The Treasury Department is formalizing the expansion of a whistleblower program to incentivize referrals of potential violations of U.S. sanctions and export controls at financial institutions.
Officials at the Financial Crimes Enforcement Network, a Treasury Department bureau, are drafting a proposal to provide monetary awards for whistleblower tips that result in regulatory fines against financial institutions for facilitating transactions that violate sanctions laws.
Fincen plans to share information that it receives through the program with other federal agencies, including the Justice Department and the Treasury's Office of Foreign Assets Control, according to Fincen Director Andrea Gacki.
In remarks at an industry event last month, Gacki said that Fincen is already investigating information it has received from whistleblower tips and making referrals to other agencies.
"Under the whistleblower program, Fincen will be positioned to pay awards to eligible whistleblowers who voluntarily provide original information ... that leads to the successful enforcement of covered actions," Gacki said.
Fincen may also pay awards to whistleblowers who provide the agency with information that leads to enforcement actions by other government agencies, Fincen spokesperson Candice Basso said in an emailed statement.
The sanctions provisions represent an expansion of an anti-money-laundering whistleblower program that was started in 2021, following the enactment of
Under provisions of
The Treasury whistleblower program will likely result in more enforcement actions for AML and sanctions violations, according to Carlton Greene, a lawyer at Crowell & Moring, who said the Securities and Exchange Commission has taken a similar approach and found it useful.
Federal prosecutors could have a pipeline of cases building after the quick rollout of sweeping sanctions on Russia following its invasion of Ukraine in February 2022, said Greene, who previously served as Fincen's chief counsel.
"There is a lag time between new sanctions and actions to enforce them, because of the need for investigation, and as a result we can expect to see more enforcement of the Russia sanctions in the months to come," he said.
Over the past year, Fincen has pursued enforcement actions on its own against certain players that aren't regulated by other federal financial regulators "in addition to its normal collaboration with federal financial regulators on actions against their regulated entities," Greene said.
Will Schisa, a lawyer at Davis Polk & Wardwell, said that cases involving the facilitation of sanctions evasion often result from the "failure to properly integrate compliance programs" that meet new regulations.
Because sanctions rules typically focus on the movement of physical assets to sanctioned jurisdictions, compliance with the sanctions regime has not always been a major priority at banks and other financial institutions, according to Schisa, who previously served as a Treasury Department lawyer focused on foreign assets control.
Schisa said that while the Fincen whistleblower program could provide prosecutors with new information, it may not have a "huge practical impact," considering the increased attention other federal agencies are already giving to money laundering and sanctions evasion.
"It may, on the margins, result in only a few extra cases, but some of those cases may be very important," Schisa said. "Anything that provides an avenue to get information, particularly about the most serious violations, is a good thing."
Fincen and OFAC have expanded regulatory authority as a result of the enactment of the Anti-Money Laundering Act of 2020 and a Biden administration
OFAC has brought five enforcement actions against banks and cryptocurrency exchanges this year in connection with sanctions rules. In March, Wells Fargo agreed to pay a $30 million fine to OFAC and a $68 million penalty to the Federal Reserve.
Regulators accused Wells of inadequate anti-money-laundering compliance after it was revealed that trade-finance software developed by predecessor bank Wachovia and sold to a European bank was used to process transactions involving sanctioned individuals or jurisdictions, including Iran, Syria and Sudan.
Joseph Silvia, a lawyer at Dickinson Wright and former counsel at the Federal Reserve Bank of Chicago, said it's "shocking" that some financial institutions still lack certain compliance capabilities, considering that regulators are increasingly viewing overseas money laundering as a national security issue.
"As international financial systems have matured and gotten faster, we're starting to see more attention on regulations," Silvia said. "Without the flow of funds from nefarious actors, some of these organizations wouldn't be able to do what they're doing."
Expanding the Fincen whistleblower program is part of a broader regulatory effort to clamp down on the laundering of money overseas to finance foreign state actors and terrorist organizations.
The Justice Department has added 25 attorney positions to the Counterintelligence and Export Control Section of its National Security Division, and the Commerce Department has strengthened guidance for penalties against companies that do not self-disclose potential export-control violations.
Sanctions and export controls are "top of mind" for senior leaders at the Justice Department, according to Christian Nauvel, deputy chief counsel for corporate enforcement in the department's National Security Division.
The Treasury whistleblower program will bring "transparency to help educate" financial institutions about sanctions regulations and anti-money laundering compliance, Nauvel said at a conference in New York last month.
"If there are facts that lead to AML violations at a financial institution, for example, more likely than not, there's going to be the raw materials for sanctions violations there too," Nauvel said.
"If there are poor controls, there is poor due diligence, there are probably going to be AML violations, and sanctions and export controls are going to be pretty close behind," he said.
The fast rollout of sanctions against Russia has meant that agencies such as OFAC are likely to give financial institutions a break if they self-disclose potential violations, according to John Geiringer, a lawyer at Barack Ferrazzano Kirschbaum & Nagelberg.
"There was a lot of energy surrounding the Russian sanctions regime, and we didn't see a lot of enforcement actions as a result," Geiringer said in an interview. "For the most part, so long as you self-identify any potential mistakes, OFAC seems to be giving the benefit of the doubt, unless it's egregious."
