Would-Be Whistleblower Fails to Show Causation Under the Bank Secrecy Act for Termination

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The Southern District of New York (“SDNY”) recently rejected a retaliation claim brought by a former bank employee under the Bank Secrecy Act (“BSA”), granting summary judgment in favor of the employer bank because the former employee failed to demonstrate that his firing was caused by his act of reporting a potential violation of law to the government. Although the reasoning underlying the Court’s Order is straight-forward, the case provides another reminder of the often difficult employment issues that both financial institutions and potential whistleblowers can face.

Whistleblowing as to alleged anti-money laundering (AML) violations is a growing phenomenon, perhaps best exemplified by the fact that a whistleblower precipitated the colossal Dankse Bank money laundering scandal. Previously, we blogged about a bank whistleblower case producing the opposite result as the SDNY Order here. In this post, we discuss both the BSA whistleblower statute and the SDNY Order, and, more generally, we note steps that financial institutions might take to protect themselves from liability and legitimate whistleblowers from retaliation.

The BSA Whistleblower Statute

The BSA contains a provision, entitled “Whistleblower protections,” designed to protect workers who suffer employment consequences because they reported to the government potential violations relating to BSA/AML or the federal money laundering statutes. This section provides:

No financial institution or nonfinancial trade or business may discharge or otherwise discriminate against any employee with respect to compensation, terms, conditions, or privileges of employment because the employee (or any person acting pursuant to the request of the employee) provided information to the Secretary of the Treasury, the Attorney General, or any Federal supervisory agency regarding a possible violation of any provision of this subchapter or section 1956, 1957, or 1960 of title 18, or any regulation under any such provision, by the financial institution or nonfinancial trade or business or any director, officer, or employee of the financial institution or nonfinancial trade or business.

31 U.S.C. §5328(a). This provision does not apply when the employee “deliberately causes or participates in the alleged violation of law or regulation,” or if the employee “knowingly or recklessly provides substantially false information” to the government. 31 U.S.C. §5328(d).

This BSA provision mirrors a provision in the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”), which forbids banks from terminating or discriminating against employees for providing information to federal agencies about a violation of law by the bank or its employees. 12 U.S.C. § 1831j. A whistleblower provision in FIRREA provides its own cause of action to the employee who is discriminated against. 12 U.S.C. § 1831j(b).

The SDNY Order

The SDNY Order arose out of an employment action by plaintiff Zubair Shaikh against the National Bank of Pakistan (the “Bank); the plaintiff alleged that the Bank fired him because he disclosed alleged violations of U.S. sanctions law by the Bank to the Office of Foreign Asset Controls, or OFAC. Condensed, the plaintiff alleged that the Bank terminated him on May 2, 2016 because, on that same date, he reported to OFAC an $8,500 financial transaction occurring on March 16, 2016 from the Bank to Iran, transacted through a third-party bank, which was allegedly illegal.

According to the Court, the plaintiff cited no evidence for why he reported to transaction to OFAC, although the plaintiff argued that he made the report in “good faith” and believed the transaction to be prohibited by law. However, this belief materialized after the plaintiff “‘realized that they [were] trying to create trouble for’ him, after they had ‘harassed’ him ‘several times.’”

More generally, the plaintiff contended that the Court should consider the Bank management’s “frame of mind” by considering the fact that the Bank had entered into a consent order in 2016 with the Federal Reserve Bank of New York and the New York State Department of Financial Services, which arose out of alleged “deficiencies relating to [the New York] Branch’s risk management and compliance with applicable federal and state laws, rules, and regulations relating to [AML] compliance, including the [BSA].” Although the plaintiff was unable to tie his particular employment consequences to these prior compliance violations, clearly the plaintiff attempted to suggest that the Bank was generally non-compliant in regards to BSA/AML issues and worried about the implications of possible violations.

The Court noted that Section 5328(a) protects “(1) employees of financial institutions who (2) provide information regarding a possible violation of specified laws and regulations by the financial institution, its directors, officers, or employees, to (3) the Treasury Secretary, Attorney General, or ‘any Federal supervisory agency,’ from (4) [discharge or other] employment-related discrimination (5) because they made such a report.” The Court further explained that the BSA protects only complaints to the government, as opposed to internal complaints, but that a plaintiff can show causation through circumstantial evidence, and that the protected conduct did not need to be the sole cause of the adverse employment action to qualify as actionable under the BSA.

The Court granted summary judgment to the Bank, finding that although the parties agreed that the plaintiff’s May 2, 2016 email to OFAC represented conduct protected by the BSA, the plaintiff had not established that he was terminated because of that email. In particular, the evidence established that the “wheels were already in motion” to terminate the plaintiff before his email to OFAC, and that no one at the Bank other than the plaintiff himself was even aware of his email to OFAC before his termination. Accordingly, the plaintiff failed to establish causation, notwithstanding the fact that plaintiff was terminated on the same day that he sent the OFAC email – a fact that otherwise could be sufficient to infer causality.

Whistleblower Policies

Employers can best protect themselves from liability and legitimate whistleblowers from retaliation by employing some basic technical and legal controls.

First, employers should ensure that they have policies protecting whistleblowers from retaliation for reporting, in good faith, allegations of company wrongdoing. These policies should not lie on a shelf collecting dust; instead, they should be distributed to all employees and easily accessible on the employer’s intranet or other internal system.

Second, employers should train their employees on these policies, and for anyone with supervisory authority, ensure that such training encompasses the concept of retaliation. It is important for supervisors and management to understand the prohibition on retaliation, as well as what kind of conduct can lead to potential retaliation and whistleblower claims.

Third, employers should clearly document, in real time, their decision to terminate an individual’s employment. The timing of the decision and the protected activity is often the center of motions for summary judgment, and the timing can be problematic in the absence of evidence that establishes the employer made the decision prior to the protected conduct and/or for reasons unrelated to such conduct. In fact, the temporal proximity of the decision and protected conduct is often the reason courts will deny an employer’s motion for summary judgment.

Fourth, Human Resources and/or the Legal Department should review any adverse actions involving individuals whom the employer knows have engaged in protected activity to ensure that the employer is on firm footing proceeding with the adverse action notwithstanding the protected activity.  Fifth, the employer should document all materials provided to the employee and the date on which the employer provided such materials. Finally, if the employer suspects litigation, it should ensure that copies of all relevant emails and documents are preserved.

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