Key Money Laundering Example in the Banking Sector

“TD Bank pleads guilty in money laundering case, will pay $3 billion in penalties.”

-News Sources

While the headline has gone viral in October 2024, the reasons behind it remain unclear for many. The masses have no clue about this huge AML fine and only heard the news due to its widespread coverage.

For the AML compliance industry, this case serves as one of the notable examples of money laundering with multiple lessons to learn.

This article will disclose all these, including the major reasons behind TD Bank’s recent controversy, the consequences it faced for neglecting AML policies, and the potential implications of the imposed AML penalties.

TD Bank Faces High AML Fines

TD Bank is the 10th largest bank by total assets in the United States. It’s the subsidiary of Toronto-Dominion Bank (TD) of Canada. TD Bank pleaded guilty on 10 October 2024 and agreed to pay approximately $1.8 billion in criminal penalties.

However, the bank will pay a total of $3 billion, including civil fines to settle charges related to violations of the Bank Secrecy Act (BSA) and anti-money laundering regulations.

What is the Bank Secrecy Act?

The Bank Secrecy Act was enacted in 1970 in the U.S., to mitigate money laundering. Enforced by the Financial Crimes Enforcement Network (FinCEN, it requires financial institutions to develop and execute stringent AML compliance measures today.

How TD Bank Facilitated Money Laundering?

The TD Bank scandal is one of the most prominent examples of money laundering and non-adherence to AML regulations at a major North American financial institution in recent history.

For more than a decade (2014 to 2023), TD Bank faced some systematic failures in its AML compliance program but didn’t pay heed to it.

However, the case was revealed in October 2024 when it had to pay for the heaviest penalties imposed by the U.S. Department of Justice.

Three different criminal networks took advantage of gaps in TD Bank’s security protocols and transferred illegal funds.

It involves the bank’s inability to monitor client activity, which permits the money launderers to transmit hundreds of millions of dollars through the banking network.

How Does Money Laundering Occur?

Cases like “TD Bank” compel people to wonder, “What is money laundering and how does it work?”

Money laundering is an illicit act that allows criminals to move large funds to hide their suspicious or illegal activities, including drug trafficking, fraud, and terrorist financing.

Money Launderers earn money through multiple illegal activities and then purify it using three stages:

• Placement: Introduced illegal funds into the financial systems.
• Layering: Purifying the illicit money by converting it into assets, i.e., gold, cash, real estate, and casino chips.
• Integration: Money is returned to the financial system as a legal means of earning.

What Are The Famous Techniques Of Money Laundering?

Financial criminals often utilize unlimited techniques to conduct money laundering. With the advancement in financial systems, these methods have also evolved. The most basic techniques used today are:

• Smurfing

Multiple individuals deposit small amounts of cash into various accounts. This method conceals the source of funds and makes it challenging for the banks to monitor payment transactions.

• Structuring

In structuring, culprits break large amounts of payments into smaller deposits to bypass bank reporting thresholds. With this, criminals can easily hide the origins of payments.

• Shell Companies

Money launderers create shell companies to hide the ownership of their assets. These firms can be utilized for money laundering by routing it through a complex network of jurisdictions and networks.

Understanding the Concept of Money Laundering with Al Capone’s Example

The famous incident involving Al Capone can be a great example of money laundering:

An Unstoppable Chain Of  “Money Laundering

• Al Capone is a prominent gangster who managed a large criminal empire but was only convicted of tax evasion.
• Capone’s illicit earnings from different activities were purified through investments in cash-only businesses.
• To hide the origins of his dirty money, he invested it in different legitimate companies that turned the illegal funds into legal ones.
• Capone’s efforts in converting illegally obtained money into legitimate payments is a classic example of money laundering.

Let’s come back to the controversy of TD Bank and learn how this bank supports illicit activities under the umbrella of legal operations.

What Are The AML Compliance Failures Led By TD?

There are a lot of issues behind the bank’s systematic failure. These issues include:

• Non-adherence to AML Regulations

TD Bank’s anti-money laundering program remained out of date for nearly a decade, resulting in substantial gaps in regulatory compliance and increased financial crime exposures.

• Bribed Staff Members

Bribery within the bank compromised integrity, allowing staff members to enable money laundering by permitting criminals to avoid internal controls and AML checks.

• Failure to Identify Suspicious Activity

An important factor contributing to the scandal is TD Bank’s failure to recognize the suspicious activities before law enforcement intervention.

• Insider Trading

TD Bank’s most senior employees, aware of the confidential details of their institute, leaked sensitive details for personal gain. This act of misconduct has severely compromised the bank’s competitive advantage and damaged its brand reputation.

In short, the major reason behind all these increased cases of money laundering is the Bank’s negligence and non-adherence to the AML regulations, resulting in higher penalties.

What Is The Analysis Of Regulatory Authorities?

US authorities announced at a press conference that, by 2018, TD Bank failed to monitor more than 90% of the transactions on its network, activity worth more than $18tn.

According to investigations;

• The bank has failed to apply adequate policies and procedures against money laundering for almost ten years.
• Allowed one criminal group to move more than $470 million through the bank over three years.
• It has not taken any proper action against the suspicious activities highlighted by bank staff.
• One of the suspicious transactions was a client’s deposition of “$1m in cash” daily.

TD Bank’s Response to AML Penalties

TD Bank has recognized its shortcomings and has promised to enhance its control over money laundering.

The Bank’s CEO has taken “full responsibility for the failures” and acknowledged the inability to comply with AML legislation.

Regulatory and Legal Repercussions

Regulatory and legal repercussions that TD Bank took are:

• Record Penalty: TD has decided to pay the richest ever penalty against any US bank of $3B to American authorities for performing services that allowed drug traffickers and money launderers’ operations.
• Plea Agreement: TD Bank also entered a guilty plea concerning an allegation of breaking the Bank Secrecy Act, thus becoming the first-ever banking institute in the US to do so.
• Criminal Offenses: In relation to the above incidents, several charges of money laundering and conspiracy have been brought against some employees of TD Bank.
• Strict Punishment: The regulatory apparatus surrounding TD Bank has been tightened, and further punishment and restrictions are likely to follow.
• Ongoing Public Relations Issues: These events have created crises of public relations for TD Bank that have escalated with the potential of loss of customers and reduced chances of business activities.

Impact on its Customers

• Risk Orientation: There is a continuous risk of identity theft and fraud for customers of TD Bank arising from the weak security controls instituted by the bank.
• Reduced Trust: Customers may develop a negative attitude towards TD Bank and, as a result, take their accounts elsewhere.
• Potential Losses: Individuals who have been swindled or caught in money laundering schemes attributable to TD Bank stand to lose money.

TD Bank’s money-laundry case reiterates the need to put in place effective controls against money laundering and the dire repercussions of noncompliance.

Further, it is a reminder to other banks of the critical need to comply with anti-money laundering policies and take active measures against the laundering of money.

AML Watcher Empowers Banks to Stay One Step Ahead of Money Laundering Risks

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