Sunday Read: Whistleblowers Can Help Stop Russian Invasion of Ukraine.
This overview of whistleblowers’ role in combating transnational crime and financial corruption was sent as part of NWC’s Sunday Reading series that aims to educate supporters about specific whistleblower issues. For more information like this, please join our mailing list.
In recent weeks the U.S. government has taken strategic action to disarm Russia through economic sanctions in response to the country’s violent efforts to invade Ukraine. The sanctions target nearly every aspect of the Russian economy including its financial system, energy sector, and the assets of powerful individuals closely aligned with Russian President Vladimir Putin. These individuals are widely referred to as “oligarchs”, a phrase that refers to members of the small group of people in control of a country — in this case, Russia.
Whistleblowers are Key to U.S. Sanctions Stopping Russian Invasion:
U.S. officials are putting direct attention on individuals and entities which the government believes might take steps to evade sanctions. Specifically, U.S. regulators are focused on suspicious activities such as the creation of shell companies, exploiting tax havens, using secret trusts, registering assets in foreign countries, and converting assets to cryptocurrencies. In fact, this past week the Financial Crimes Enforcement Network (FinCEN) issued an alert instructing financial institutions to be vigilant against efforts to evade U.S. sanctions.
The elaborate steps taken to conceal assets can make it difficult for law enforcement agencies to detect violations. Whistleblowers who possess inside information regarding violations are the key to the success of these sanctions. Whistleblowers who have the courage to come forward despite fear of violence or other forms of retaliation are essential to the detection of individuals and entities who try to get around sanctions to maintain the power of Russia’s elite and continue financing the ongoing efforts to violently invade Ukraine.
In this Sunday Reading we will explore how existing whistleblower programs can be used to bolster U.S. efforts to detect and prevent attempts to evade U.S. Sanctions which are designed to disarm the financial engine behind Russia’s invasion of Ukraine.
The Anti-Money Laundering Whistleblower Program:
The recently enacted Anti-Money Laundering Act of 2020 (AML) created a whistleblower program that pays awards to whistleblowers who voluntarily provide “original information” regarding violations of the Bank Secrecy Act (BSA), the primary AML enforcement law. The BSA imposes various obligations on financial institutions, including the duty to report suspicious activities and large financial transactions. These BSA requirements are often directly implicated in circumstances where entities and individuals attempt to evade U.S. sanctions, and whistleblowers can be rewarded for reporting financial institutions that fail to comply with their obligations under the BSA. Moreover, the AML whistleblower program is not limited to the United States — international whistleblowers can also report BSA violations — which is especially important given that money laundering offenses often involve moving assets across international borders.
Internal Revenue Service Whistleblower Program:
The Internal Revenue Service (IRS) also maintains a robust whistleblower program that pays rewards to individuals who provide original information concerning violations of the Internal Revenue Code. Such violations often take the form of concealing assets in order to shield them from tax liability. Wealthy leaders in Russia, many of whom are under sanction, have billions of dollars in assets within the U.S. that are subject to tax obligations. Whistleblowers can provide the IRS with information that will help detect where these assets are and whether they have been properly taxed, and whether these individuals have concealed ownership of their assets in order to evade sanctions.
During his State of the Union Address, President Biden announced that “The U.S. Department of Justice is assembling a dedicated task force to go after the crimes of Russian oligarchs.” The President added, “We are coming for your ill-begotten gains.” Making good on those words, the Biden Administration just announced the creation of Task Force KleptoCapture that will help enforce U.S. and allied sanctions. The task force comprises numerous law enforcement agencies, including the IRS.
Though it may seem surprising, the IRS is well suited for this role — its criminal investigation division is one of the few federal law enforcement agencies solely devoted to solving financial crimes. IRS whistleblowers can, and likely will, play a central role in this effort.
Commodity Futures Trading Commission Whistleblower Program:
The Commodity Futures Trading Commission (CFTC) whistleblower program is another tool that can be used to crack down on sanctioned Russian entities and individuals. The program offers rewards to individuals who report violations of the Commodity Exchange Act. Importantly, the CFTC has expressly asserted jurisdiction over certain cryptocurrencies, such as Bitcoin, potentially creating an avenue for whistleblowers to be rewarded for reporting commodity law violations involving crypto. Officials have warned that cryptocurrencies can be used by Russia to evade U.S. sanctions in light of the difficulty in tracing crypto transactions. The CFTC whistleblower program should therefore be considered a potent tool in detecting sanctions violations.
Improving Whistleblower Programs will Give Whistleblowers More Power to Help Stop the Invasion
Although the whistleblower programs discussed above provide an important enforcement mechanism for Russian sanctions, certain loopholes and other flaws undermine their efficacy. The IRS whistleblower program, for example, lacks sufficient resources to process whistleblower claims and takes an average of ten years to pay out whistleblower awards. And the AML whistleblower program doesn’t guarantee mandatory minimum awards.
However, several recently proposed bills currently pending in Congress attempt to address these issues. S. 3316 would institute mandatory minimum rewards for AML whistleblowers and would create a designated fund for paying out awards. S. 2055, and its companion bill in the House of Representatives, H.R. 4107, would bolster the IRS whistleblower program by providing additional resources and strengthening whistleblower incentives and protections.
Still, more can be done to improve whistleblower laws in order to thwart Russia’s efforts to evade U.S. sanctions. The AML whistleblower program should be expanded to cover other types of money laundering offenses beyond those enumerated in the BSA. Doing so would create additional enforcement measures for common money laundering techniques, like laundering assets through opaque shell companies, that currently fall outside of the scope of the BSA.
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The sanction controlling the movement of Russian wealth highlight how important economic support is to the success of any effort. Please support National Whistleblower Center’s war on corruption by donating today. NWC is actively engaged in efforts to support and protect whistleblowers with the incredible courage to come forward with information that will help put an end to the invasion of Ukraine and stop wealthy individuals from exploiting the U.S. economy to undermine democracies around the world. Every dollar helps further this good work, and we need your support today.
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