The Year Ahead: 2023 Financial Frauds Trends to Watch

Things are heating up in the world of financial frauds. Let’s take a look at some areas of potential uptick in enforcement.

The Anti-Money Laundering Act Whistleblower Program Gains Teeth

Months of unprovoked war in Ukraine, significant monetary sanctions against Russian oligarchs and corporations, but nowhere for whistleblowers to go—until now. In the final days of 2022, Congress passed a $1.7 trillion federal spending package that significantly strengthened the Anti-Money Laundering Act (AML) whistleblower program. Created in January 2021, the Department of the Treasury’s AML whistleblower program created a path forward for whistleblowers to report violations of the Bank Secrecy Act, 31 U.S.C. 5311 et seq.[1] Fortunately, the recent Anti-Money Laundering (AML) Whistleblower Improvement Act expanded the AML whistleblower program to include violations of U.S. sanction laws, and set a minimum whistleblower reward at 10% of the recovered monetary fines–thereby guaranteeing that eligible whistleblowers will receive a whistleblower reward of between 10% to 30% of collected fines after a successful action. Congress also created a Financial Integrity Fund as a funding mechanism to aggregate collected fines and pay whistleblower rewards.

These improvements create tremendous opportunities for whistleblowers to utilize the AML whistleblower program to bring misuse of financial institutions and violations of U.S. sanction laws to light, potentially including violations by Russian oligarchs, and render the AML whistleblower program one to watch, and likely a hot enforcement area, over the coming year.

Senate Judiciary Committee Ranking Member Chuck Grassley (R-Iowa) introduced Senate Bill S.3316 to improve the AML whistleblower program, which the Senate unanimously approved in December 2022, and Representative Alma Adams (D-NC) introduced House companion bill, H.R. 7195. In September 2022, Taxpayers Against Fraud sent a letter to members of the Senate Banking Committee supporting Senate Bill S.3316 and urging them to strengthen the AML whistleblower program, recounting specific examples of whistleblowers who had been unable to pursue their allegations under the previous AML whistleblower program. Fortunately, the newly strengthened AML whistleblower program allow for such whistleblowers to step forward with more clarity that their concerns may fall within the reach of the program and that they can receive a whistleblower reward for their hard work and courage in speaking up.

The AML whistleblower program is young, and the coming year will be important to see how sharp its teeth really are.

The SEC and CFTC Whistleblower Programs Continue to Grow in Prominence

            The Securities Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) whistleblower programs are on the rise, with 2023 poised to be an even busier year for the agencies. In fiscal year 2022, the SEC received the largest number of whistleblower disclosures ever received, and the CFTC received a 50% increase in whistleblower disclosures from the previous year. The SEC further incentivized whistleblowers to come forward by adopting two amendments: (1) the SEC can now pay awards to whistleblowers for information and assistance in connection with non-SEC actions in certain circumstances, and (2) the SEC has authority to increase, but not lower, a whistleblower award. Because these amendments only became effective in October 2022, the next year will show how these amendments are put into practice and what effect they have for whistleblowers. Additionally, consistent with the Department of Justice’s and other federal agencies’ focus on cybersecurity, the SEC has proposed rules on cybersecurity incident and risk management disclosure that would require consistent reporting about new and previously-reported material cybersecurity incidents and public companies’ policies and procedures to mitigate cybersecurity risks. SEC Chair Gary Gensler supported the proposed rules because, “[t]oday, cybersecurity is an emerging risk with which public issuers increasingly must contend. Investors want to know more about how issuers are managing those growing risks. . . . companies and investors alike would benefit if this information were required in a consistent, comparable, and decision-useful manner.” While the public comment period ended in May 2022, the SEC has yet to adopt final cybersecurity rules but appears poised to do so in the next few months, solidifying cybersecurity as a key enforcement area across several whistleblower programs in the year to come.

By Jaclyn Tayabji of Tycko & Zavareei LLP