Under the Dodd-Frank Act, a whistleblower who exposes fraud can receive a monetary award and anti-retaliation protections through the U.S. Securities and Exchange Commission (SEC) Whistleblower Program - as long as they blow the whistle voluntarily.
A definition of “voluntary” may seem simple enough. However, some Dodd-Frank whistleblowers who, acting of their own free will and without legal obligation, report fraud are considered “involuntary” simply because they reported to the media, other government agencies, foreign law enforcement, or a U.S. embassy.
The SEC Whistleblower Program, which applies transnationally, has been transformative for international whistleblowers because it creates clear protections and financial incentives for reporting foreign corruption and securities fraud. However, the program’s counterproductive restrictions on “voluntary” whistleblowing hurts international whistleblowers especially, and therefore interferes with federal anti-corruption objectives.
The rulemaking process for the new Anti-Money Laundering (AML) Whistleblower Program thus has immense implications for the program's effectiveness in fighting international corruption. The rulemaking offers the Department of Treasury an opportunity to ensure that no unnecessary restrictions are placed on the definition of voluntary whistleblowing, enabling the program to fully incentivize the cooperation of international whistleblowers.
Under the SEC Whistleblower Program, eligible whistleblowers can receive a monetary reward equivalent to 10-30% of the sanctions charged as a result of their tip. The SEC has three seemingly-simple eligibility criteria for Dodd-Frank Whistleblowers: whistleblowers must (1) voluntarily provide the commission with (2) original information that (3) leads to the successful enforcement by the Commission.
However, the SEC’s rules governing the Dodd-Frank whistleblower law unnecessarily complicate the definition of a voluntary whistleblower. According to § 240.21F-4, a Dodd-Frank whistleblower is no longer considered voluntary if the SEC contacts them before they file a report with the SEC. A whistleblower can also be disqualified if they partake in a Congressional investigation before filing with the SEC.
This definition undermines the purpose of whistleblower laws and ignores the realities of whistleblowing – especially as it pertains to international whistleblowers reporting through transnational U.S. whistleblower laws.
All whistleblowers share a common instinct: when they witness fraud and corruption, they cannot remain indifferent. That being said, the act of blowing the whistle looks different for each whistleblower. Some expose the truth through the media, some by reporting to internal compliance officers, and some by reporting to foreign law enforcement or U.S. embassies. Others will report to U.S. agencies they feel are well-suited to address the crime they witnessed.
These whistleblowers satisfy a colloquial understanding of “voluntary.” However, if the institution to which the whistleblower reported informs the SEC about the whistleblower’s tip before the whistleblower themself files with the SEC, the whistleblower may be considered involuntary under Dodd-Frank.
Data from the Foreign Corrupt Practices Act (FCPA) Unit prove that sources of enforcement actions consist largely of these excluded categories. Media reports constitute 20% of detection sources and civil society and foreign law enforcement another 20%. When the SEC conducts investigations into information they acquired through the media or foreign law enforcement/civil society, they will often contact the original whistleblower as part of the investigation. Yet, these whistleblowers are ineligible for awards because they were contacted by the SEC first.
The FCPA Unit also reports that 40% of enforcement actions are detected through “whistleblowers” – which in this context refers to whistleblowers who reported through any U.S. government agency. When whistleblowers fail to report to simultaneously file a report to the SEC within 120 days of reporting to another U.S. agency, they become ineligible for awards.
This remains the case even when whistleblowers report to agencies like the Department of Justice or Department of State who are obligated to advance certain reports to the SEC, and it remains the case even when the SEC is aware that the whistleblower’s information triggered enforcement.
These rules disproportionately impact international whistleblowers, who are less likely to understand the nuances of U.S. whistleblower law or even be aware that their financial protections might differ depending on where they report or when.
The SEC Whistleblower Program has been transformative in U.S. counter-corruption efforts specifically because it allows international whistleblowers to apply for the program and because it offers awards. However, the restrictions on who is considered “voluntary” make the program inaccessible and dysfunctional for many international whistleblowers, inhibiting the program from reaching its full potential for combatting international corruption.
Lawmakers have sought to use the whistleblower reward framework of Dodd-Frank as a blueprint for the new Anti-Money Laundering (AML) Whistleblower Act, which establishes a whistleblower award program for individuals blowing the whistle on money laundering and sanctions violations.
The U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) has yet to finalize the rules for the AML Whistleblower Program, and it is important that FinCEN think intentionally about designing rules that work for international whistleblowers.
By contrast, when the SEC was designing rules for Dodd-Frank in the wake of the 2008 recession, the focus was domestic. During the review period, the SEC did not receive a single comment regarding the implications of the “voluntary” definition for international whistleblowers, largely because few people considered the powerful transnational scope of the program until it went into effect.
For AML rulemaking, FinCEN has the advantage of hindsight.
The AML Whistleblower law was enacted specifically due to national security concerns about money-laundering abroad. In order for the program to be as effective as possible, it cannot replicate the same eligibility restrictions as the Dodd-Frank Whistleblower rules.
Importantly, neither the text of the Dodd-Frank law nor the text of the AML law themselves contain restrictions on the voluntary status of whistleblowers based on where they first report. Therefore, the eligibility restrictions in Dodd-Frank do not necessarily reflect the intent of Congress. FinCEN has no need to self-impose restrictions which will only limit the reach of the AML Whistleblower Program.
With over 10 years of data from Dodd-Frank, we have the resources to better understand where international whistleblowers report to and what kind of pressures they face. Whistleblowers are more likely to blow the whistle in the avenue that is most accessible to them, most known to them, most trusted by them, and which they believe is most effective.
The AML Whistleblower Program rule-making process presents a critical opportunity for U.S. anti-corruption efforts. If the AML Whistleblower Program is to embrace the mission of the U.S. Strategy on Countering Corruption, which emphasizes the importance of interagency cooperation, protection of journalists, cooperation with foreign law enforcement, and expansion of whistleblower programs, then the AML definition of voluntary whistleblower must include those who report to other agencies, to news and media sources, and to foreign law enforcement or U.S. embassies abroad.
These institutions already work together as part of an anti-corruption apparatus. By rewarding whistleblowers whose information triggers a sanction under the new AML law, no matter the institution they originally reported to, we can use this program to strengthen and mobilize the entire apparatus in the fight against money laundering.
Whistleblowing is a risk, and it can unfortunately come at a great financial cost. Whistleblower rewards work because they provide a safety net, one which serves as a preemptive reminder that the risk of reporting is worth taking, and one that fills a material need for whistleblowers after they have spent years in of their life in legal battles and potential unemployment as a result of blowing the whistle. The financial cost for whistleblowers in money laundering and securities fraud cases cannot be understated, given that many of them are risking executive pay grade salaries to report.
Since international whistleblowers tend to lack domestic anti-retaliation laws as strong as those in the United States, the safety net that rewards offer becomes an even more critical risk-assessment factor prior to whistleblowing and provides a more frequently needed alleviation of financial hardship in the wake of whistleblowing.
Therefore, if the purpose of the AML Whistleblower Program is to increase reports on money laundering, FinCEN should ensure that whistleblowers who successfully lead to enforcement action on money laundering crimes are rewarded, no matter the manner in which they provide the information. This will prove to international whistleblowers, without them needing to navigate the nuances of U.S. bureaucracy, that the risk of blowing the whistle is worth taking, and the United States will have their back as they do it.
Kate Reeves is a Public Interest Law Clerk at Kohn, Kohn, & Colapinto. She graduated cum laude from Georgetown University in May 2023, earning a Bachelor of Science in Foreign Service with honors in her major, Culture & Politics. While at Georgetown, Kate conducted extensive research on the efficacy of human rights laws in protecting against environmental injustices associated with green development
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