved to fight against this sort of wrongdoing and these sort of nefarious acts in an increasingly sort of subversive or like below the surface war, which we’re seeing, obviously, with the oligarchs’ influence and the money laundering opportunities that exist, through this network that this regulation is over.

Mary: You have put your finger right on it, which is the analogy that you give to your clients for the fact that within a business organization, you need to crowdsource intelligence. And you add…you used the term human sensors. The government has decided to crowdsource.

The government says, “We want a citizen army of people incentivized around the world, not just in the United States,” because, right, FinCEN, the Bank Secrecy Act applies to not just U.S. financial institutions, but more broadly, if you have a footprint in the United States. “We want these people to help us do our job, and the mission of FinCEN is to make sure that financial institutions aren’t onboarding people with dirty money.”

So, it’s a direct parallel. We’re all seeing the value of whistleblowers. And your point is that if you don’t crowdsource it internally, we now have incentives to…and you don’t hear them and listen to them, they’re now going to get crowdsourced to the government.

Nick: Right. And I think it’s…on a secular level… I think for somebody inside of an organization who’s worried about, “Man, I can’t get any traction,” or, “I can’t get this thing turned on” like, this is a big sort of secular wave that’s sort of crashing across the world, really. Because everything is so complex, the structures that we’ve put in…the control structures that we’ve put in place over the last 150 years, it’s almost like they’re not capable of competing with the level…with the speed with which business is done, the opportunities for fraud and wrongdoing and so forth, that have sort of emerged with crypto. I mean, I can go on and on.

There’s a thousand different ways that like bad actors can act badly in today’s environment. And it always takes a really long time for regulation to sort of catch up with it. It’s like…it’s the perpetual sort of like hamster wheel that regulators feel like they’re on a lot, where they can’t get something passed as quick as the technology is continuing to develop over and over and over again. And…

Mary: Yeah, I think it’d be really kind because they’re also very reactionary, right? I mean, that’s the problem is they’re not always forward thinking in terms of they react…like this law was in reaction to the Fin…

Nick: Good point.

Mary: This is the power of the Fourth Estate, right? It was investigative journalists shone a light…they were shining a light on this that put pressure on Congress. So, I wish they were more, I mean, proactive in a lot of this, but I feel like a lot of this legislation is reactive.

If you look at the SEC whistleblower program, that was borne out of the financial crisis that was directly relate…the fact that Bernie Madoff…there was a whistleblower who kept going to the SEC, telling them about Madoff’s whole operation’s a Ponzi scheme, and he wasn’t listened to. And so that’s sort of what inspired it.

So, I feel like a lot of, at least in these whistleblower programs, they seem to be very reactive to a whole…to sort of something bad that happened that they need to close that gap.

Nick: Yeah. And it’s almost sort of the nature of Congress, right? Like, a congressperson, I don’t know, they need to have something to do and many times, we all suffer from this recency bias on an individual basis, but also sort of on a country-wide basis, right? So, I don’t know, at some level, it’s like however we get there, great… It’d be greater if they did that a long time ago and this never became a problem, because everybody, we just had a broad sort of global culture of speak-up ability and a culture of “whistleblowers are heroes” and all that kind of stuff.

It’s an interesting sort of transition that we’re making. And I think it’s really interesting that this transition is not happening… Like, it’s not like we can wave a magic wand and then every industry has something like this in place rolled out on high to reinforce and encourage the whistleblowing that again, to your point, can turn these human sensors on.

Mary: Absolutely. And the interesting thing about these human sensors, right, is that when you have these external incentive programs, where someone is reporting internally, if they’re not listened to, they now have an incentive to go external to FinCEN, who will pay them. And as always, has a neon sign that says, “Whistleblowers welcome. Come to our office of the whistleblower. Here’s our website. Here’s our tip form, send it and we’ll respond to you immediately.”

There’s that tension. But the interesting thing is, right, what happens within that organization is a sort of a fear, right, that a lot of people who were thinking, “I wasn’t going to blow the whistle before,” now need to think about, “If I don’t blow the whistle, maybe someone in the cubicle next to me will, so I need to blow it defensively,” right?

So, this creates this environment within a sort of self-policing that is happening, that happens within an organization, right? Whereas, if you didn’t have the risk of these insiders being able to go to a government program, you would feel like you have more impunity to act, right? But now you’re… So it’s sort of a self-policing going on like, “Uh-oh…” and that happens within the SEC. There are lots of people who we’ve heard in our cases, people say, “In meetings, like we better… Somebody could blow the whistle on this, we better be careful on what happens.”

Nick: So, just the…

Mary: Someone could go to the SEC or maybe they already have. That’s the thing is there’s this worry that has someone already leaked to the SEC? And it’s the same with FinCEN.

Nick: Got you. So, you think that’s also going to kind of create a tailwind for more sort of self-reporting or self-policing because of the existence of this whistleblower piece?

Mary: Yeah, I think you just can’t…in a business, you can’t now believe that all your information is going to stay within your four corners or four walls of your organization, right?

Nick: Right.

Mary: You now have to have an expectation that when bad behavior…when fraud is being perpetrated, you can’t control…there’s factor now that you can’t control.

Nick: Yeah, yeah, that’s true. I mean, aside from the fact that everybody has Twitter in their pocket already, everybody has Reddit in their pocket already, this kind of allows for yet another angle that at least has a monetary…assuming that this floor gets fixed, or assuming that that floor was…the lack of a floor wasn’t put in place to just get a gotcha, it could provide for more.

Mary: We just had a great comment saying the presence of oversight is a great deterrent. That’s absolutely right. That’s something…

Nick: Someone may have just won a book there with that comment.

Mary: Good comment. That’s a good comment.

Nick: That’s a pretty good comment. It is. So, I want to kind of get…I want to like humanize this a little bit because I don’t know if everyone can understand and appreciate the risk that somebody who is blowing the whistle in this jurisdiction or in this sort of sphere of it all, might be facing, given the dirty money angle, given the oligarch angle, given the sanctions angle, the true sort of like criminal angle that is, in many cases, probably a lot more than we think, a piece of the puzzle and is sort of a blind eye is turned toward within the financial apparatus.

Nick: Yeah, I mean, I think what’s so interesting here, right, in terms of the people who are on the firing line right now or have the most exposure are the people who are subject of the Bank Secrecy Act. So, the Bank Secrecy Act, as the name belies, goes after banks. And the term has covered financial institutions, so it deals with banks and money transmitters.

So, I think one of the limitations of this program and one of the frustrations that we’ve had is we have lots of people contacting us about money laundering. And they…sometimes the information they have is about the money launderers, not the banks who are facilitating it. And it’s very frustrating for us because we can’t help them. That’s one of the…they have to have information that’s about a bank or a financial institution in order to bring it forward. So, that’s one of the big holes.

Nick: Yeah.

Mary: So, we’re really pushing for an expansion of it because obviously, we want to get all money laundering. So, the irony is that really the people who are best positioned to be whistleblowers here are employees of banks, or people who work in FinTech with banks or money transmitters. And so there’s been a push for something, a bill called the Enablers Act that wants to expand this to the lawyers, the accountants, the art dealers, the investment advisors, all people who deal with high net worth individuals who are also enabling money laundering. They’re not on the hook under this…whistleblowers can’t report on that behavior and receive a reward.

Nick: Crazy.

Mary: So, that’s a huge gaping hole, like enough to drive many semi-trucks through. But we are excited to have a toehold. And what we’ve been able to do, with previous whistleblower programs, is to show the success that whistleblowers bring. I mean, look at the SEC, right, they’ve awarded over $1.3 billion in rewards to whistleblowers who’ve helped them really come on the map as one of the most aggressive agencies with over $5 billion in sanctions as a result of whistleblower information.

So, we feel like if we can get a toehold in FinCEN, just with the program that we have now, and if the bill passes to expand it to sanctions, we’ll continue to prove our worth. And hopefully, it will get expanded even broader. Because really, what we’re doing is infiltrating the agency and getting the agency FinCEN to the place where SEC is.

If you read Gary Gensler’s press statements, he regularly says, at least once a month, how invaluable whistleblowers are to his enforcement agency. And they go to the point where they actually go out and actively find companies who have language in their Separation Agreements that seek to chill whistleblower speech. I mean, they are…

Nick: Interesting.

Mary: The SEC is the gold standard. They really put their money where their mouth is when they say, “We are serious about protecting the people who bring information to us.” And so we want FinCEN to get to that place. They’re not yet, right? They’re not pregnant yet. And so it’s very early days, and they haven’t even adopted their enacting regulations yet.

So, we have aways to go. But part of why I wanted to talk to your audience about this today is that even though the enacting regulations have not been put into place, this program is still active. There’s a gentleman who’s the head of the office of the whistleblower. They’re accepting tips, even though they don’t have a website or forms yet. We have filed submissions. Like, this is active. Our hope is it will get more active. And of course, the bill that’s moving through Congress right now is seeking to expand it and make it…

Nick: They don’t have a way to submit them? How do you do it? You just brought it to his office?

Mary: So, they did.. Yeah. They don’t have an official tip. So, if you go to the SEC’s page, there’s an official tip. It has a special form name and number, like your IRS form. They don’t have it yet. They don’t have it up yet. So, we’ve had to call them and say, “In what form do you want it?” And they’ve told us, “Just take…

Nick: Well, we don’t.

Mary: No, no, no, they said, “Just take…”

Nick: I’m kidding. I’m kidding.

Mary: They said, “Just take the SEC form and adopt it for us.”

Nick: Oh, okay. Well, there you go. So, they are really copying and pasting. It’s kind of interesting what you’re saying is that Congress is so reactionary. And it’s interesting, the intentionality that the SEC who, as you call it, is the gold standard, brings to this whole problem. I mean, they’re going through Separation Agreements and really trying to find the folks that are trying to stamp out ex-post whistleblowing. That, again, speaks to that intentionality and the purposefulness that they bring to trying to really get this program going bigger and bigger.

Mary: Absolutely, absolutely. We’re getting lots of questions in the chat about…one was like, “You can’t go after the money launderer.” I just want to be really clear that all I’m talking about here is that whistleblowers can’t be rewarded. There’s no program that allows them to go after money launderers themselves. The only program that exists is a program that allows whistleblowers to go after financial institutions who are covered by the Bank Secrecy Act, who are basically enabling money laundering or facilitating money laundering.

So, the whistleblowers can bring that information forward, they just won’t get paid for it. And that’s the sine qua non, right? That means that in my business, my clients don’t want to undertake that risk without knowing, because it can be…

Nick: Well, yeah.

Mary: …without knowing. So, I just want to be clear that whistleblowers can bring all of this information forward, but only in very narrow circumstances can they be paid for it.

Nick: And if they bring this information, “Hey, I know money laundering is going on,” they bring that internally to the bank that they work at, and the bank does nothing about it and they turn a blind eye to it. Is that enough? Does that meet the standard for them then to make this whistleblowing report? Like, do they have to…like, would that…would they be able to get the reward for something like that?

Mary: One hundred percent. And so what’s interesting is that every whistleblower reward…sorry, every whistleblower legislation that I’m aware of is trying to protect… And so what I haven’t mentioned yet today is, the FinCEN program also includes protections against retaliation, and that’s really important. Those are the two things whistleblowers need.

Whistleblowers need a financial safety net under them in the shape of a reward, that if their information helps lead to the imposition of a sanction, that they’re going to get a guaranteed reward, but they also need protection against retaliation. It has both of those pieces.

But what you were asking about is, is there a requirement that a whistleblower report internally first, in order to be eligible to receive a reward under FinCEN? And they’re…even under the EU whistleblowing directive, there’s always been a push because we don’t want to undermine the utility of internal reporting mechanisms, right?

Nick: Right.

Mary: But the problem is, as we’ve seen with all the scandals that we all know about, from Theranos to Wirecard to Enron, is that the people who… If you had a requirement that you have to report internally first, in those kinds of scandals where it is all being done at the top, that’s a futile act.

So, you shouldn’t require someone to do that, right? So, you should allow them to come forward because then sometimes, there are going to be many circumstances… And the whistleblowing directive in the EU says, “While we want you to report internally first, we will understand that there will be circumstances where you cannot.” So, they don’t make it a requirement. They strongly encourage it, but it’s not a requirement.

And then under the SEC program, they actually… We’re hoping that when regulations are passed to enact the FinCEN program and put more meat on the bones, they’ll do what SEC did, which says, “If you reported internally first, we see that as a plus factor in the amount of the reward you should receive.”

Nick: Got you.

Mary: So, we give you a carrot…we don’t give you the stick of making you disqualified, we give you a carrot for reporting internally first.

Nick: So, under the Enablers Act, who is eligible to make a report and blow the whistle?

Mary: So, the Enablers Act is different than the Bank Secrecy Act. And the Enablers Act hasn’t been passed…

Nick: Got it.

Mary: …to have expansion to include all of these people that we want them to. It’s something that we think should be coming, could be coming. But the Enablers Act is really trying…and it was…the bill was circulated in response to the Pandora Papers in recognition that who is helping all of these people hide their money overseas, it’s accountants and lawyers and investment advisors. And so the Enablers Act, the bill was trying to expand that to make liability be expanded more broadly.

Nick: Well, under the FinCEN whistleblower program, who then can blow a whistle under that?

Mary: Only people who have information about violations of the Bank Secrecy Act. And the Bank Secrecy Act is the law which is one of our primary anti-money laundering laws, but it’s not the only one. So, it’s only tailored at really financial institutions.

Nick: Interesting.

Mary: So, our anti-money laundering regime is much bigger than just the Bank Secrecy Act. And there are other laws that get at the money launderers themselves. We just haven’t put in…Congress hasn’t seen fit to incentivize whistleblowers to help bring that information forward. Only in the context of violations of the Bank Secrecy Act, which is why today we’re only really talking about the exposure is typically… It doesn’t just have to be insiders, outsiders, competitors, other people can bring that information forward. But it’s mostly insiders, the banks and money transmitters, financial institutions.

Nick: And so what kind of evidence do you think a whistleblower would need to bring forth a claim? What does it look like? And how does the evidence that they need to bring forward in this case, how does it differ than other sort of whistleblower experiences that you’ve had?

Mary: Right. So, I think one of the typical fact patterns a whistleblower could bring is, if they knew that there was failure of a bank or a financial institution to have an effective AML Compliance Program. That could be one thing. They could bring information about specific failures of their compliance program.

So, for instance, we know that certain insiders will know that politically exposed people, maybe people from Venezuelan Government were allowed…that are on particular lists or politically exposed people were allowed to bring money and open accounts, and process their money through certain banks. So, there’ll be individuals with that specific information.

So, those are sort of the typical types of fact patterns that you would expect a whistleblower to be able to bring, to say that the banks are falling down on their obligations under the Bank Secrecy Act to know their customer when they onboard them, know that or figure out, “Where’s your passport? Where are you from? Oh, you’re from Russia? Oh, you have yachts and you’re close to Putin.” Like, those are all the traps that every bank is obligated to run to make sure that they’re not facilitating the processing of dirty money. And that’s particularly important now, of course, with the sanctions in place, because that’s our number one tool to put pressure on Putin.

Nick: Right. So, I’m just constantly baffled by like the depth of corruption, and where you see it. And you know that recent scandal came out with NY, where they were passing around… No offense to accountants because I am one but I mean, it was the answer sheet to the CPA exam. And I passed mine legally, by the way, no help.

But, like these are the purveyors of truth in financial reporting. These are the guys signing the audit. And obviously, I mean, there was tons of ethics training when I was in public accounting. So, that’s just kind of shocking in and of itself. How deep do you think this is? Again, we’re in speculation-ville, and I’m not trying to put you on the spot, just gently, I guess I am. Like, if every whistleblower who had information came forward of a material level, like do you think it would be millions of people? Do you think it’d be five dozen people? Like, how pervasive do you think this issue is? Potentially, like, how big is it?

Mary: It’s a great question. And I always talk to people about, behind every scandal, there’s a whistleblower, right? Open your newspaper, right? We just had the Uber files. There’s a whistleblower who just exposed lots of information about…he was very high up in the organization.

So, I mean, my sense is that you look at all of these scandals, right, it is hugely pervasive. And Big Four accounting firms are behind a lot of these problems. So, you look at Wirecard, who signed off on those books, right? Like, there were so much money being held over in Asia that there should have been a huge red flag. And so, I think one of the biggest problems is that we don’t have a requirement that accounting firms turn over, that they don’t get to represent the company for life, right? Because then they’re not able to have that more distance…

Nick: Right.

Mary: …They want to keep that business. And that is sort of what allows them to turn a blind eye. So, I think that when you talk about enablers, behind many of the biggest scandals that we’ve seen, Wirecard being the most recent, there’s an accounting firm who signed off on these books. And so it is pervasive. It takes a village to allow a lot of these frauds to go forward.

So, that’s why the Enablers Act is trying to expand who is liable, right? It’s to expand it, because…and a lot of that came out of the pervasiveness of offshore accounts and other things. There’s a whole cottage industry of people who help you…lawyers who help you create a nesting doll worth of structures to hide who you are, right?

And so we’re only now getting to a place where, both in the UK and in the U.S., we’re finally requiring the people behind…it’s called the ultimate beneficial owners, to be surfaced. Under the new anti-Money Laundering Act, that only needs to be surfaced to law enforcement. It’s not fully transparent to the rest of us.

Nick: Interesting.

Mary: So, we’re taking baby steps. But it’s enormously pervasive is my answer to your question. And there have been structures…legal structures in place that have allowed them to hide it. And little by little, we are trying to chip away at these things that have allowed people…

I mean, there was a fabulous reporter who…his name is Oliver and I’m forgetting…Oliver Bullough, and he’s written a book about kleptocrats, and he did a video that I highly encourage where he did what he called a “money laundering tour” around London. You could do the same thing around all parts in the U.S., right?

But he did the money laundering tour… I would actually have our U.S. one in Delaware, but we can talk about that in a minute. And he went to a location that is the corporate address for hundreds of thousands of companies, right? Because these shell companies are all being made, and their corporate address is right there.

So, we allow this to happen. And in the case of the UK, that’s a lot of their economy is allowing in dirty money. And same in Miami and other places in the U.S. It’s helpful to your local economy to allow this money in. So, part of it is getting rid of the shell corporations, that’s my bottom line. And we’re starting to…that and trying to have to say…at least divulge to law enforcement, who are the ultimate beneficial owners of some of these shell companies.

Nick: Talk to me about the Delaware thing.

Mary: Well, Delaware is the state where every corporation incorporates because it is the most permissive and friendly to corporations. So, I think you would find absolute similar addresses within Delaware, where hundreds of companies from around the world use that as their corporate address, even though they have no physical footprint. And that… Delaware has been set up for that, we’ve allowed that.

So, it’s not like it’s illegal, what we’re trying to do now is get some transparency at who are behind all of these Delaware corporations? And with the Pandora Papers, we actually saw it in Nebraska, that there are a lot of shell…I think it was Nebraska, I may have that wrong, but it’s somewhere in the Midwest. Sorry, Midwesterners, I think of you all as the same. I’m quite sure it was Nebraska or something where we’re seeing a ton of sort of the Delaware of the Midwest.

Nick: Interesting.

Mary: Yeah.

Nick: So, I have one question from the chat here that I want to bring to you. So, “Can someone become a whistleblower if he or she has previously signed a confidentiality agreement with their employer, or with the service organization?” How does that…precedes what?

Mary: Right. So, this is a great topic and a fabulous question. And what I can refer you to is that was what I was alluding to when I was talking about the SEC. So, you can…when you are leaving a company, you often will…if they’re going to give you money to leave, if you’re getting a golden parachute or just a payoff, they can require you to release all claims. And when you release claims, if it’s written in such a way to be comprehensive, you can write in such a way to say, “I’m even releasing my claims to bring information to the government to receive a reward, based on information to the government.”

The SEC has said that that is illegal, and they have a special rule called 21F. And they have fined about, even most recently, there have been 12 companies that they have fined for including that kind of language, because what it does is it has a chilling effect on people.

And so what I think is so insidious about NDAs, and these kinds of confidentiality agreements, is that they’re not enforceable, right? If that was the SEC, if you were bringing…if you’d already brought in…if you were signing this agreement and you’re Tyler Shultz, okay, and you knew Theranos was doing this, and you could bring an SEC claim, if you looked at the language of that document, you would have said, “I can’t file something.”

Nick: Yeah, right.

Mary: You wouldn’t have known that is unenforceable unless you’ve spoken to an attorney. And that’s why the SEC fines these companies because they want them to…you can’t include that language in there. So, it’s very concrete because we have regulations. And the SEC’s whistleblower program also has its enacting regulations, and these special rules were put in place. We don’t have an acting regulation yet for FinCEN. I hope that those will be put in, but I don’t know that they will.

So, all we have for FinCEN right now is just the statute itself, not all of the…you put the meat on the bones when you do the enacting regulations. I predict they will follow the SEC, but can’t answer that yet, until the enacting regulations are in place.

Nick: How long do you think?

Mary: I would say it’s unenforceable in certain state laws…under certain state common laws, I’ll say that’s unenforceable. So, it depends on what state you’re in. Sorry to give you a lawyer answer but it depends.

Nick: Interesting. Got you. Is there a class called “it depends” in law school? It’s like a pretty short class, probably. Okay. How much sharing occurs among FinCEN, IRS, SEC, and DOJ regarding suspicious, or these kinds of transactions?

Mary: It’s a great question and actually raises one of my favorite topics that I haven’t been able to really address yet. So, it depends on which agencies. DOJ does a lot of sharing. Certainly, the CFTC and the SEC are very close. And a lot of it is because their heads of the office of the whistleblower know each other really well, and there’s established…more channels for them to share.

So, a fair amount of sharing goes on. But what I wanted to point out is that the power of the whistleblower reward programs is such that the language in the SEC, CFTC, says, “A whistleblower is entitled to receive a percentage of any fine that that agency that they filed with imposed.”

But what if, in the course of that sharing, the SEC shares with the CFTC, and the CFTC impose the fine, the language in the statute says, “A whistleblower gets a percentage of the SEC fine and any related action.”

Nick: Got you.

Mary: So, in the case of the Deutsche Bank whistleblower for FX manipulation, who received a massive award, part of his reward was not just what the SEC fine was, but it was what the Financial Conduct Authority in the UK fined was considered a related action, and he got a piece of that too.

Nick: Wow.

Mary: So, that question about do they cooperate, absolutely, they cooperate. We cooperate with international financial enforcement agencies. We cooperate, not just with folks in the US but also internationally. And so the idea is that if a whistleblower’s information is that valuable that it’s shared across different platforms, and they’re entitled to that, including if the DOJ imposes a fine. So, a whistleblower on a massive fraud could get a percentage of DOJ’s fine, of the Financial Conduct Authority’s fine, and the SEC’s fine.

Nick: They might find themselves on a yacht in the Black Sea…

Mary: Mm-hmm, from oligarchs themselves…

Nick: Exactly. But they did it right. They did it the right way. Okay.

Mary: Legal oligarchs.

Nick: Exactly. What do you think is considered an ineffective AML Compliance Program? And you can’t say “it depends,” just as a rule, just to throw a twist.

Mary: Wow. That is a big question. That’s like a whole separate topic. That’s totally cheating. There’s alphabet soup that goes with KYC, right? You have to know your customer when you onboard. So, you have to take their passports, you have to do…so you need to have controls in place when you onboard them. And then once they’re on-boarded, you can’t consider them safe. You also have to still be monitoring for suspicious activities. That’s what a SAR is, a Suspicious Activity Report.

So, it’s almost from cradle to grave, you are following your clients whether you’re going to take them on, and then if you do, you have to make sure they’re still doing it legitimately. So, there’s like a whole separate course on how you have to comply, but you have to comply throughout the life cycle of your client base and who you’re onboarding, and you have to stay current.

I mean, there’s a lot of vendors who sell the service, right? You also have to be continually reevaluating the sanctions list to make sure your existing clients don’t fall on it. So, there’s a whole cottage industry of people much better still than I am, did sort of tell you how to do it. But there’s chapter and verse.

Nick: We’ll accept it. We’ll accept that answer. That was a great answer. But what I’m starting to see is that there’s a kind of a spirit behind this type of operation, right? And it’s, you need to be doing your sort of ongoing monitoring and your ongoing diligence.

And what we’re seeing is that more and more of our clients, the people that we partner with, they’re extending out this type of operation, even if they’re just domestic, to checking all their vendors across the OFAC list. It doesn’t cost a lot, but it gives you that peace of mind to know that we’re putting our money where our mouth is. We want to make sure that all of our stakeholders are upstanding. And that’s a very easy way to get a third-party diligence process going, regardless of your industry.

Quick question, can former FinCEN employees, now in the private sector, participate? Is there any sort of clause preventing former US Treasury personnel from participating? We may have a potential whistleblower by the looks of this question.

Mary: So, we don’t have the enacting regulations yet, so a lot of that would be spelled out there. But based on what we’ve seen on other programs, and just based on policy logic, right, if that former FinCEN employee is going to try and act on information that they gained as a FinCEN employee, no. Right, because you’re… And I think that’s even in part of the…actually the law, in the statute itself, that we don’t want to reward people whose job it is to enforce.

But if that FinCEN person then went out into the private sector and then saw something going on at that new employer, then absolutely, yes. But absolutely no, you can’t trade on information that you had when you were in the government when that was your job.

Nick: Got you. Changing gears a little bit. We talked about kind of… I have two kinds of questions… I can’t believe this, time went so quick. See, every one of these webinars with you, Mary, I learned a ton, I sound so much smarter on the way out, and the time goes so quick.

So, you said that this is going to provide financial incentives for whistleblowers, and it’s going to provide protection from retaliation. What does that protection from retaliation look like?

Mary: Yeah, so it looks like a lot like what it looks like with the other programs. Because I said this, again, it’s best practices, right? So, it looks like what the SEC, CFTC, IRS do, which is basically saying that an employer can’t take adverse employment action. And it’s pretty broad actually, right? It’s not just firing someone, but it can be denying them a promotion, it can be cutting them out of meetings, and things like that that make them unable to do their job.

But if you can establish that that was done because someone was speaking out, then that whistleblower has an independent claim, right, that they were personally harmed. And so they could get compensation damages for that. So, it really depends on what negative action was taken against you, but it has to have been taken against you by virtue of the fact that you spoke up. So, that can be a difficult burden, right?

Nick: Yeah, right.

Mary: Because employers will come back and say…and I’ve seen this again and again, right? There’s a pretty famous and prominent whistleblower in the UK who was a trader at a big bank, at the Royal Bank of Canada, and he was chronically late. But he was chronically late his whole career, nobody said anything. But as soon as he started to blow the whistle he’s going to be terminated because he was chronically late, right? So, that starts to look like a fabricated reason when, in fact, the real reason was that he spoke up.

So, it can… I should have said this upfront, I’m not an employment lawyer so this is really a question for employment lawyers who do this, but I know enough about employment law to be dangerous. But yeah, I mean, it’s really…what we often see is, how proximate in time it comes to the person speaking out and the negative action. The closer in time that is, the more likely it is that they did it because you spoke up.

And the other thing is back in the backdrops, a lot of my clients are…not all my clients are boy scouts and girl scouts and that’s okay because as we say, “It takes a rogue to catch a rogue.” But a lot of my clients have had fabulous performance reviews year over year over year over year. As soon as they speak up, they’re not a team player, like, all of these things start to come up. And that’s part of what helps you build a really strong retaliation case.

But it’s hard because you have to get into the mindset of why were these actions taken. Is there something… And a lot of whistleblowers are considered insubordinate, right, because you’re speaking out.

Nick: Well, look at the Coinbase…did you see that Coinbase tweet string that was like nuts, you thought? We have a culture of, what did it say? It said, “We have a culture of criticizing in private, but praising in public. It’s unethical to voice these things.” I mean, that is nuts. But that is the culture that… I mean, it’s probably not that uncommon though, that people at the top actually feel that way. I don’t feel that way in my company, by the way, for the record. It’s crazy.

Mary: The last thing I should say is just that retaliation claims are harder to prove for the reasons I was just describing, right? I think that…and it’s harder to win in court on these claims just because of the nuance, right? Because an employer is always going to come up with all these other reasons that seem legitimate and not pretextual that they fired you, or they took the adverse action.

So, it is a really important right, it exists. It’s hard to win as a whistleblower. And what’s interesting, circling back all the way to our EU whistleblowing directive talk is that what the EU whistleblowing directive included is what you and I were talking about, a reversal of the burden of proof.

So, the burden is no longer on the individual to prove that they were fired because they spoke up, it’s now on the employer to say, “You have to show us that you fired them for some other reason.” And that’s really significant. And so again, in terms of creating…the way the law is evolving to become more protective of whistleblowers, the EU is way ahead of us on that.

Nick: It’ll be interesting to see kind of where this all goes. So, as we wrap up, guys, if you guys loved…if you love Mary, drop a 1 in the chat. I’m looking for 144 ones right now. If you learned a lot from Mary, connect with her, follow her. she’s… Every time you… Look, can you see the chat? I mean, this is crazy. The chat’s on fire with 1s, Mary. So, this is amazing.

And also, I’d love to hear some ideas that folks have of topics you’d like us to have on the EthicsVerse in the future. If there’s other thought leaders you’d like us to bring into these conversations, please drop those in there. At the end of the day, we want the EthicsVerse to be very valuable to you.

Mary, as we wrap up, I know we’re getting close to time here, as we wrap up, let’s get into our time machine. It’s 10 years in the future, the whistleblower thing is solved across industries. What do you think has changed? What other industries has Congress finally reacted to or maybe even gotten proactive with? And what other types of whistleblower programs have been put into place?

Mary: Oh, I love crystal balling. So, I definitely can say one of the things we didn’t talk about is…we’ve talked about the IRS, SEC, CFTC, now FinCEN, all alphabet soup, I apologize. But the Department of Transportation recently adopted a whistleblower reward program, and it’s actually been successful. Our first…we were fortunate enough to have the whistleblower receive the first reward.

Nick: Cool.

Mary: Yeah. And so my prediction is that, as we’ve seen with the Boeing 737 MAX, is that we need the FAA to have a whistleblower program. We’ve seen that, right, with the problems with the MAX. So, I predict that we’ll start to see whistleblower programs in safety, not just in areas of financial frauds, but in safety, just because the DoT program, the NHTSA program has been so strong. So, that’s my prediction. And I think my prediction is that the next wave is going to include empowering whistleblowers to go after enablers. I think that Big Four accounting firms are not going to be safe in the future.

Nick: Yeah, they say it takes a village to allow this kind of fraud to take place, but it also takes a village of pitchforks and torches to take down with the accountants, is what I’m getting at. Down with the accountants… I’m kidding. But thank you so much, Mary, for coming on. This is a blast. We’ve got to do something again.

Thank you all for joining us on the EthicsVerse. Winners will be notified and the replays, of course, will be available. So, until next time, bye everyone.

Mary: Bye. Thank you, Nick.

ComplianceLine is now Ethico!