Use Whistleblowers to Find Hidden Russian Money

By Attorney Tony Munter

The Attorney General has announced the government is creating Task Force Klepto Capture stating “The Justice Department will use all of its authorities to seize the assets of individual and entities who violate these sanctions.”

All the usual tech measures are to be used, and all that is great. I’m here to suggest to the DOJ it use an old method and the Whistleblower Bar will be honored and happy to help.

The method is to work with whistleblowers. Get whistleblowers and their lawyers on this problem for three reasons:

  1. You need inside information that only whistleblowers have to find the assets;
  2. You need even more lawyers and investigators than the DOJ has;
  3. Some whistleblowers may want money and others may want protection from harm if they report to you. These laws may provide a little of both.

To get this done, the DOJ and maybe Congress will have to use just a little bit of creativity.

SEC Whistleblower Program

The SEC Whistleblower program is one way for whistleblowers to report sanctionable transactions and potentially obtain an award and in doing so stay anonymous. I think it is easy to understand that someone with inside knowledge of a billion dollars subject to these kinds of sanctions may not want to be known in public.

The SEC program is set up to reward those who report fraud committed against investors. One would have to report to the SEC and hope they can figure out how to refer it to the Office of Foreign Asset Control. (“OFAC”) or another agency responsible for enforcing sanctions or tracking laundered funds. It may be difficult to make this a case for which a whistleblower could show enough investor harm to be an SEC violation, and trying to make that the issue will slow down reporting, but if OFAC acted to sanction based on this report, the whistleblower would be able to claim an award as a “related action,” under the SEC regulations.

As a practical matter the SEC might simply announce that it would accept such filings under its portal and that it would forward information to OFAC on a regular basis just by adding a box to check on its form TCR. Why? Because the SEC program comes with a feature that allows whistleblowers to report such information anonymously (through counsel) and because it is already a well-established program with high visibility and therefore the ability to attract whistleblower reports. The information would get to the right hands and the government could take action faster as well.

Bank Secrecy Act

A distinguished whistleblower lawyer has also called for the of the Bank Secrecy Act which recently created a whistleblower program under an agency called “FinCen.” That program does allow for whistleblower awards and anonymous reporting, but does not have broad enough scope to cover many of these issues. Poppy Alexander in Fortune Magazine argues this law should be expanded to cover any violation of money laundering laws and that is a great idea.

The SEC, OFAC and FINCEN are all under the Treasury Department so one would hope some kind of Justice Department and Treasury Department coordination could make any of these reforms possible.

The False Claims Act

Another avenue that could work very effectively, with surprisingly little adjustment is The False Claims Act. It could be used to incentivize whistleblowers if sanctions and penalties under the current OFAC programs, or sanctions recently announced, or assets to be seized, could be defined broadly. It all turns on the word “obligation.” That word is the basis of what we call a “reverse false claim” under 31 USC section 3729(G) of the False claims Act. The law creates liability when someone hides from paying or deliberately fails to pay or avoids or uses false records to avoid paying an “obligation” to pay or transmit money or property to the US Government.

This part of the law has not been used much, because everyone first thought it would apply to fines. Courts have found fines for issues such as environmental violations are not to be pre-existing obligations, but issues requiring government action to create such an obligation. It is now being used in customs fraud matters as courts have found customs duties are obligations.

Sanctions appear to create an automatic “obligation” to transmit money or property to the US. It would be most helpful if the Justice Department and or Congress makes it explicit that any such funds are in fact “obligations.” If they are “obligations” then the mightiest of all whistleblower laws applies to these funds.

Whistleblowers could then report what they know, and maybe get an award, but more importantly they would get the information to the government agencies who could seize the assets. The FCA would not only make the information available to the DOJ to Act and make it possible for these agencies to move, but also subject the people hiding the money to treble damages and subject conspirators to liability as well. Do you want to shut down Russian business connections? That would help.

False Claims Cases are filed under seal and the names of the whistleblowers would eventually be public most likely, but not for a few years and hopefully by then this current situation and the threat to those making reports would be very different.

Work with Whistleblowers to Find Hidden Russian Money

There may be many other ways to pursue such assets. Those of us in the whistleblower bar are here and ready to help. Here’s hoping the DOJ and Treasury will consider talking to us about it so we can go out and get the whistleblowers they need to find the assets.