The Law Firm of Piacentile, Stefanowski & Malherbe LLP

Money Laundering and Whistleblowing

The U.S. and U.K. have a long history of being at the forefront of money laundering. While both countries have been praised for their strong anti-money laundering (AML) laws and regulations, and for their efforts in combating money laundering, both countries have nevertheless become known as global money-laundering hubs. This article will explore how and why the U.S. and U.K. became money-laundering capitals, and what whistleblowers can do to combat this problem.

Criminals need to hide the proceeds of their illegal activities. Drug traffickers, mobsters, terrorists, arms traffickers, blackmailers, and credit card swindlers disguise the origin of their criminal money so they can avoid detection and the risk of prosecution when they use it. Money laundering generally involves a series of multiple transactions used to disguise the source of financial assets so that those assets may be used without compromising the criminals who are seeking to use them. These transactions typically fall into three stages:

  • Placement - the process of placing unlawful proceeds into financial institutions through deposits, wire transfers, or other means.

  • Layering - the process of separating the proceeds of criminal activity from their origin through the use of layers of complex financial transactions.

  • Integration - the process of using an apparently legitimate transaction to disguise illicit proceeds.

Money can laundered through currency exchange, stock brokerages, gold dealers, casinos, automobile dealerships, insurance companies, and trading companies. Private banking facilities, offshore banking, shell corporations, free trade zones, wire systems, and trade financing schemes can all be used to mask illegal activities. Criminals laundering money have been manipulating financial systems in the U.S. and the U.K. like never before. Criminals use money laundering to conceal the source or ownership of money, promote further criminal offenses, evade income taxes, or evade monetary reporting requirements.

The wealth held in tax havens is staggering, estimates range from $6 trillion to $36 trillion. The U.S., with its suspicious Delaware shell companies and South Dakota trusts, has long played a big part in the manipulation of the system by money launderers. Also, European countries like Switzerland offer other alternatives for money laundering, like secretive bank accounts.

America’s money laundering problem was brought to public light recently when BuzzFeed and the International Consortium of Investigative Journalists published an article called the FinCEN files, revealing that from 1999 to 2017, banks filed reports detailing $2 trillion worth of suspicious activities to the Treasury Department. The Financial Crimes Enforcement Network or FinCEN was composed at the time of a small unit of 300 people. This investigation shined a light on how the U.S became a magnet for money launderers from all over the world, and from different types of crime organizations like drug cartels and human traffickers to Russian oligarchs and African kleptocrats. Money was laundered using U.S banks as safe heavens, as well as real estate, art, Bitcoin, and many other types of investment vehicles.

Money laundering is not just a problem in the world’s major financial markets and offshore centers. It is also a problem in emerging markets. As we see increased efforts by authorities in major financial markets to combat money laundering, criminals have begun shifting their money laundering activities to emerging markets.

Many money launderers use front companies to access substantial illicit funds, allowing the wrongdoers to subsidize the front company. This creates a competitive disadvantage over legitimate companies. It distorts the workings of free market economies.

In addition to the loss of tax revenues for governments, which harms taxpayers with higher tax rates than would otherwise be the case, there is also a significant social cost. Money laundering enables drug traffickers and other criminals to expand operations worldwide. The sheer magnitude of the economic power that accrues to criminals from money laundering activities has a corrupting effect on all elements of society. Whistleblowers can play an integral role in creating a hostile environment for money launderers.

With finance having become globalized and with money and assets moving rapidly and with ease between jurisdictions, it is critical to work in partnership with international law enforcement and agencies to target individuals engaging in these illegal activities. By identifying and arresting money launderers, further criminal activity like terrorism and drug trafficking, can be thwarted.

The new U.S. anti-money laundering whistleblower rewards program came into effect in 2021. This program was designed to reward whistleblowers for reporting information about some person or entity violating U.S. anti-money laundering laws. This primarily involves violations of the Bank Secrecy Act. Whistleblowers who report this information can qualify for a reward if their information leads to a successful enforcement action by the government and if the information was not already known by the government.

The way this program works is relatively simple. If you have any information about someone or some entity breaking U.S. anti-money laundering laws, you can report this information to the U.S. government. If your information is found to be true, was not already known by the government, and leads to a successful enforcement action where the government collects money, then you may be rewarded a percentage of the money that was recovered from the violators. The hope is that because of these protections and potential financial incentives, more people will come forward and report money laundering crimes, which will lead to a higher rate of prosecutions and convictions related to crimes involving money laundering and other types of financial frauds.

This whistleblower program is administered by the US Department of Treasury. The Treasury Department's Financial Crimes Enforcement Network, also known as 'FinCEN,' is responsible for investigating allegations that the Bank Secrecy Act has been violated. The Treasury Department is responsible for providing rewards to whistleblowers if the whistleblower's non-public information about anti-money laundering violations leads to enforcement action and the U.S. government collecting monies from the violator. For a whistleblower to be entitled to a reward under this program, the amount collected must exceed 1,000,000 dollars.

Whistleblowers do not need to be insiders to report money laundering violations and be eligible for a reward. A whistleblower must, however, voluntarily report their information to the Treasury Department. A whistleblower can acquire their information either from directly becoming aware of the violation or from their independent analysis of publicly available information, provided the government was not already aware of the conclusions of this analysis. This whistleblower program has international reach. Whistleblowers can qualify for a reward even if not a US citizen or resident.

The fight against money laundering is an ongoing effort and one that requires the combined efforts of law enforcement agencies, financial institutions, and individuals who are willing to speak up when they see something amiss. At our firm, we are committed to helping those who seek justice. We work with whistleblowers to ensure that money launderers can no longer operate with impunity. If you have information about a money laundering scheme, please contact our attorneys. We hope that you found this article informative and helpful. Thanks for reading!