by Stephen M. Kohn

On March 7, 2024, in speech before the American Bar Association, Deputy Attorney General Lisa Monaco announced a “90-day sprint” to establish a new Justice Department whistleblower program. The DAG’s reason for announcing the new program was clear:

Ever since Dodd-Frank created whistleblower programs at the SEC and the CFTC, those agencies have received thousands of tips, paid out many hundreds of millions of dollars, and disgorged billions in ill-gotten gains from corporate bad actors.

Yet both programs, and similar ones at IRS and FinCEN — by their very nature — are limited in scope. They only cover misconduct within their agencies’ jurisdictions. . .

These programs have proven indispensable — but they resemble a patchwork quilt that doesn’t cover the whole bed. They simply don’t address the full range of corporate and financial misconduct that the Department prosecutes.

So, we are filling these gaps.

The critical issue facing the Justice Department is precisely how they will “fill these gaps.”  Among the most pressing concerns is confidentiality.  Whistleblower advocates have uniformly asked the Justice Department to permit anonymous and confidential reporting as is currently permitted by the U.S. Securities and Exchange Commission (SEC) under the highly successful Dodd-Frank Act.  However, the U.S. Department of Justice (DOJ) has historically not permitted anonymous or confidential whistleblower disclosures to the department.  The current DOJ-approved procedures require all “human sources” to undergo an extensive background screening making anonymous reporting impossible.  Even when a whistleblower is granted confidential informant status, the current procedures permit the DOJ to waive confidentiality essentially at-will. 

The Justice Department has not publicly commented on whether or not it will modify its current procedures governing the confidentiality of whistleblowers who are not seeking immunity or a reduced sentence.  However, how the Department addresses the confidentiality issue will have a dramatic impact on whether or not their new program will be a success.  As explained below, permitting whistleblowers to file initial claims anonymously and confidentially has proven to be a great boon for law enforcement and has not interfered with the ability to use a whistleblower’s information in court.  Additionally, the newly enacted Anti-Money Laundering Whistleblower Improvement Act (AML WIA) follows the Dodd-Frank rules on confidentiality.  This law now requires the Justice Department to accept “tips” from whistleblowers concerning violations of sanctions and the Bank Secrecy Act on a confidential and anonymous basis.  This new statutory requirement should motivate the Justice Department to conform its practices with those now used under Dodd-Frank.

Current DOJ Rules on Confidentiality

The DOJ is a large and complex law enforcement agency.  It encompasses highly independent U.S. Attorney’s Offices in every state, a mix of civil and criminal law units in Washington, D.C., and semi-autonomous agencies such as the Drug Enforcement Agency and the Federal Bureau of Investigation.  Moreover, the DOJ has a large international presence.  It’s Office of International Affairs boosts of its “vast network of international relationships” around the world, and the FBI has legal attaché offices in 68 countries serving numerous countries.  Given the critical role the Justice Department plays in civil and criminal investigations both in the United States and worldwide it is not surprising that the treatment of whistleblowers has been inconsistent, depending on the office or the investigators involved.

The reluctance of the Justice Department to implement clear rules protecting the confidentiality of whistleblowers may be understandable from a bureaucratic perspective.  However, given the success of the Dodd-Frank whistleblower program, the continued resistance of the Justice Department to implement clear confidentiality rules protecting voluntary whistleblowers is both inconsistent with effective law enforcement policies and violates current law, at least as it relates to the reporting of money laundering and sanctions violations.

The published rules governing the treatment of confidential informants, or “human sources,” do not include any procedures for anonymous filings.  They are also extremely vague concerning the rights of informants to maintain confidentiality if the Justice Department decides to waive that status.

The DOJ and FBI have adopted policies that make anonymous whistleblowing impossible. Current procedures require the FBI to do an extensive background check on any confidential sources before “opening” a confidential human source. (See https://www.ignet.gov/sites/default/files/files/ag-guidelines-use-of-fbi-chs.pdf).  The detailed background screening required under this policy makes it impossible for an anonymous whistleblower to be “opened” as a source.

Once a human source is granted confidential informant (CI) status, the ground rules for maintaining that status are, at best, vague, granting discretion to the Justice Department concerning the treatment of such sources.  The Attorney General’s Guidelines Regarding the Use of FBI Confidential Human Sources states as follows:

“The United States Government will strive to protect the Confidential Human Source’s identity but cannot guarantee that it will not be divulged.” (emphasis added).

For a voluntary whistleblower, who is not seeking a plea deal with the DOJ, but is well placed in a corporation or a bank to report crimes such as foreign bribery, money laundering, or market manipulation, these existing rules governing confidential sources are neither comforting nor inviting.  They are open to abuse.

Dodd-Frank Breaks New Ground on Confidentiality

On July 21, 2010 President Barack Obama signed the Dodd-Frank Act into law.  Two whistleblower laws contained in the Wall Street reform package created new rights for whistleblowers under the Commodity Exchange and Securities Exchange Acts.  These laws contained identical provisions permitting whistleblowers to file anonymous and confidential complaints with the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC).  Dodd-Frank was the first federal whistleblower law to permit whistleblowers to qualify for financial awards and protection against retaliation on the basis of anonymous and confidential filings. 

Since Dodd-Frank was passed, Congress has passed two additional whistleblower laws incorporating nearly identical confidential reporting rights.  The Motor Vehicle Safety Whistleblower Act permits confidential and anonymous filings with the Department of Transportation, and the AML whistleblower law permits such reporting to the Departments of Treasury and Justice.  Currently, neither Treasury nor Justice have published rules implementing the confidential filing procedures.

The Dodd-Frank procedures are straightforward:

First, every whistleblower has the right to file his or her initial complaint confidentially and/or anonymously. 

Second, in order to file an anonymous complaint the whistleblower must hire an attorney to act as an intermediary.  The attorney must confidentially confirm the whistleblower’s true identity and has responsibility for reviewing the whistleblower’s disclosures, personally signing any complaint that is filed with the government.  The licensed attorney can be held liable for false statements, or any frauds committed by the whistleblower, and thus has a duty to process any complaints as required under the Dodd-Frank regulations.  Thereafter, the licensed attorney acts as an intermediary between the government and the whistleblower, ensuring that the government can obtain the information needed to pursue a case without compromising the confidentiality of the whistleblower.

Third, the confidentiality provisions serve a very practical role.  The rules encourage the filing of initial tips.  But the overwhelming number of initial tips do not result in an official investigation.  For example, in FY 2023 the SEC obtained over 18,000 Dodd-Frank tips but filed only 783 enforcement actions.  The SEC simply does not have the resources to investigate every claim but, given the large number of tips provided, the Commission can pick and choose the most important cases to pursue.

Fourth, the confidentiality rules permit a whistleblower to waive or limit his or her confidentiality at any time.  As a practical reality, if the SEC is to pursue an investigation on the basis of an initial whistleblower tip the whistleblower, in almost every case, has to waive, either partially or completely, his or her right to total anonymity.  A whistleblower is incentivized to file an initial tip because he or she could obtain a financial award.  They would likewise be incentivized to waive some or all of their confidentiality rights if this would significantly increase the likelihood that the SEC would open an investigation and/or prosecute a successful enforcement action.  Thus, as a practical matter, the whistleblowers and the SEC enforcement agents work together to ensure that a whistleblower’s identity is not compromised, but that the government can also access all of the information necessary to prosecute a case (including information to test the whistleblower’s credibility, if necessary).

Fifth, the right to maintain confidentiality throughout the investigation of a claim is not absolute and can be waived.  On its website regarding filing claims the SEC explains: “The SEC treats all tips, complaints and referrals as confidential and nonpublic, and does not disclose such information to third parties, except in limited circumstances authorized by statute, rule, or other provisions of law.  As a matter of practice, the whistleblower program provides additional confidentiality protections, consistent with the limitations on disclosure of information that could reasonably be expected to reveal the identity of a whistleblower.” 

The Dodd-Frank Act specifically defines, as a matter of law binding on various agencies, the limits on confidentiality:  “The Commission shall not disclose any information, including information provided by a whistleblower… which could reasonably be expected to reveal the identity of a whistleblower … unless and until required to be disclosed to a defendant or respondent in connection with a public proceeding instituted by the Commission or… [and shall be construed to limit, the ability of the Attorney General to present such evidence to a grand jury or to share such evidence with potential witnesses or defendants in the course of an ongoing criminal investigation.”

Thus, once an investigation is initiated based on a whistleblower’s information, and if that investigation proceeds to a point where disclosures are “required” to be made to third parties, the government can waive confidentiality. 

Finally, under the SEC regulations, if a whistleblower’s information results in an enforcement action, a whistleblower must file a new application seeking an award.  The whistleblower must reveal his or her identity when filing that application in order to permit the SEC to determine that the individual was indeed legally qualified for an award, and not a member of a disqualified class of potential informants (such as an employee of a law enforcement agency or someone who was convicted committing the underlying frauds).

These guardrails reasonably protect the vast majority of whistleblowers and limit the discretion of the government to waive confidentiality.  If a whistleblower refuses to cooperate with an investigation in a manner that could compromise the final successful enforcement action, or prevent the government from determining whether or not they are in the class of individuals protected under the law, that whistleblower would be denied an award.  As a practical matter nothing in the public record demonstrates that conflicts between a whistleblower’s right to confidentiality and the ability of the government to obtain the evidence it needs has ever occurred.  The Commission reports the opposite – that the confidentiality rules have promoted and aided its program.

The SEC’s Rules Permitting Anonymous and Confidential Filings Have Been Highly Successful

 In practice the Dodd-Frank confidentiality rules have worked extremely well.

For example, in 2018 the SEC identified the anonymous reporting option as one of the key incentives and protections afforded whistleblowers under Dodd-Frank and backed-up these findings with empirical data:

[O]ur experience to date has been that approximately one-half of the whistleblowers who have received awards for information regarding their current or former employers took advantage of the opportunity to submit their tips to the Commission anonymously; the ability to report anonymously is an additional attractive feature of our program that helps to encourage company insiders and others to come forward by lessening their fear of potential exposure.

Likewise, the Organization for Economic Cooperation and Development’s (OECD) Anti-Bribery Working Group, in its audit of the U.S. foreign corruption program, praised Dodd-Frank’s multi-level provisions for protecting whistleblowers, of which a key component is strong confidentiality protections.  The OECD has now also endorsed the concept of anonymous reporting as part of its official program covering all member-states.  In their “Recommendation of the Council for Further Combating Bribery of Foreign Public Officials in International Business Transactions,” the OECD recommends that countries:

“[E]stablish and publicize clear policies and procedures by which any natural person . . . can report suspicions of bribery of foreign public officials and related offences to competent authorities, including by allowing for confidential and, where appropriate, anonymous reporting.” (Section XXI(i))

The OECD recommendation on anonymous reporting is consistent with the United States Strategy Countering Corruption.  This whole-of-government Strategy, which sets forth mandatory policies covering the DOJ and other agencies, recognizes these extreme risks facing many international whistleblowers and calls for the United States to fully protect these critically important (yet highly vulnerable) sources. It states, “We will protect anti-corruption actors and defend the freedom of expression of anti-corruption activists [and] whistleblowers” (Strategy p. 14). The Strategy continues, “When anti-corruption activists, whistleblowers, and investigative journalists challenge corrupt power structures, the corrupt often fight back with physical threats and legal harassment. The United States stands in solidarity with these reformers” (Strategy p. 24).

The Strategy’s Objective 3.1 directly addresses the AML WIA.  In its section entitled “Enforcement of anti-money laundering criminal and civil laws,” the Strategy states that the United States “will implement newly established tools for investigating and prosecuting money laundering offenses.”   The Strategy directly states that the Justice Department will play a major role in implementing these “newly established tools,” and endorses “financial rewards to incentivize reporting on Bank Secrecy Act violations in financial institutions and for information leading to the identification and seizure of illicit proceeds”  (Strategy p. 25). 

Permitting whistleblowers, especially those who reside internationally (and often have little or no protection under their own domestic laws), to report anonymously is of critical importance. Effectively implementing this right requires creating strict and understandable procedures and standards on anonymous reporting. 

Congress Requires the Justice Department to Accept Anonymous and/or Confidential Complaints under the AML WPA

In a departure from the traditional procedures used by the DOJ, the AML WIA permits whistleblowers to file anonymous and confidential cases with the Justice Department.  Once these cases are filed the following provision, codified at 31 U.S.C. §§ 5323(d)(2)(A) and (g)(4), come into play:

(d)(2)(A)Any whistleblower who anonymously makes a claim for an award under subsection (b) shall be represented by counsel if the whistleblower anonymously submits the information upon which the claim is based.

 ***

(g)(4) Except as provided in subparagraphs (C) and (D), the Secretary or the Attorney General, as applicable, and any officer or employee of the Department of the Treasury or the Department of Justice, shall not disclose any information, including information provided by a whistleblower to either such official, which could reasonably be expected to reveal the identity of a whistleblower, except in accordance with the provisions of section 552a of title 5, unless and until required to be disclosed to a defendant or respondent in connection with a public proceeding instituted by the appropriate such official or any entity described in subparagraph (D).” (emphasis added)

Thus, the DOJ must have a mechanism to accept and process anonymous cases filed under the AML whistleblower law. 

Conclusion

The Justice Department’s “90-day sprint” to establish an effective whistleblower program creates an opportunity to clarify the department’s policies on confidential filings in voluntary whistleblower cases. 

A Dodd-Frank based confidentiality program will not interfere with the Justice Department’s longstanding practices on granting confidentiality to “human sources.”  The current DOJ programs often offer criminals who become informants a reduced sentence or immunity.  The Dodd-Frank and AML whistleblower programs do not offer immunity or reduced sentences.  They also do not apply to potential informants initially identified by the government. 

Instead, they apply to a unique and new subset of informants.  These voluntary whistleblower-informants have proven to be the most valuable and impactful sources of information in combatting white-collar crime and frauds.   These informants are radically distinct from those who are covered under existing DOJ rules.  First, the whistleblower must be voluntary.  If there is a quid pro quo, immunity in exchange for testimony, the whistleblower is no longer voluntary, as he or she is obtaining something of value in exchange for testimony. 

Second, if the government contacts the whistleblower before the whistleblower makes a voluntary disclosure releasing his or her information, the whistleblower is disqualified. 

Third, the motivation for providing the information is not a reduced sentence, but financial compensation.  Finally, if a whistleblower is someone who planned and initiated the underlying frauds, or if he or she is convicted of the crime they are reporting, they lose their right to compensation. 

All of the major whistleblower advocacy groups and experts strongly support the Justice Department’s implementation of confidentiality regulations based on the highly successful  Dodd-Frank model.  This includes the National Whistleblower Center, Taxpayers Against Fraud, and former SEC Commissioner Allison Lee.  The empirical evidence demonstrates that the Dodd-Frank confidentiality rules work well, incentivizing informants to step forward, but not interfering with law enforcement investigations.  Adopting the Dodd-Frank confidentiality rules will go a long way to making the new DOJ program a success.

Stephen M. Kohn is a Founding Partner at Kohn, Kohn & Colapinto LLP.

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