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Justice wants to track down more whistleblowers to tackle white-collar crime

Justice wants to track down more whistleblowers to tackle white-collar crime

Howard Wilkinson was a mid-level manager at a Danish bank branch in Estonia when he alerted his superiors to the suspected illegal transfer of Russian money through the bank to the United States.

Danske Bank pleaded guilty last year to criminal charges of laundering $230 billion and agreed to forfeit $2 billion to settle the case with the U.S. Justice Department.

According to the justice department, the case is a good example of the kind of global financial corruption that can be exposed with the help of an insider. Plans are being developed to recruit more whistleblowers to generate new leads.

Under a Biden administration program that the Justice Department plans to unveil within weeks, authorities will offer whistleblowers who provide tips that lead to successful prosecutions a percentage of the resulting fines and costs — an amount that could total millions of dollars.

The initiative is designed to help prosecutors navigate the world of criminal financial misconduct by persuading companies to strengthen internal compliance and voluntary disclosure of misconduct and by providing a a step-by-step plan for filing charges against those who don’t.

Deputy Attorney General Lisa Monaco described the effort as a modern-day version of the rewards law enforcement once offered in “the days of ‘wanted’ posters in the Wild West.” Authorities say it could lead to asset forfeitures worth hundreds of millions or billions of dollars a year.

The expansion of whistleblower programs within the U.S. government since 2011, when Congress gave some federal agencies new authority to pay tips under the Dodd-Frank Act, has received bipartisan support.

Still, some lawyers who focus on white-collar crime warned that the Justice Department’s efforts could undermine companies’ ability to conduct their own investigations, giving tipsters an incentive to skirt internal regulations in the hopes of making a buck.

Whistleblower organizations worried that prosecutors would be inundated with tips, making it difficult to determine which ones were most likely to succeed.

The Justice Department has been paying whistleblowers for years under the False Claims Act, which is limited to civil cases involving abuses of the U.S. government’s vast federal contracting system. Prosecutors and their tipsters were party to a record 543 settlements and verdicts last fiscal year totaling $2.68 billion.

Officials said they are modeling the new program after similar programs at two other federal agencies, the Securities and Exchange Commission and the Commodity Futures Trading Commission. The SEC received 18,000 tips in fiscal year 2023, up nearly 50 percent from the year before, and paid a record $600 million to 68 whistleblowers. The CFTC received 1,530 tips and paid seven whistleblowers a total of $16 million last year.

The SEC’s 2023 awards include a record $279 million to a tipster in a bribery case involving Swedish telecommunications company Ericsson, which was settled for $1.1 billion. In 2021, the CFTC awarded nearly $200 million to a former Deutsche Bank employee who provided information in an interest rate manipulation case, resulting in a $2.5 billion fine for the German bank.

Authorities did not provide details about the type of information whistleblowers provided in these cases, citing laws designed to protect the anonymity of informants, who could face retaliation from their employers or others.

The Treasury Department, through the Financial Crimes Enforcement Network, is also drafting new whistleblower rules, mandated by Congress, that will create mandatory payments to tipsters.

Whistleblowers in all of these programs are eligible for payments ranging from 10 percent to 30 percent of the fines and costs imposed in the case, depending on the value of their information to the prosecution, officials said.

“The biggest untold story in whistleblowing is these new compensation laws and the revolution they are causing,” said attorney Stephen Kohn, who represented Wilkinson, a British citizen whose identity was leaked when the Danske Bank scandal broke in 2018. “Whistleblowers are being compensated for exposing some of the largest companies in the world.”

Wilkinson, who first came forward with his allegations in the Danske Bank case in 2014, has not received a whistleblower award. Federal authorities said he likely would not be eligible for payment under the Justice Department’s new program, which will be limited to cases within the department that arise after the program was launched.

Justice officials said the initiative is aimed at filling enforcement gaps in areas where other federal agencies lack jurisdiction. They cited foreign money laundering operations that ensnare U.S. institutions, bribery of government employees and abuses of the U.S. financial system by privately held companies that fall outside the SEC’s reach.

Under the guidelines, officials said, whistleblowers are eligible for cash rewards provided they were not involved in the alleged misconduct and their information helps lead to a conviction for a minimum settlement amount. That amount has yet to be disclosed. A similar requirement at the SEC sets the bar for cases that result in settlements of $1 million or more.

“The goal here is accountability,” said a senior Justice Department official, who spoke on condition of anonymity because details of the program have not yet been finalized. “Whether it’s criminal prosecutions and holding individuals accountable, or whether it’s recovering criminal proceeds, it all takes the form of general deterrence.”

In addition to the Danske Bank case, authorities pointed to a number of other examples of the kind of criminal misconduct that the new whistleblowing program aims to expose.

In December 2020, the U.S. subsidiary of energy trading company Vitol agreed to pay $135 million to settle charges that it engaged in a scheme to bribe government officials in Brazil, Ecuador and Mexico for inside information in order to secure heating oil contracts.

In May 2022, Glencore, a Swiss-based commodities trading and mining company, pleaded guilty to bribing officials in the United States, the United Kingdom and Brazil, and attempting to manipulate fuel oil prices. The company agreed to pay $1.1 billion to resolve the case.

Last March, Trafigura, a Swiss multinational commodities corporation, pleaded guilty to charges that it bribed Brazilian officials to do business with a state-owned oil company. The company agreed to settle the case for $126 million.

The Justice Department’s willingness to pay for tips “makes their lives easier and helps them pursue cases, including cases they otherwise wouldn’t discover,” said Robert Anello, a corporate defense attorney in New York. “It’s very useful to the government, and they’ve tried to do it in every area of ​​criminal law and what you might call quasi-criminal civil actions, like sanctions and sexual harassment.”

In April, the Justice Department began testing a separate program to offer non-prosecution agreements to corporate insiders willing to provide information about misconduct and cooperate in investigations of others. U.S. attorneys’ offices in New York and California are testing similar versions of that program.

“Our message to whistleblowers is clear: The Department of Justice wants to hear from you,” Monaco said at an American Bar Association conference in March. “And for those considering voluntary self-disclosure, our message is equally clear: Knock on our door before we knock on yours.”

But some advocates warned that the government’s willingness to reward tipsters could conflict with companies’ desire to investigate themselves more effectively. For example, they said, employees might choose not to file allegations with their company’s internal compliance department, rather than seek whistleblower payouts from federal authorities.

Whistleblowers don’t always have a complete picture of what’s going on inside a company, and in some cases the misconduct they report to investigators “isn’t what the whistleblower thought it was,” said Mike Piazza, a Dallas attorney who has defended companies in whistleblower cases.

Once federal prosecutors launch an investigation, he said, “there can be a lot of reputational damage” to a company, even if the allegations are unfounded and no criminal charges are filed.

However, federal officials said that whistleblowers who first raise concerns internally are still eligible for a reward, even if company employees then report the misconduct themselves to the Justice Department.

Whistleblowers have expressed concern that the sheer volume of tips threatens to overwhelm authorities at other federal agencies with reward programs, in some cases leading to administrative delays in investigations and the payment of reward money.

The Internal Revenue Service’s whistleblower program has been in disrepair in recent years amid staff cuts. The amount of revenue the IRS collected in tax fraud cases based on whistleblower tips fell from $1.4 billion in 2018 to $172 million in 2022, the agency said.

A 2019 report found that whistleblower payouts sometimes took up to a decade to process. In 2018, 23 whistleblowers died while still waiting for payments that were never made.

Siri Nelson, executive director of the National Whistleblower Center, said her organization has lobbied law enforcement officials to create a dedicated whistleblower office with enough staff to determine which tips are worth investigating and to speed up compensation payments.

“We often hear concerns about, ‘How do we handle all these tips? How do we differentiate between what is legitimate and what is not supported or misleading and is a waste of the agency’s time?’” Nelson said.