Financial Frauds

The Anti-Money Laundering Act of 2020

Money laundering is the engine of crime, allowing criminals to keep and use their ill-gotten gains without drawing attention to the illegal sources. Often, criminals “launder” or clean their dirty money by using it for legal transactions or activities. A criminal enterprise might operate a cash heavy business – like a store, restaurant, or car wash – as a front to comingle clean money with drug money. A corrupt government official might use a shell company to buy real estate with bribery money. Or a bank turning a blind eye to suspicious deposits.

Because money laundering is what makes crime pay, it is a common thread that ties together bad actors of all types – online and crypto crooks, tax cheats, terrorists, dictators, Wall Street fraudsters, traffickers, and organized crime syndicates, to name just a few. As money laundering seriously infects and undermines economic and social wellbeing, it is prohibited in countries across the globe. The Bank Secrecy Act is the primary anti-money laundering law in the United States, and violations of the BSA can result in steep financial penalties and long prison sentences.

In early 2021, Congress cracked down even further on money laundering when it passed the Anti-Money Laundering Act of 2020 (AMLA). The AMLA expands the scope of money laundering crimes, as well as the government’s power to investigate such wrongdoing. And significantly, the AMLA incentivizes whistleblowers to report wrongdoing. First, the AMLA provides whistleblowers with a legal shield from harassment and retaliation by their employers for questioning and/or reporting potential money laundering. Under the law, a whistleblower who is retaliated against is entitled to be reinstated to their job, double back pay, and legal fees. In addition, by law, these employment protections cannot be waived by any agreement.

Second, under the AMLA, when the government uses a qualifying whistleblower’s information to impose sanctions on a money launderer in excess of $1 million, then the whistleblower is eligible for a financial award of up to 30% of the sanction. Whistleblowers can even submit their information to the government anonymously, through counsel.

The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA)

Our country’s recent history in the banking, finance, and investment industries demonstrates the importance of whistleblowers against fraud and other illegal conduct. Through the 1980s and into the mid-1990s, our country experienced a banking crisis in the Savings & Loan (S&L) industry. As a result of rapid expansion and investment in risky projects, S&Ls began to fail across the country. By the time the dust settled in the mid-1990s, over 700 S&Ls were closed and taxpayers were left to cover losses estimated at around $124 billion. The crisis even essentially bankrupted a federal agency – the former Federal Home Loan Bank Board.

The S&L industry did not collapse only because of regulatory malfeasance and difficult economic conditions. Fraud and illegality played a big role. According to reporting by the N.Y. Times, by 1992, over 1,000 people were prosecuted for major S&L fraud, and over 800 were convicted.
How fraud becomes part of a corporate culture was aptly described by William Black, former senior regulator for several federal agencies during the S&L crisis:

“The bank-compensation system also creates an environment that leads to mismanagement and fraud. No one has to tell someone they have to stretch the numbers. It is all around them. It is in the rank-or-yank performance and retention systems advocated by top business executives. Here, the top 20% get the bulk of the benefits and the bottom 10% get fired. You don’t directly tell your employees you want them to lie and cheat. You set up an atmosphere of results at any cost. Rank or yank. Sooner rather than later, someone comes up with the bright idea of fudging the numbers. That’s big bonuses for the folks who make the best numbers. It sends the message — making the numbers is what is most important. There is a reason that the average tenure of a chief financial officer is three years.

Compensation systems like I have just described discourage whistleblowing — the most common way that frauds are found in America — because the system draws upon the cooperation of everyone.

The basis for all regulation and white-collar crime is to take the competitive advantage away from the cheats, so the good guys can prevail. We need to get back to that.”

Against this backdrop, Congress passed FIRREA, and its companion law, FIAFEA – the Financial Institution Anti-Fraud Enforcement Act of 1990.
Under FIRREA, the Department of Justice can file civil lawsuits for a variety of criminal violations applicable to the financial services industry, including bank fraud, mail fraud, wire fraud, embezzlement, and making false statements. And under FIAFEA, whistleblowers who expose such violations can receive financial awards of up to $1.6 million for their information.

FIRREA not only covers frauds committed against financial institutions, but it also covers frauds committed by financial institutions. And penalties under FIRREA can be substantial – up to about $2 million per single violation, and up to about $10 million for continuing violations. Significantly, multiple whistleblowers assisted the DOJ in famously using FIRREA to collect more than $100 billion in fines against numerous banks, for their role in the subprime mortgage scandal and subsequent recession – an event some believe we are doomed to repeat, amid growing concerns about the subprime auto loan industry.

Our system depends on whistleblowers to assist in the enforcement of laws and regulations designed to protect customers, taxpayers and investors, as well as to help regulators stay ahead of the latest deceptions invented by those in the banking, finance and investment industries that are determined to sharply bend and break the rules for personal gain.

Taking the Next Step

Mehri & Skalet’s Whistleblower Rights team has a long history of zealous advocacy on behalf of whistleblowers in the financial services and related industries. M&S attorney, Ezra Bronstein, is a Certified Anti-Money Laundering Specialist (CAMS), and previously directed the Federal Housing Finance Agency Office of Inspector General’s whistleblower operations. If you have information that may help the establish one or more violations of the laws and regulations concerning money laundering and/or affecting the financial services industry, we would welcome the opportunity to talk with you. Contact the Whistleblower Rights team now!