Years after the 2007 financial meltdown, we are finally seeing progress in the government’s efforts to hold bankers and Wall Street insiders responsible for this mess. Unfortunately, in many cases the statute of limitations is expiring making additional actions problematic for the government.
Many of the biggest cases against lenders came from whistleblowers. Under several whistleblower statutes, concerned citizens who come forward with information about wrongdoing can earn a large whistleblower award check.
The three biggest whistleblower programs are the federal False Claims Act, the IRS whistleblower law and the newest program run by the SEC. The first two programs, however, require proof of loss to the government in order to qualify for a cash award. That can be problematic when the wrongdoing is money laundering. Although the government has a strong interest in stopping money laundering, there is no direct traceable loss to a government program making most whistleblowers unable to receive an award.
There may be a huge exception, however.
This week the Wall Street Journal carried a story about a new round of investigations aimed at banks who facilitate money laundering. While we suspect no bank intentionally lets it accounts be used for money laundering, banks don’t have a great record in prevention.
Big deposits often mean big fees and sometimes banks turn a blind eye for their larger customers. (Look no further than JP Morgan Chase and its agreement to pay record fines for being asleep at the wheel while Bernie Madoff used Chase accounts to pull off the largest Ponzi scheme in U.S. history.)
The Journal quotes Mythili Raman, the acting assistant attorney general who heads the Justice Department’s Criminal Defense. Raman said, “I think [banks] still need to do more. It’s not as if our enforcement actions are over… there are still banks that haven’t gotten the message.”
As noted above, traditional whistleblower cases work best when there is a loss to a government program. For example, write shoddy mortgage loans that ultimately default and there is probably a loss to the FHA, Freddie Mac or Fannie Mae. These agencies guaranty most home mortgages.
So what about money laundering cases? Some whistleblowers are reluctant to come forward without the ability to earn an award. The Financial Institutions Reform Recovery and Enforcement Act – FIRREA for short – allows whistleblowers to receive a percentage of what the government collects. Although the cash awards are not unlimited, they are capped at a respectable $1.6 million.
Since money laundering doesn’t quite correlate into a direct loss for the government, can a whistleblower still earn an award.
We think the answer is yes!
FIRREA allows government prosecutors to impose fines and penalties on financial institutions that commit false claims violations, make false statements, commit wire fraud or commit mail fraud. Prosecutors love FIRREA because the burden of proof is quite low meaning it is easier for the government to win their cases.
Congress says the purpose of FIRREA is to strengthen sanctions for defrauding lenders or their depositors. A 2013 case specifically said that there need not be a loss to the government. In our opinion, that opens up the statute to prosecute money laundering claims.
Last year three different cases ruled that it is enough if the only harm was to the bank itself. Although money laundering hurts society, it also weakens banks. A trio of cases last year in the Southern District of New York (Manhattan) opened the door for the use of FIRREA in money laundering cases. Bank lawyers hate these decisions meaning there could be years of appeals. As we write this post today, however, the courts have ruled that if a bank is a federally insured institution (most are), then any fraud by such a bank “affects” a federally insured institution. Defense lawyers, however, claim this “self-affecting” theory is circular logic and not what Congress intended.
We raise this point because FIRREA has a 10 year statute of limitations. The Justice Department is still looking for money laundering cases and has plenty of time to prosecute.
What does one need in order to bring a FIRREA case? Inside information about wrongdoing within a bank and a good whistleblower lawyer.
While no one can guarantee whether the government will prosecute a claim or collect money, we have filed more FIRREA claims and have some of the largest pending whistleblower cases in the nation involving banks and mortgage companies. If you are interested in stopping money laundering or bank fraud and also wish to receive an award for your information, give us a call. In most instances, FIRREA whistleblowers can remain completely anonymous while the government investigates the claims.
For more information, contact attorney Brian Mahany at or by telephone (414) 704-6731 (direct). All inquiries are protected by the attorney – client privilege and kept in strict confidence.
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