22 Mar 2019
On January 9th, US Rep. Stephen Lynch (D-MA) introduced H.R. 389, a measure that would “authorize the Secretary of the Treasury to pay rewards under an asset recovery rewards program to help identify and recover stolen assets linked to foreign government corruption and the proceeds of such corruption hidden behind complex financial structures in the United States and abroad.” The bill would essentially create a whistleblower program to identify assets used and procured from illicit foreign activities.
As the legislation points out, the World Bank estimates that developing countries lose between $20 billion and $40 billion annually to corruption, and these losses inhibit their efforts to grow and stabilize their economies. Of that sum, only $350 million are recovered annually, with only $5 billion repatriated during the last 15 years.
To address the problem, the legislation would:
- Authorize the use of up to $25 million “to reward individuals who provide valuable information that assist in the identification, arrest, and conviction of criminal actors and their associates” at the discretion of the U.S. Treasury Secretary
- Appropriate $450,000 for fiscal year 2020 to be used toward paying the rewards, while allowing Treasury to make up the remainder of any payments from recovered stolen assets
- Cap payments to individual participants at $5 million unless otherwise authorized by the Treasury Secretary
- Empower the Secretary to take additional, unspecified steps to protect the identities of participants and their immediate family
- Mandate that the Secretary submit a report “detailing to the greatest extent possible” beneficial ownership and other information related to stolen assets, including efforts undertaken to identify such assets
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.
*As of the date of this article’s publication, the bill has not passed through a House of Representatives committee.
Author Michael Carter is an experienced consultant and thought leader in the area of financial crimes, which includes anti-money laundering, sanctions, and white-collar crime matters.
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