Putin, Corporate Crooks, and the Whistleblowers: A New Era in Combating Corruption

The critical role of whistleblowers in combatting corruption was driven home when a massive $230 billion Russian money laundering scheme was detected by a whistleblower. The scandal was centered out of the Estonian branch of the Denmark-based Danske Bank.

It involved numerous other financial institutions, including Bank of America, JP MorganChase, Deutsche Bank, CITI bank, and Swedbank. Russians who profited from the scandal included organized crime figures, Oligarchs, the FSB (the Russian secret police) and President Vladimir Putin’s relatives.

After the whistleblower exposed the scandal, Danske Bank hired outside corporate attorneys to help clean up the mess. The final “Lawyers Report” confirmed that grotesque amounts of illegal monetary transfers had occurred, enriching Russian Oligarchs and their Western bankers alike. The bank’s lawyers admitted that “all control functions (or lines of defence) had failed, both within the branch and at Group level. This included business functions as well as Group Compliance & AML and Group Internal Audit.”

Big Wall Street Banks profited from illegally laundering billions of dollars in wealth in the service of Russian criminals, the RSB, and Putin’s family. It took a whistleblower blow the lid off of this corruption and stop it in its tracks.

The urgent need for whistleblowers to help in the fight against corruption is now acknowledged by the top leadership of the U.S. government. In June of 2021 President Biden issued his “Memorandum on Establishing the Fight Against Corruption as a Core United States National Security Interest” (hereinafter “” or “Memorandum”). President Biden instructed his top Cabinet officials to submit proposals on how the U.S. government can “significantly bolster” its ability to “prevent and combat corruption,” “combat all forms of illicit finance,” and “hold accountable corrupt individuals.” Among those tasked with the job were the Vice President, his National Security Advisor, Attorney General, Secretaries of Treasury, Defense, Commerce, Homeland Security and State, the CIA, the Chairman of the Joint Chiefs of Staff, and the Director of National Intelligence.

President Biden wanted the U.S. government to get serious about fighting corruption. Why? As he explained in his Anti-Corruption Memorandum:

“Corruption corrodes public trust; hobbles effective governance; distorts markets…undercuts development efforts; contributes extremism…and provides authoritarian leaders a means to undermine democracies worldwide.”

Six months later the White House approved the United States Strategy on Countering Corruption. The Strategy made a direct connection between corruption and the rise of tyrants, recognizing the devastating impact of corruption:

“Corruption robs citizens of equal access to vital services…degrades the business environment, subverts economic opportunity, and exacerbates inequality. It often contributes to human rights violations and abuses…As a fundamental threat to the rule of law, corruption hollows out institutions, corrodes public trust, and fuels popular cynicism toward effective, accountable governance…In today’s globalized world, corrupt actors bribe across borders, harness the international financial system to stash illicit wealth abroad, and abuse democratic institutions to advance anti-democratic aims.”

Who best to detect the corporations, banks, and financial institutions that pay “bribes across borders” or “harness the international financial system to stash illicit wealth?” For the first time the U.S. national anti-corruption strategy recognized the role of whistleblowers in this fight, and endorsed using their “insider” information to detect and successfully prosecute corrupt actors.

The Strategy explained the scope of the problem: “As the largest economy in the international financial system, the United States bears particular responsibility to address our own regulatory deficiencies, including in our AML/CFT regime, in order to strengthen global efforts to limit the proceeds of corruption and other illicit financial activity.”

Sitting on the sidelines was no longer an option:

“For too long, corrupt actors and their financial facilitators have taken advantage of vulnerabilities in the U.S. and international financial systems to launder their assets and obscure the proceeds of crime…To counter corruption effectively around the globe, the U.S. Government must, at home and abroad, combat money laundering…”

The Strategy issued a call to action: “We will bolster the ability of civil society, media, and private sector actors to prevent corruption and push for accountability . . . We will protect anti-corruption actors and defend the freedom of expression of anti-corruption activists, whistleblowers, and investigative journalists.”

The Strategy spoke directly to the use of whistleblower reward laws, like those that have proven so successful in combating tax evasion and securities frauds:

Bringing aggressive enforcement action, including relevant tax enforcement, against money launderers and those who enable launderers as appropriate, considering new legislation expanding criminal substantive law as needed, and expanding investigative tools as well as new information generated by whistleblower programs…

These whistleblower programs are effective, cover all of the major aspects of the entire United States economy, and have widespread transnational impact. What are the whistleblower laws that need to be harnessed in fighting the Putin’s of the world, and their banker and business enablers?

The False Claims Act

The Dodd-Frank Act

The Foreign Corrupt Practices Act

The Anti-Money Laundering Act

The Commodity Exchange Act

The Internal Revenue Act

Qui Tam

What do they cover? All publicly traded companies, all corporations that trade in commodities, public companies that pay foreign bribes, banks that engage in money laundering, drug companies that rip of Medicare and Medicaid, anyone who engaged in tax evasion, government contractors, taxpayers who stash their wealth in undeclared foreign bank accounts and millionaires and billionaires who exploit tax havens.

Ultimately, the banks and businesses that help corrupt officials like Russian President Putin, or who pay bribes to dictators of Chinese officials to gain business advantages in developing nations, all can be held accountable. But there can be no accountability if whistleblowers fail to expose their crimes.

Every whistleblower law has its own procedural requirements and rules governing how to obtain protection of a reward. The most modern and far-reaching of these laws is the Dodd-Frank Act, that covers public traded companies, commodities exchanges, and foreign bribery. Its provisions exemplify how the new whistleblower laws work. Among their most important features are:

• Almost anyone can become a whistleblower. This includes employees, analysts and anyone with “original information” that constitutes valuable evidence to convict a fraudster. Excluded persons generally include those who work for the government. The laws target the private sector.
• Whistleblowers can file anonymous and confidential claims. The government has successfully protected the identity of its sources;
• Top level managers can all qualify for a large monetary reward, although they may have to follow special rules. These include corporate officers, directors, trustees, partners, and employees “whose principal duties involve compliance or internal audit responsibilities;”
• Persons who participated in the misconduct can fully qualify for a reward. Participant coverage is a tricky issue, but in one case a Swiss banker who was found guilty of tax fraud in opening cases for U.S. clients was qualified to obtain a large $104 million award.
• Rewards for qualified whistleblowers are mandatory and must be paid within a range of 10-30%. The better the information, the larger the sanction, the greater the reward;
• Each law has very specific filing requirements. The failure to file properly can (and often does) result in the disqualification of an otherwise valid whistleblower. It is critical to obtain good legal advice whenever anyone considers blowing the whistle;
• Non-disclosure agreements are generally non-enforceable. Thus, even if an employee’s signs a contract never to blow the whistle, those contracts are void under U.S. law.

Whistleblowers can obtain large rewards. Although most awards are within the $1 million to $25 million range, awards paid by the SEC, Commodity Futures Trading Commission, and the IRS have topped $100 million. Two of Kohn, Kohn and Colapinto’s clients have obtained rewards over $100 million paid to individual whistleblowers.

Paying large awards incentivizes others to step forward and has a deterrent effect on corruption. The SEC extensively reviewed the impact of paying large rewards in a detailed rulemaking proceeding. Based on empirical evidence the Commission, a majority of whose members had been appointed by President Donald Trump, unanimously rejected a proposal that would have reduced the size of rewards in large cases. Instead, the SEC went in the exact opposite direction, and approved a rule that would guarantee awards at the highest level in cases where an overall reward may be small.

What is also clear is that the whistleblower programs are firmly supported by the law enforcement officials who administer these laws. According to the most recent Annual Report to Congress, published by the Securities and Exchange Commission’s Office of the Whistleblower, “enforcement matters brought using information from meritorious whistleblowers have resulted in orders for nearly $5 billion in total monetary sanctions.” Correspondingly, the SEC has awarded approximately $1.2 billion to 245 individual whistleblowers. SEC Chair Gary Gensler recently noted that “[t]he assistance that whistleblowers provide is crucial to the SEC’s ability to enforce the rules of the road for our capital markets.”

The United States Strategy on Countering Corruption diagnosed the problem, and laid out a framework for combatting the tremendous social and financial costs caused by corruption. If this strategy is to be successful whistleblowers must play a central role in helping governments detect crimes, both within the United States and transnationally. Times have changed. There are now programs that effectively protect whistleblowers, permit confidential filings and permit whistleblowers to obtain significant compensation for doing the right thing.