We’ve been failing at AML efforts, but new U.S. rules offer hope

Earlier this year, David Lewis, executive secretary of the Financial Action Task Force, said bluntly, “We are all doing badly, some not as badly as others” with regard to AML efforts. The FinCEN leaks reinforced his comment, and while many resent blame being attached to banks/firms, there is no escaping the collective failures of all stakeholders, including regulators.

The global sum collected for AML failures in 2020 is approximately $14.4 billion, and in a number of instances, individual employees within regulated financial service businesses have been charged with criminal money laundering offenses. Pursuant to the FinCEN leaks, governments have taken action, none more so than the United States, where recent legislation has sought to end anonymous shell companies and started a whistleblower program for those who report AML failures.

Some of you know me as the man who blew the whistle against Wachovia Bank (now Wells Fargo). For the record, the penalties applied to Wachovia Bank resulted from the hard work of U.S. federal agents—I was a sideshow. Nonetheless, I was once told had I blown the whistle two years later than I did, I could have been rewarded as much as $12 million under the provisions of what was then the new Dodd-Frank Act. I am coping without it.

After blowing the whistle, I have been contacted by many other people seeking advice regarding doing the same in their own bank/firm. I have held a number of conversations with Harry Markopolos, the man who blew the whistle on Bernie Madoff and now runs a business that coaches and recruits whistleblowers. Since presenting evidence to former Sen. Chris Dodd (D-Conn.) and former Rep. Barney Frank (D-Mass.), Markopolos has pursued a number of high-value, high-profile claims against firms based upon evidence provided by whistleblowers, some of whom remain simultaneously anonymous and employees of the firm upon which they blew the whistle.

Markopolos previously advised me there was no money to be made dealing with people blowing the whistle in relation to money laundering. Behold, times have changed—and banks/firms worldwide should be worried.

U.S. nexus

Given the importance and prominence of the U.S. dollar, almost all international businesses have a connection to the United States. These connections facilitate business and access to markets. By transacting in U.S. dollars, firms can rely upon and derive benefits from a stable currency. At the same time, though, they are compelled to comply with U.S. federal laws. Hence, the new legislation passed by Congress presents a significant change to the world of AML and increased risks to banks/firms.

Money laundering is an industry that makes profits supporting and facilitating crime, whereas the whistleblowing industry disrupts, frustrates, and stops crime—and now it, too, can make a profit. Make no mistake, Markopolos and others—in particular, specialized law firms—are going to be making expedient moves into the world of AML, and with fines at the level they are, there is a lot of money to be made.

Since the Securities and Exchange Commission reward program was introduced, in excess of $700 million has been paid to whistleblowers and their representatives, including a record $114 million paid to a whistleblower earlier this year. Last year, Jane Norberg, chief of the SEC’s Office of the Whistleblower, presented to a select committee in the U.K. parliament. During her speech, she almost radiated as she constantly smiled and extoled the virtues of the SEC’s whistleblower program. She described the process as being the equivalent of “cake in a box,” in that all the ingredients and baking instructions were provided to bake the perfect cake.

Norberg referenced instances of specialist lawyers presenting comprehensive and complete evidential packages, within which there is precision regarding the regulations and laws alleged to have been breached, alongside robust evidence supporting the allegations.

What does all of this mean to the AML compliance practitioner and his/her firm? We need to do better, because if we fail to do so, Markopolos and others will offer an inviting and welcoming incentive to those who identify and subsequently blow the whistle on our continued failings.

After all, money talks.