In-Depth: Sponsoring Rep. Stephen Lynch (D-MA) reintroduced this bill from the 115th Congress to establish a rewards program for whistleblowers who help U.S. authorities combat terrorist financing and foreign government corruption. When he introduced this bill in the previous Congress, Rep. Lynch said:
“The United States must intensify the fight against foreign government corruption and the money laundering that allows terrorist organizations to thrive. Foreign governments that are weakened by corrupt leaders do not have the financial or legal resources to combat terrorist financing, and the U.S. government should be doing everything we can to stop our financial institutions from unwittingly aiding corrupt officials and terrorist organizations.”
The Financial Accountability and Corporate Transparency (FACT) Coalition supports this bill. In a letter to the House Financial Services Committee’s leadership, FACT wrote:
“Foreign corruption is a major economic and national security threat to the United States. Corruption undermines the rule of law, provides the lifeblood of authoritarian regimes and enables transnational organized crime to flourish. It diverts precious resources away from those who most need them, and fosters disillusionment with government — sometimes leading to the rise of terrorist networks. The bipartisan Kleptocracy Asset Recovery Rewards Act is a sensible tool to safeguard American citizens and businesses from the scourge of corruption.”
The protection this bill offers is the type that was called for by the anonymous whistleblower who leaked the Panama Papers to German newspaper Süddeutsche Zeitung instead of the government. At that time, the whistleblower argued that governments need to provide better protections for whistleblowers before such people will come forth to government authorities:
“I have watched as one after another, whistleblowers and activists in the United States and Europe have had their lives destroyed by the circumstances they find themselves in after shining a light on obvious wrongdoing. Edward Snowden is stranded in Moscow, exiled due to the Obama administration’s decision to prosecute him under the Espionage Act. For his revelations about the NSA, he deserves a hero’s welcome and a substantial prize, not banishment. Bradley Birkenfeld was awarded millions for his information concerning Swiss bank UBS—and was still given a prison sentence by the Justice Department. Antoine Deltour is presently on trial for providing journalists with information about how Luxembourg granted secret “sweetheart” tax deals to multi-national corporations, effectively stealing billions in tax revenues from its neighbour countries. And there are plenty more examples. Legitimate whistleblowers who expose unquestionable wrongdoing, whether insiders or outsiders, deserve immunity from government retribution, full stop. Until governments codify legal protections for whistleblowers into law, enforcement agencies will simply have to depend on their own resources or on-going global media coverage for documents.”
In a post on KYC360, Michael Carter, a consultant and thought leader in the area of financial crimes, argues that this bill has some potential efficacy gaps:
“While this bill attempts to add another tool to the arsenal for fighting financial crime arising from corrupt foreign regimes, we can benchmark this bill against other whistleblower programs and identify some potential gaps in efficacy. With regards to the annual rewards budget, the limit of $25 million is likely to hinder the scope and ability to entice whistleblowers to come forward once that money is exhausted. For comparison, the SEC’s rewards fund ended 2018 with a balance of about 12 times that amount. In that same year, the SEC ordered whistleblower awards to 13 individuals totaling approximately $168 million, far exceeding the proposed individual reward limit of $5 million on average. As a result of strong financial rewards, the Commission received over 5,200 whistleblower tips in fiscal year 2018 and has seen its reporting volumes rise every year since 2012. Another potential pitfall with H.R. 389 resides within the vagueness of protections identified for individuals that come forward. The non-detailed protections lie in stark contrast to the SEC’s program, most notably in that the Dodd-Frank Act specifically states that employers may not retaliate against an individual who provides information to or assists the SEC. The SEC also applies strong confidentiality measures for whistleblowers, including information protection measures internal to the regulatory body itself. Reward numerations and protections are most important to effective whistleblower programs because the persons that come forward often face severe personal and professional risk of doing so. The financial benefit and freedom from harassment and retaliation must be substantial enough to incentivize persons with information regarding criminal and corrupt activity to report it. Unfortunately, the Kleptocracy Asset Recovery Rewards Act in its current form may be severely limited in its intended effectiveness and reach.”
This bill has passed the House Financial Services Committee by a unanimous vote with the support of three bipartisan cosponsors, including two Democrats and one Republican in the current Congress. Last Congress, this bill had eight bipartisan cosponsors, including six Democrats and two Republicans, and didn’t receive a committee vote.
The Financial Accountability and Corporate Transparency (FACT) Coalition and Global Witness support this bill.
Of Note: According to Rep. Lynch’s office, corrupt foreign officials often use the U.S. and the international financial system to hide their stolen assets and corrupt proceeds. The Tax Justice Network, an anti-corruption NGO, ranks the U.S. second on a world list of secrecy jurisdictions, which qualifies it as a “haven” for laundered money from foreign countries.
As assets are disguised and moved through financial institutions, bad actors can funnel funds to terrorist organizations around the world. In a post on The Global Anticorruption Blog (GAB), Matthew Stephenson, a professor at Harvard Law School, claims that “there is widespread agreement in the anticorruption community that the United States has not done nearly enough to address the flow of dirty money, much of it stolen by kleptocrats and their cronies, to and through the United States.”
Quartz reports that weak anti-money laundering (AML) protections in the U.S. are the reason why Russian trolls were able to buy social media ads via Paypal in their 2016 election disinformation campaign and the Iranian government was able to “rake in millions in rent” on a Manhattan skyscraper it secretly owned. Weak AML protections also allow the human trafficking industry, which sells children for sex, to operate through anonymous websites in U.S. tax havens, such as Delaware, which is home to a $2.5 billion human trafficking industry.
The U.S. government already has a number of programs rewarding individuals for information that leads to criminals’ identification and conviction. However, this would be the first program designed to help recover stolen assets linked to foreign government corruption.
The World Bank and the United Nations’ Stolen Asset Recovery Initiative (StAR) report that $20-40 billion is lost annually to corruption in developing countries. Over the past 15 years, only $5 billion of that money has been returned to their countries of origin.
Summary by Lorelei Yang(Photo Credit: iStockphoto.com / MachineHeadz)