On Oct. 6, in a quick response to the Pandora Papers — a massive leak detailing secret financial assets of some wealthy and powerful individuals — members of Congress announced the Enablers Act. This act would effectively expand the provisions of the Bank Secrecy Act (BSA), or Currency and Foreign Transactions Reporting Act, to all the different players who have a hand in enabling money laundering, including accountants, investment advisers, public relations firms, lawyers and even art dealers.
Such a move would do a lot to impose necessary reporting requirements on the shadow world that allows for the secretive movement of money. But the act would do something else entirely that is equally, if not more, important: It would quietly expand last year’s new anti-money-laundering whistleblower program.
The Financial Crimes Enforcement Network (FinCEN) whistleblower program allows anyone with knowledge of a BSA violation to confidentially bring that information to the Department of Treasury. If the Treasury acts on the whistleblower’s information, that individual could potentially recover a portion of the proceeds as compensation for taking the career (and potentially physical) risk of reporting on illegal activity.
As is not surprising in the least, the world of money laundering is a secretive place. Law enforcement agencies often don’t know where to look to trace the flow of funds. Whistleblowers can provide a valuable guidebook to help chart the investigation.
One of the major criticisms of the new FinCEN program has been that it is too narrow. By solely focusing on violations of the BSA, the program misses a whole host of other violations of money-laundering laws that do not involve the narrow reporting obligations of a narrow set of players. This proposed amendment to the BSA would go a long way toward remedying that deficiency. If it passes, whistleblowers who know of, say, an accountant keeping double books to hide a client’s actual wealth or an investment adviser knowingly taking a client’s money without proper AML documentation could bring that information to the enforcement officials capable of doing something about it.
This de facto expansion of the program greatly increases the potential impact and improves the chances of the program succeeding in its goals. Not all money-laundering violations by any means will be covered by this expansion, but it is a major improvement.
A secondary benefit is that it appears to close a loophole in the securities laws that impose AML compliance procedures and reporting requirements on broker-dealers that investment advisers are not required to follow under at least some circumstances. This loophole has prevented the SEC’s robust whistleblower program from potentially reaching the full set of AML violations by some registered advisers. Although the law does not specifically call out registered investment advisers, its definition of investment personnel appears to be broad enough to close the loop. This again may allow a new set of whistleblowers to come forward with valuable information regarding the dark world of moving money.
The Pandora Papers, of course, is only the latest set of revelations of exactly how big a problem money laundering has become. Let’s hope that this immediate reaction by Congress to shut down many of the pathways used to hide funds begins to stem the tide by enabling a whole new universe of potential whistleblowers out there to come out of the woodwork.
Poppy Alexander is an attorney in Constantine Cannon’s whistleblower practice.