Whistleblower Incentives and Protections

Summary

SIFMA ¹ provided comments in support of the Anti-Money Laundering Act of 2020’s requirement for FinCEN to establish a formalized framework for a whistleblower program. Their targeted comments are intended to encourage whistleblowers to come forward with original information while supporting FinCEN’s stated goal of providing “entities that invest in strong internal audit and compliance programs the opportunity to benefit from such programs,” by giving them “the opportunity to review and assess information that could relate to a violation of a covered statute and, where they deem it appropriate, address and/or voluntarily disclose the information to the government.” ²

Excerpt

1. Tie the waiting period for company insiders to required internal reporting to avoid undermining FinCEN’s stated goal of incentivizing strong audit and compliance programs

To fulfill FinCEN’s stated objective, the requirement for certain company insiders to wait 120 days before making a reward-eligible report to FinCEN should be revised. As written, with the 120-day period starting from the date an insider obtains the relevant information, the provision undermines internal audit and compliance programs. We recommend revisions in line with the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) whistleblower programs in addition to a requirement to report internally.

Under the proposal, certain company insiders and third parties supporting an entity’s audit and compliance functions (collectively, “company insiders” for this letter) must wait at least one hundred and twenty (120) calendar days from the date they obtained award-eligible information before providing it to FinCEN, ostensibly to give an entity a chance to investigate, remediate, and consider possible voluntary self-disclosure. However, unlike other federal whistleblower programs, the 120-day period for company insiders under FinCEN’s proposal does not depend on whether information has been reported internally. To give companies the opportunity to “review and assess information that could relate to a violation of a covered statute and, where they deem it appropriate, address and/or voluntarily disclose the information to the government,” the 120-day waiting period should be tied to the date on which information was reported to the relevant entity’s audit committee, chief legal officer, or chief compliance officer (or their equivalents) or to the individual’s supervisor; as with the SEC’s whistleblower rules, the waiting period could be tied to the date the information was received only if the circumstances indicate that the entity’s audit committee, chief legal officer, or chief compliance officer (or their equivalents) or the relevant supervisor was already aware of the information. ³

We applaud FinCEN’s recognition and support of internal compliance programs. Over many years, our members have invested billions of dollars and significant time and effort into sophisticated and strong internal compliance programs to comply with myriad regulations and to identify and proactively address potential misconduct and noncompliance. The Department of Justice (DOJ) and other federal agencies also recognize the importance of internal compliance programs, evidenced by their policies that give credit for voluntary self-disclosure of misconduct identified by an entity through its audit and compliance functions. ⁴ make clear that self-disclosures made to OFAC after a whistleblower report (no matter how soon after) will not receive voluntary self-disclosure (VSD) credit: “Notification to OFAC of an apparent violation is not a voluntary self-disclosure if: . . . when the Subject Person is an entity, the disclosure is made by an individual in a Subject Person entity without the authorization of the entity’s senior management.” Unlike under the DOJ’s Criminal Division Corporate Enforcement and Voluntary Self-Disclosure Policy (CEP), which offers full VSD credit in the criminal context, or the proposed FinCEN program, entities will not be eligible for OFAC VSD credit for disclosures made after a whistleblower is submitted to FinCEN and relayed to OFAC.)) We previously advocated for whistleblower programs that require internal reporting. ⁵ At a high level, whistleblower programs should work in concert with, rather than undermining, effective compliance programs in order to reduce money laundering, sanctions violations, and other targeted conduct.