A Little-Known Tool For Employees Added To DOJ’s Anti-Russia Arsenal

In the wake of Russia’s invasion of Ukraine, long-standing economic sanctions have been reinvigorated, with the U.S. committing significant efforts and resources to aggressive sanctions enforcement relating, in particular, to Russian oligarchs. One weapon recently added to the Department of Justice’s arsenal is a little-noticed program enacted in the closing days of 2022. The Anti-Money Laundering Whistleblower Improvement Act empowers employees to join DOJ’s sanctions army by providing monetary rewards and legal protections to individual whistleblowers, similar to those afforded under the Dodd-Frank Act, to encourage them to call out sanctions violations by their employers and others. DOJ’s diverse arsenal of sanctions and enforcement tools that have garnered media attention since the Ukraine invasion include the imposition of sweeping sanctions against Russian individuals and entities, and DOJ’s creation of the KleptoCapture Task Force, an interagency effort dedicated to enforcing Russian sanctions and other economic laws to target Russian oligarchs’ assets. Investigations, indictments, and seizures of billions of dollars of assets belonging to sanctioned individuals, along with the Justice Department’s hiring of new sanctions-focused prosecutors and restructuring of the National Security Division also have been in the spotlight. In contrast, the Whistleblower Improvement Act, originally heralded as a “game changer” and “key tool” for Russian sanctions enforcement by private practitioners, appears to remain relatively unknown. Perhaps the Treasury Department’s impending rulemaking on the program will bring more attention and clarity to the program which has potential to provide benefits and protections to whistleblowers domestically and abroad, while creating new legal risks for companies dealing with sanctioned entities and individuals.

Sanctions Tips are Now Eligible for Whistleblower Protection

One of Congress’s last legislative acts in 2022 was to enact 31 U.S.C. § 5323(g), which expanded the Anti-Money Laundering Act of 2020’s whistleblower program to include tips related to certain U.S. economic sanctions laws. The so-called Improvement Act was enacted in response to DOJ’s renewed determination to pursue Russian-related sanctions violations. Senator Chuck Grassley, R-Iowa, the principal sponsor of the Improvement Act, explained that “[g]iven the expansive sanctions we’ve implemented on Russia as they wage an unjust war in Ukraine, our legislation is urgently needed to hold bad actors accountable.” The Act comes on the heels of other anti-Russia enforcement tools, such as high-profile sanctions-related seizures, like the Department’s seizure of a $300 million superyacht in Fiji owned by a Russian oligarch, and high-profile sanctions indictments of Russian individuals, such as that of a supposed Russian oligarch for alleged sanctions violations implicating the former head of counterintelligence for the FBI’s New York office. The sanctions whistleblower program adds to a long and growing list of other whistleblower provisions, such as those provided for by the False Claims Act, the Dodd-Frank Wall Street Reform Act, the Sarbanes-Oxley Act, the Federal Deposit Insurance Act, and the IRS whistleblower law. Although sanctions enforcement efforts to date have targeted high profile foreign individuals and their assets, the Improvement Act appears more likely to result in tips regarding companies and their compliance programs.

Before the Improvement Act, the Anti-Money Laundering Act of 2020’s whistleblower provisions protected reports pertaining to violations of the Bank Secrecy Act. The Improvement Act adds protection for whistleblowers’ reports of violations of the International Emergency Economic Powers Act, Sections 5 and 12 of the Trading with the Enemy Act, and the Foreign Narcotics Kingpin Designation Act. Prior to Congress’s passage of the Improvement Act, no U.S. law protected individuals who reported sanctions violations. Under the Act, eligible tips may include that of a company that is doing business with a sanctioned entity or entities from a sanctioned country, a company that is not maintaining an effective sanctions compliance program, or any other tip related to a company’s general non-compliance with sanctions rules and regulations.

The Improvement Act’s Broad Reach Aims to Ensnare

The language of the Improvement Act is broad, providing that “[n]o employer may, directly or indirectly, discharge . . . or in any other manner discriminate against a whistleblower,” raising the question of whether the whistleblower program covers individuals working for foreign companies subject to U.S. sanctions. Although the U.S. government must have jurisdiction over a company to pursue a successful enforcement action (and for whistleblowers to receive a reward), sanctions laws are notoriously wide-ranging and target foreign conduct by design. Courts have been reluctant to apply the whistleblower provisions of Dodd Frank and SOX to non-U.S. company employees, but it remains to be seen whether the Improvement Act will be interpreted in the same way. The hope is that the U.S. Treasury’s impending implementing regulations, which did not need to be completed for the new program to take effect, will bring clarity to the eligibility of employees of non-U.S. companies, as well as to other concerns impacting foreign whistleblowers.

For eligible whistleblowers, the Act encompasses a broad scope of information under the “sanctions” umbrella. The Act covers tips regarding conduct that took place prior to the sanction program’s creation, information that may pertain to an existing investigation, and publicly available information that a whistleblower independently evaluated to present previously unknown information to the U.S. government. The scope of the program, both in terms of the type of conduct and information covered, has the potential to make the new sanctions program a widely available opportunity for individuals to assist the U.S. government in aggressive sanctions-related enforcement efforts.

The New Program is Willing to Pay Up

The Improvement Act also addresses the material issues the previous AML program faced concerning whistleblower financial incentives, bringing the sanctions program up to speed with other powerful whistleblower regimes. The False Claims Act requires payment of between 15% and 30% of the government’s monetary sanctions for a whistleblower’s assistance with the prosecution of fraud in connection with government programs and the Dodd-Frank Act requires payment of between 10% and 30% of monetary sanctions for a whistleblower’s assistance with the prosecution of securities and commodities fraud. Before the Improvement Act, the AML whistleblower program was thought to be largely ineffective because the statute did not provide for a similar mandatory minimum reward for whistleblowers who reported a BSA violation. Additionally, the funding for rewards was subject to the Congressional appropriations process, which created uncertainty of payment.

The Improvement Act addressed both weaknesses in the previous program. Instead of being subject to the Congressional appropriations process, the Improvement Act established a $300 million “Financial Integrity Fund” funded by monetary fines collected for violations. The Act’s provisions also set a mandatory minimum, providing for a reward of at least 10% of the monetary penalties triggered by a whistleblower’s disclosure. The cap is up to 30% of the monetary penalties. Under similar laws, 10% to 30% has led to whistleblower awards of over $1 million. The bill’s sponsors hoped that economic certainty from both the establishment of a Fund and a mandatory minimum would incentivize individuals, particularly with information regarding Russian sanctions violations, to be willing to take the risk to blow the whistle.

Available Protection Provides Reassurance to Whistleblowers

Whistleblowers who report sanctions violations have expansive protections under the AML Act of 2020. The statute protects whistleblowers who report conduct that they believe to “constitute[] a violation of any law, rule, or regulation subject to the jurisdiction of the Department of the Treasury, or a violation of [money laundering statutes]” to a person with supervisory authority over the whistleblower or an individual working for the employer who the whistleblower reasonably believes can take action to address the misconduct. Whistleblowers will receive protection for a broad range of reported conduct, whether they report the misconduct to someone within their organization, or choose to go directly to U.S. regulators, law enforcement, or Congress. In some instances, however, even a significant financial reward may not be perceived as enough to justify the safety risks of certain foreign-based individuals face from making such reports.

If a whistleblower suspects retaliation following a report of misconduct, the Improvement Act provides that whistleblowers can file a complaint directly with the Department of Labor. If the Secretary of Labor does not issue a final decision within 180 days, whistleblowers may then file an action in federal court and seek a jury trial. If a whistleblower is successful before DOL or in federal court, he or she can seek reinstatement and compensatory damages, as well as double back pay with interest, among other monetary remedies. With significant protections and a clear path to address retaliatory action by an employer, the Improvement Act is positioned to give whistleblowers a “much more prominent role” in sanctions enforcement.

Where are All the Whistleblowers?

The Improvement Act significantly enhanced the AML’s whistleblower program to provide enticing incentives for individuals to report sanctions violations. Thus far, however, the new program does not appear to have had much of an impact, perhaps because the public and practitioners appear unaware of the program’s eligibility and protections (or perhaps because those with actionable information have concerns that are not offset by the potential rewards). Aside from one early report from an undisclosed source that “dozens” of whistleblowers had come forward in the month following the Improvement Act’s announcement, little has been shared indicating that whistleblowers have come forward with sanctions-related tips.

One Department of Treasury press release in August 2023 announced OFAC’s settlement with Construction Specialties Inc. for violations of the Iranian Transactions and Sanctions Regulations, noting that a U.S. employee reported the violations to management. The violations arose from two managers at Construction Specialties’ wholly controlled United Arab Emirates subsidiary, Construction Specialties Middle East L.L.C. (“CSME”), who concealed the destination of goods from U.S. suppliers. The U.S. employee reported this conduct to managers at CSME, who terminated the U.S. employee, prompting the employee to fly to the U.S. and report the conduct to headquarters. Although the press release does not mention a whistleblower award (or protection), the release included a reminder that “[s]eparately . . . a whistleblower incentive program for OFAC-administered sanctions” exists and that “FinCEN is currently accepting whistleblower tips.” The reminder appears to be an effort by the U.S. government to further promote the new sanctions program to encourage more sanctions whistleblowers to come forward and join their army.

Aside from press releases, the Department of Labor’s Office of Administrative Law Judges also does not show much evidence of individuals seeking the protections of the Improvement Act’s retaliatory protections. Individuals who face adverse action for reporting a sanctions violation to either an internal supervisor or outside agency may file a complaint with the DOL. As of the date of this publication, however, only four cases concerning the AML Act appeared in the OALJ case search results. Although not every whistleblower is necessarily retaliated against, retaliation is a very real concern and so few actions may indicate that not many individuals are reporting sanctions violations or, perhaps, a potential whistleblower may have concerns about their own liability if certain conduct is highlighted. Further, only two published opinions in federal court have cited the Improvement Act, and these cases were dismissed for the complainant’s failure to exhaust administrative remedies. Without much indication that whistleblowers are taking advantage of the sanctions program, questions arise whether many individuals and practitioners are aware of the new program’s expansive eligibility, protections, and rewards.

Looking to the Future

The Improvement Act’s provisions are expansive, both in terms of the scope of eligible violations and the provisions’ transnational application, meaning that likely many individuals could take advantage of the new sanctions program, especially under the ever-growing Russian sanctions list. Whistleblowers’ tips are another weapon in the government’s arsenal of sanctions enforcement. In the wake of the Department of Justice’s notice of a “sea change” that sanctions are the DOJ’s “new FCPA,” on the horizon significant rewards await for alert employees and significant risks may lurk for companies skirting the ever-growing sanctions regime. Individuals and practitioners should review the Improvement Act’s provisions to determine eligibility and associated risks with reporting violations pursuant to the new sanctions whistleblower program.

To read more from Robert Anello, please visit www.maglaw.com.

Emily Smit, an associate at the firm, assisted in the preparation of this blog. Peter Menz, an associate at the firm, also supported the preparation of this blog.