Congress needs to pass money laundering and sanctions-busting whistleblower protections

Mikhail Klimentyev, Sputnik, Kremlin Pool Photo via AP
Russian President Vladimir Putin attends a meeting in the Kremlin in Moscow on July 27, 2022.

Congress is very close to passing urgently needed whistleblower protections targeting Russian money laundering and sanctions busting. Bipartisan members of Congress recognize that the gapping loopholes in the whistleblower laws covering money laundering and sanctions must be fixed if criminals, such as the Russian oligarchs that keep President Vladimir Putin in power, can be held accountable.

The scope of the problem targeted by the whistleblower legislation is massive. For example, the largest money laundering scheme in history concerned Russian oligarchs, including members of President Putin’s family and the Russian secret police (the FSB). A detailed investigation by the Danske Bank confirmed that Russian millionaires and billionaires illegally used that bank’s offices in Estonia to transfer over $230 billion from Russia and former Soviet states into New York City banks. A whistleblower who first reported the scandal was compelled to resign from his job, sign a highly restrictive nondisclosure agreement and eventually had his identity illegally leaked to pro-Russian newspapers. Danish law provided no protections, the illegal leak was never investigated by the authorities, and ultimately the whistleblower abandoned his career as a banker. None the New York banks that welcomed the billions deposited by their new Russian customers have been held accountable, and their clients continue to enjoy living in elite Manhattan real estate. 

The money laundering and sanctions legislation pending in the House and Senate, House H.R.7195, sponsored by Reps. Alma Adams (D-N.C.) and Anthony Gonzalez (R-Ohio) and S.3316, sponsored by Sens. Charles Grassley (R-Iowa), Raphael Warnock (D-Ga.) and Elizabeth Warren (D-Mass.), will fix these problems. It will give the Department of Treasury the ability to successfully track down the hundreds of billions of dollars that passed through American banks and seize the assets of Russian oligarchs and others who launder funds to hide their ill-gotten wealth.   

Why is the whistleblower legislation so badly needed?  First, there are no protections whatsoever for whistleblowers who report sanctions violations. Those who wish to report illegal trade or financial transactions with North Korea, Iran, Venezuela or Russia have no legal protections whatsoever. Second, whether you are reporting money laundering or sanctions busting, the Department of Treasury lacks the ability to compensate you for your sacrifices or information, nor is there any requirement that any reward or compensation ever be paid to a whistleblower.   

The reform legislation provides a quick and well-established fix to these problems. The bills simply mirror the Dodd-Frank Act’s highly successful whistleblower laws covering securities fraud, commodities fraud and violations of the Foreign Corrupt Practices Act. If passed, the legal protections for reporting money laundering and sanctions violations would mirror those in Dodd-Frank.   

Why use the Dodd-Frank model? Dodd-Frank, and other similarly structured whistleblower laws, are widely praised by the law enforcement officials who administer anti-fraud programs. They are widely recognized as the most effective and powerful anti-corruption laws in the United States. Just this past July, the SEC’s Director of Enforcement applauded the Dodd-Frank whistleblower procedures for their “critical role” in helping to “effectively detect wrongdoing” and “bring violators to justice.” She described whistleblower “contributions” under Dodd-Frank as “invaluable” for protecting investors and reporting foreign bribery. The most recent independent audit of America’s foreign corruption laws, conducted by the Organization for Economic Cooperation and Development, also praised Dodd-Frank’s “multi-faceted” whistleblower “protections” as they “provide powerful incentives for qualified whistleblowers to report foreign bribery.”   

The bills pending in Congress are 100 percent based on the successful provisions contained in Dodd-Frank. These provisions would incentivize and compensate whistleblowers whose “original information” results in successful prosecutions. The genius of these laws is that they cost the taxpayer nothing, and generate billions for the victims of crime and the taxpayers. This is accomplished by creating a “revolving fund” where the sanctions obtained from criminals in whistleblower-triggered cases are deposited. All compensation flowing from these revolving funds, whether they are paid to victims, whistleblowers or taxpayers come directly from fines and sanctioned generated by the whistleblowers. The taxpayer pays nothing, yet always obtains the overwhelming majority of the income generated by the whistleblower’s information. There is never need for Congress to appropriate any monies whatsoever.  The programs are self-sustaining and highly profitable.   

The Dodd-Frank procedures are a win-win-win for accountability. The rule of law is vindicated by the whistleblowers when fraudsters are held accountable. The taxpayers and victims of the crimes obtain between 70-90 percent of all monies obtained from the whistleblower cases. For example, under Dodd-Frank alone, the SEC has paid restitution to victims of securities frauds over $1.5 billion from the sanctions earned from whistleblower cases. Finally, the whistleblowers can use the compensation derived from the sanctions paid by the fraudsters to move on with their lives and escape the hardships caused by retaliation. These procedures were carefully studied by the House Oversight Committee and endorsed on a bipartisan basis, including on-the-record endorsements by Reps, Gerry Connolly (D-Va.) and Gary Palmar (R-Ala.).  

Where does the reform legislation stand? The House Financial Services Committee unanimously approved the bill and it is “marked-up” for a vote in the full House.   

The last remaining known hurdle in the House is coming from the Appropriations Committee, Chaired by Rep. Rosa DeLauro (D-Conn.). Once she signs off on the bill it should quickly move forward as the legislation is cleared for a House vote and responsible Senate leadership has committed to passing the Grassley-Warnock-Warren bill once it is sent over from the House. Given the urgency of enforcing sanctions on Russia and seizing the assets of Putin’s oligarch enablers, H.R. 7195 and S. 3316 should be voted on and placed on President Biden’s desk as quickly as possible. The Ukrainians are doing their job under the most trying circumstances. Congress needs to do its job and provide critical support for the sanctions they have already approved.   

Stephen M. Kohn is a founding partner at the whistleblower law firm of Kohn, Kohn and Colapinto and the Chairman of the Board of the National Whistleblower Center

Tags Charles Grassley Money laundering Vladimir Putin whistleblower protection

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