By Aaron Nicodemus, 25 November 2024
Law enforcement officials stumbled on TD Bank’s role in money laundering while investigating a Mexican drug cartel. They found that the bank’s corporate culture considered compliance, particularly Bank Secrecy Act and anti money laundering (BSA/AML) compliance, a low priority.
As they dug deeper, authorities discovered that multiple money laundering schemes had infiltrated the bank’s network.
When announcing a blistering series of fines totalling nearly $3.1 billion against the Toronto-based bank [1], regulators said the bank’s AML compliance programme had failed to grow along with the emerging risks that came with TD Bank’s expanding business.
The failure was so widespread that regulators believe the company’s leadership, including its board of directors, had made a purposeful decision to underfund compliance, instead prioritising growth and higher profits.
‘TD Bank prioritised growth and convenience over following its legal obligations,’ said US Attorney Philip Sellinger for the District of New Jersey, in a Department of Justice (DOJ) press release that laid out the agency’s enforcement action against TD Bank [2].
That decision to underfund AML compliance allowed the bank’s AML programme to atrophy, causing huge backlogs in transactions monitoring and the compiling of suspicious activity reports (SARs).
Red flags
The signs were there, and numerous red flags were popping up across TD Bank’s business – like when money launderers purchased more than $1 million in official bank checks with cash in a single day at one TD Bank branch in 2021.
‘As the bank admitted in the statement of facts…at various times high-level executives, including the person who became the bank’s chief anti money laundering officer, knew there were serious problems with the bank’s anti money laundering programme,’ said US Attorney General Merrick Garland in a 10 October speech announcing the penalties. ‘But the bank failed to correct them.’ [3]
TD Bank is the latest banking giant to show what a culture of arrogance and cost-cutting can lead to. Choosing to underfund compliance, as regulators allege, is one thing. But the choices made by bank leadership infected the rest of the organisation, fostering a corporate culture that viewed AML compliance as not important.
Many other issues followed. Employees either had not been properly trained about what to do if they witnessed potential money laundering, or were not motivated to report it.
Numerous anecdotes from TD Bank staff compiled by the DOJ suggest that the bank failed to establish a speak-up culture. Instead, employees either did not know where to file complaints, or thought that reporting a violation wouldn’t do any good.
Systemic weaknesses
The DOJ’s investigation focused attention on glaring, systemic weaknesses in TD Bank’s transaction monitoring system. For example, the bank applied different dollar scenario thresholds to personal accounts and business accounts to determine the likelihood of suspicious activity. This is a well-established risk-based practice in banking.
But TD Bank did not similarly apply different standards to different business accounts, ‘meaning that a Fortune 500 company was subject to the same scenarios and dollar thresholds as a sole proprietorship, despite fundamental differences in the type and volume of activity,’ the DOJ said in its charging document [4].
TD Bank also failed to listen to its own investigators when it came to responding to potential money laundering scenarios. In 2019, the bank became aware of a likely money laundering scheme that was funnelling cash to Colombia, a country where TD Bank had no presence.
The bank’s business intelligence team identified groups of accounts conducting suspicious transactions that had been opened on the same day, using the same address. The team proposed a series of responses to combat these schemes, but the bank never followed the recommendations.
Those examples partly explain that from 2019–2023, three different money laundering schemes managed to filter $670 million in dirty money through TD Bank.
New appointments
TD Bank has already promised a huge response [5], appointing a new US head of financial crime risk management and BSA/AML officer, hiring 40 new compliance leaders, and more than 700 new AML specialists. Those employees will be expected to completely revamp the bank’s BSA/AML compliance programme.
Scott Greytak, Director of Advocacy at Transparency International US, said TD Bank’s response could create a model AML compliance programme for other financial institutions to follow.
‘It could represent a pendulum swinging to create a best-case model AML programme,’ he said. ‘Ideally, its response could have a positive ripple effect.’
Unprecedented restrictions
But first, TD Bank must fulfil regulators’ huge expectations to remediate numerous issues with their BSA/AML compliance programme.
Regulators have placed an unprecedented number of requirements and restrictions on TD Bank’s operations for their wilful failure, over an extended period, to provide adequate resources for its AML compliance programme and fix compliance problems that were identified.
First, the Treasury Department’s Office of the Comptroller of the Currency (OCC) hit TD Bank where it hurts most, in the pocketbook. In its order,[6] the OCC placed a limit on the growth of the bank’s two US-based subsidiaries to $434 billion in assets held as of September.
The OCC will also require that new programmes and initiatives undergo additional scrutiny for compliance with AML rules before being launched.
Banking regulators have made it clear they will impose growth restrictions [7] on financial institutions that allow deficiencies to fester, like the growth restrictions regulators placed on Wells Fargo [8] in the aftermath of its fake account scandal. Of course, Wells Fargo is still facing down its own AML compliance enforcement action by US regulators [9].
Independent monitoring
Regulators clearly do not trust TD Bank to remediate the numerous issues with its AML compliance programme without lots of monitors and consultants weighing in, assessing, and reporting on the progress of remediation. The DOJ ordered that TD Bank hire an independent compliance monitor for three years, while FinCEN assigned a separate independent compliance monitor for four years.
Then there’s all the consultants being asked to evaluate and monitor different aspects of TD Bank’s remediation efforts. FinCEN is requiring TD Bank to hire an independent consultant to conduct a review of SARs back to 2018.
Another independent consultant will conduct a review of the bank’s AML programme, something each of the independent monitors will do as well.
The Federal Reserve Board also scrutinised how the bank’s oversight team for US AML laws was based in Canada, ordering the bank relocated it to the US to provide better regulatory oversight and a better line of sight into the progress of remediation. The Fed also required TD Bank to establish a remediation office in the United States, which will operate under the bank’s board of directors.
TD Bank has a lot of work to do to fix its AML compliance programme and meet regulatory expectations. Will it rise to the occasion? Only time will tell.
This article has been republished with permission from Compliance Week, a US-based information service on corporate governance, risk, and compliance. Compliance Week is a sister company to the International Compliance Association. Both organisations are under the umbrella of Wilmington plc. To read more visit www.complianceweek.com
[1] - https://www.complianceweek.com/regulatory-enforcement/td-bank-fined-nearly-31b-by-us-regulators-for-aml-compliance-failures/35482.article
[2] - https://www.justice.gov/opa/pr/td-bank-pleads-guilty-bank-secrecy-act-and-money-laundering-conspiracy-violations-18b
[3] - https://www.justice.gov/opa/speech/attorney-general-merrick-b-garland-delivers-remarks-announcing-td-banks-guilty-plea-bank
[4] - https://d6jxgaftxvagq.cloudfront.net/Uploads/v/i/f/tdbush_information_filed_1_897934.pdf
[5] - https://td.mediaroom.com/2024-10-10-TD-BANK-GROUP-ANNOUNCES-RESOLUTION-OF-AML-INVESTIGATIONS
[6] - https://d6jxgaftxvagq.cloudfront.net/Uploads/v/i/f/eaaaenf202477_48956_876719.pdf
[7] - https://www.complianceweek.com/regulatory-policy/occ-pledges-harder-stance-on-banks-that-allow-weaknesses-to-fester/33148.article
[8] - https://www.complianceweek.com/regulatory-enforcement/occ-fines-wells-fargo-250m-for-continued-risk-management-failings/30781.article
[9] - https://www.complianceweek.com/regulatory-enforcement/wells-fargo-discloses-aml-sanctions-programs-under-investigation/35193.article