As maintaining comprehensive security and limiting the prevalence of a wide array of financial crime has become paramount for financial institutions both domestically and abroad, “whistleblowing” have evolved into one of the most important – albeit underrated – aspects of today’s anti-money laundering (AML) and counter-terrorism financing (CFT) movements. Today, upholding standards and assuring compliance with regulations are responsibilities that are not solely reserved for federal regulators. It is the responsibility of every individual operating in the financial industry to help maintain the integrity of their respective institutions, as well as the greater financial system as a whole. When ordinary citizens and not just government task forces take it upon themselves to expand their vigilance, it helps ensure the effectiveness of AML and CFT efforts on an expanded scale. As such, if laws or regulations are broken – or any activity deemed suspicious is witnessed – it is expected to be reported regardless of the potential ramifications that might unfold for one’s employer, or worse themselves.
When nefarious activity or lack of compliance sprouts from within an organization, more often than not the government relies on information from whistleblowers that come forward to expose these practices. Unfortunately, the practice of whistleblowing – that is, revealing wrongdoing within an organization to the public or to those in positions of authority – is still frowned upon in the workplace environment. SEC whistleblowers are protected against retaliatory actions taken by employers against their employees for approaching the SEC or other authorities under the anti-retaliation provisions of the Sarbanes-Oxley Act and the Dodd-Frank Act. In the UK, financial crime informants are protected by the Public Interest Disclosure Act 1998, which makes them immune to similar repercussions. However, the threat of repercussions or even workplace violence is often enough to deter individuals from coming forward, a cycle that can hinder ethical practice across the entire financial industry. In order to encourage more individuals to take on the risks associated with disclosing information of this variety, the United States government is offering very generous rewards to those that choose to come forward.
After creating The Office of the Whistleblower in 2010, the United States Securities and Exchange Commission (SEC) has since moved to award informants from far and wide with lucrative payments ranging from 10% to 30% of the money collected when the monetary sanctions involved in their case exceed the $1 million threshold. Under the compensatory portion of the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, whistleblowers are eligible to receive a substantial monetary reward by voluntarily providing the body with credible information that leads to successful enforcement actions down the road. While already lucrative, these rewards have grown increasingly larger in recent years. Under the rewards program, providing the SEC with information that leads to enforcement actions can make you an instant millionaire. Since 2012, the SEC has issued more than $520 million in whistleblower awards on over 94 payouts.6 In June, the Securities and Exchange Commission paid out a whopping $50 million to an individual who had firsthand knowledge of a company’s misconduct. A SEC press release stated that the information this individual provided ultimately “resulted in a successful enforcement action that returned a significant amount of money to harmed investors.”5 The award became the largest individual payout issued to a whistleblower since the program’s commencement, far surpassing the previous largest sum of $39 million issued in 2018. “This award marks several milestones for the whistleblower program,” said Jane Norberg, Chief of the SEC’s Office of the Whistleblower. The press release continued, noting that this decision “brings the total awarded to whistleblowers by the SEC to over $500 million, including over $100 million in this fiscal year alone”, adding that “whistleblowers have proven to be a critical tool in the enforcement arsenal to combat fraud and protect investors.”5
The most recent multimillion-dollar award was levied early last week, as another whistleblower was given $10 million for providing key witnesses and ongoing assistance to investigators throughout their probe into what has been revealed as serious financial misconduct. In this instance, it was reported that the whistleblower endured some “hardships” secondary to coming forward. It was the fourth payout this year to exceed $10 million.2 It undoubtedly requires a great degree of courage and a strong moral compass for one to come forward and report illicit and unethical activities occurring within their own company, but the good news is that these acts are no longer going unrecognized (or unrewarded). While whistleblowing alone is far from an end-all be-all action in the fight against financial crime, it is still an essential tool for keeping financial entities in check. If a good conscience from doing the right thing isn’t enough of an incentive, there’s now the added bonus of millions of dollars in potential recompense for individuals with pertinent information to consider.
Trending: Launderers Using Chinese eCommerce to Move Illicit Funds
The People’s Bank of China, the country’s central bank, is currently investigating the misuse of some of the region’s top eCommerce platforms (including Shanghai-based Pinduoduo) to facilitate large-scale money laundering efforts. The Financial Times has reported that Chinese authorities have already made several arrests related to a scheme that saw over $2 billion laundered at offshore gambling websites using fraudulent retail purchases as a driving force.4 According to reports, the scam functions by having cybercriminals make online purchases through web-based commerce platforms, with the same amount of funds used to make said purchases ultimately credited to offshore gambling accounts (as gambling is illegal in China). A trend has developed in much of Asia that has seen gambling syndicates operating under false pretenses on shopping platforms, with customers, eCommerce employees, and even package-shipping servicers all seemingly involved in the act.
A growing number of illegitimate ploys of this variety continue to emerge as much of the developed world continues its shift towards web-centered workflows and daily processes. As such, both the eCommerce and social media spheres are being pressed to ensure they maintain strong internal controls to better manage growing risks and help thwart financial crime whenever possible. Other proposed measures, such as the potential creation of a digital currency specific to East Asia, have been discussed as a means to combat money laundering. The Financial Times, citing a representative from the European Central Bank (ECB), adds that “such a currency would allow them to register transfers between users, thereby providing protection against money laundering and other illicit uses.”4 While these talks remain in their infant stages, such a development could be a major boon in limiting financial crime across the most heavily populated region of the world.
Citigroup in Hot Water Over Faulty Risk Controls
The Office of the Comptroller of the Currency (OCC) and the U.S. Federal Reserve are reportedly preparing to publicly reprimand Citigroup Inc. for failing to improve its risk management systems and procedures, leaving the company susceptible to potential threats. The potential move comes amidst a shift in power that will see company CEO Michael Corbat step down in February of 2021, allowing new leadership in the form of Jane Fraser, President of Citi, to tackle a remediation process that is expected to be both length and quite expensive. Altogether, this process is expected to include a complete overhaul of current risk management systems to better address the concerns of the federal regulators.
While representatives of both the Fed and the OCC have refused to comment on pending regulatory actions, many anticipate the parties will levy a consent order requiring the financial services staple to fully develop a plan to correct its ailing risk-managements protocols, while also strengthening its infrastructure and internal governance. Citing a Citigroup spokesperson, the Wall Street Journal writes that the banking giant remains “completely committed to improving our risk and control environment,”1 noting that while Citi as a whole has made significant and demonstrable progress in each of these areas,”1 they recognize that a significant amount of work remains to right the ship.
Brazil Makes Stand Against International Drug Trade
Coined Operation Status, Brazilian authorities recently initiated a major investigation into cross-border drug trafficking and subsequent money laundering efforts across several South American countries. Reuters writes that the probe has already produced tangible results, as Brazilian authorities reportedly have already blocked assets worth 230 million reais ($43 million). This total includes 42 properties, two farms, 75 vehicles, boats and aircrafts seized in Brazil, in addition to 10 properties valued about 150 million reais ($28.19 million) that were blocked in Paraguay.3 Reports have also indicated that Brazilian police have begun to issue search and arrest warrants in these jurisdictions as part of the operation.
Global RADAR will provide an update on future developments related to Operation Status in the weeks to come.
- Benoit, David, and Ben Eisen. “WSJ News Exclusive | Regulators Prepare to Reprimand Citigroup for Failing to Improve Risk Systems.”The Wall Street Journal, Dow Jones & Company, 14 Sept. 2020.
- Brasseur, Kyle. “SEC Continues Torrid Whistleblower Pace with $10M Award.” Compliance Week, 14 Sept. 2020.
- “Brazil Freezes $43 Million of Assets in International Drug Trafficking Probe.” Reuters, Thomson Reuters, 11 Sept. 2020.
- Liu, Qianer. “Money-Launderers Use Chinese Online Shopping Sites to Funnel Cash Offshore.” Financial Times, 16 Sept. 2020.
- “SEC Announces Its Largest-Ever Whistleblower Awards.” S. Securities and Exchange Commission, 19 Mar. 2018.
- Zuckerman, Jason, and Matthew Stock. “SEC Whistleblower Awards & Bounties.” Zuckerman Law, 14 Sept. 2020.