Tag: TD Bank America

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Everything Compliance

Everything Compliance: Episode 143, The North to South Episode

Welcome to the only roundtable podcast in compliance as we celebrate our second century of shows.

In this episode, we have the quartet of Matt Kelly, Jonathan Marks, and Karen Moore; with host Tom Fox wearing a double hat as a commentator as well. We take up Root Cause Analysis, DEI questions in the Boeing monitorship, failures at TD Bank and a possible Caremark claim.

1. Matt Kelly takes a look into the commercial strategies which led to the compliance failures at TD Banks.  He rants about the Boston’s National Women’s Soccer League team (now deleted) advertising campaign announcing the new team with the tagline ‘too many balls’.

2. Jonathan Marks explains the differences in a Root Cause Analysis and investigations. He shouts out the WNBA and the person who solved the Golden Owl puzzle.

3. Karen Moore takes a deep dive into the district court’s request for more information on the impact of DEI on the Boeing monitorship. She rants about non-civility in the Supermarkets of America’s Parking Lots.

4. Tom Fox takes a look at the potential Caremark claim against TD Bank for both Directors and Officers failures in their duties. He shouts out to GOP dominated Texas Legislature for subpoenaing Robert Roberson for an appearance before the House, one day before his scheduled execution and the Texas Supreme Court for staying his execution until he could appear.

The members of the Everything Compliance are:

The host and producer, rantor (and sometime panelist) of Everything Compliance is Tom Fox the Voice of Compliance. He can be reached at tfox@tfoxlaw.com. Everything Compliance is a part of the award-winning Compliance Podcast Network.

Additional Resources:

1.     Jonathan Marks on Root Cause Analysis on LinkedIn.

2.     Matt Kelly on TD Bank’s Enforcement Action on Radical Compliance.

3.     Tom Fox on the potential Caremark claims in the TD Bank case on the Compliance Podcast Network blog.

 

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Compliance Tip of the Day

Compliance Tip of the Day: TD Bank Lessons Learned – New and Emerging Risks Demand Action

Welcome to “Compliance Tip of the Day,” the podcast where we bring you daily insights and practical advice on navigating the ever-evolving landscape of compliance and regulatory requirements.

Whether you’re a seasoned compliance professional or just starting your journey, our aim is to provide you with bite-sized, actionable tips to help you stay on top of your compliance game.

Join us as we explore the latest industry trends, share best practices, and demystify complex compliance issues to keep your organization on the right side of the law.

Tune in daily for your dose of compliance wisdom, and let’s make compliance a little less daunting, one tip at a time.

If you develop new products and services, you must assess those offerings as new compliance risks to manage.

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Blog

TD Bank, Part 7 – Caremark Claims – Officers

Next, I explore the TD Bank AML/BSA enforcement action by looking at the expansion of the Caremark Doctrine. In the McDonald’s case, the Delaware Court of Chancery took the Caremark Doctrine further by applying the Duty of Loyalty to officers and Directors. In that case, styled In re McDonald’s Corporation Stockholder Derivative Litigation (McDonald’s herein), the Delaware Court of Chancery for the first time extended the Caremark Duty to officers, in addition to Directors. Here, the Court stated, “Diverse authorities indicate that officers owe a fiduciary duty of oversight as to matters within their areas of responsibility. Those authorities include the reasoning of the original Caremark opinion, the Delaware Supreme Court’s holding that the duties of officers are the same as those of directors, decisions from other jurisdictions and academic commentary, and the additional duties that officers owe as agents. This decision confirms that officers owe a duty of oversight.”

Expansion of Caremark to Officers

Caremark created an affirmative duty for the Board to engage in oversight. The Caremark court formulated a “more functional terminology that species of claim can be called an “Information- Systems Theory” of Board liability, also known as “Prong-One” Board liability. In this case, a plaintiff typically pleads a ‘Red Flag Theory’ or Prong-Two Caremark claim by alleging that the board’s information systems generated red flags indicating wrongdoing and that the directors failed to respond. In McDonald’s, the Court expanded both Prong-One and Prong-Two liability to officers.

The Court of Chancery listed three key sources for expanding this duty from Boards to officers.

  1. Management runs a company. While the Board oversees management, “most corporations are managed ‘under the direction of’ the board.” However, “the officers are charged with, and responsible for, running the corporation’s business.” Therefore, “Because of this reality, “[m]onitoring and strategy are not exclusively the dominion of the board. Nondirector officers may be more capable of making oversight and strategic decisions daily.”
  2. Boards depend on information from management. Here, the court noted that “For relevant and timely information to reach the board, the officers who serve as the day-to-day managers of the entity must make a good faith effort to ensure that information systems are in place so that the officers receive relevant and timely information that they can provide to the directors.” From this, “it follows that officers must have a duty to make a good faith effort to establish an information system as a predicate to fulfilling their obligation to provide information to the board.”
  3. Compliance systems are required under the USSG. The US Sentencing Guidelines (USSG) mandate that “high-level personnel of the organization shall ensure that the organization has an effective compliance and ethics program, as described in this guideline.” This requirement includes, “Specific individual(s) within high-level personnel shall be assigned overall responsibility for the compliance and ethics program.” The USSG goes on to define an organization’s “high-level personnel“ as “individuals who have substantial control over the organization or who have a substantial role in the making of policy within the organization,“ which includes “a director; an executive officer, an individual in charge of a major business or functional unit of the organization, such as sales, administration, or finance; and an individual with a substantial ownership interest.“ This has the added benefit of putting compliance professionals directly in the path of liability created by this decision.

Interestingly, even as the Delaware courts had not explicitly expanded the duty of oversight to officers, the court found some support in bankruptcy court decisions. The Delaware court found that Prong-One Information Systems and Prong-Two Red Flag claims were available against officers under certain circumstances. The Delaware court concluded this section: “All preceding authorities start from the premise that officers owe the same duties as directors. Because directors owe a duty of oversight, these authorities reason that officers owe a duty of oversight. That logic is sound.”

The Delaware court also noted that officers have fiduciary duties to the corporation akin to those duties that agents owe their principals. The court pointed to a prior Delaware decision in Hampshire, which “recognized a standard of conduct at the officer level that included a duty to act carefully, loyally, and in good faith to gather and provide information, with the standard of liability for the care dimension of the duty measured by gross negligence. By recognizing the duty to provide information, Hampshire lays the foundation for an officer-level duty consistent with an Information-Systems Theory.“ The Court also found there is officer accountability to the Board, which supports this extension of the duty of oversight to officers.

Officer Actions

From the Information in the TD Bank matter, we have the following, “During the relevant period, Defendants willfully failed to maintain an adequate AML program at the Bank. At various times, high-level executives including those in Global AML Operations, in senior executive management, and on the TDBUSH Audit Committee—specifically including an individual who became Defendants’ Chief Anti-Money Laundering Officer (“Chief AML Officer”) during the relevant period (Individual-1) and the Bank’s BSA Officer (Individual-2)—knew there were long-term, pervasive, and systemic deficiencies in the Defendants’ U.S. AML policies, procedures, and controls.

 The Defendants did not substantively update the Bank’s automated transaction monitoring system from at least 2014 through 2022— including addressing known gaps and vulnerabilities in the TDBNA’s transaction monitoring program—despite increases in the volume and risk of its business and significant changes in the nature and risk of transactional activity. In addition, during the relevant period, TDBNA monitored only approximately 8% of the volume of transactions because it omitted all domestic automated clearinghouse (“ACH”) transactions, most check activity, and numerous other transaction types from its automated transaction monitoring system.

 Due to this failure, the Bank did not monitor approximately $18.3 trillion in activity between January 1, 2018, and April 12, 2024. At the same time, Bank senior executives repeatedly prioritized the “customer experience“ over AML compliance. They enforced a budget mandate, referred to internally as a “flat cost paradigm,“ that set expectations that all budgets, including the AML budget, would not increase year over year.

Is all of this enough to invoke Caremark liability for officers? Perhaps when you consider the additional facts as reported in the Information Bank, senior executives repeatedly prioritized the “customer experience“ over AML compliance and enforced a budget mandate, referred to internally as a “flat cost paradigm,“ that set expectations that all budgets, including the AML budget, would not increase year-over-year. The Defendants’ failures to appropriately fund the Bank’s AML program and to adapt its transaction monitoring program resulted in a willfully deficient AML program that allowed three money laundering networks to exploit the Bank and collectively transfer over $670 million through TDBNA accounts. At least one scheme had the assistance of five store insiders at TDBNA.

 At one point, the Information reported that the AML compliance program budget was reduced by 2021 to an amount lower than budgeted for the program in 2018. Further, both the Chief Anti-Money Laundering Officer (“Chief AML Officer”) and the Bank’s BSA Officer (Individual-2) touted their ability to stay within the budgetary constraints in their self-assessments as positive. Finally, Individual-1 referred to the Bank’s “historical underspend“ on compliance in an email to the Group senior executive responsible for the enterprise AML budget, yet the US-AML budget essentially stayed flat. GAML and US-AML employees explained to the Offices that budgetary restrictions led to systemic deficiencies in the Bank’s transaction monitoring program and exposed the Bank to potential legal and regulatory consequences. In other words, the Bank’s AML officers were well aware of the shortcomings in the Bank’s AML program yet did nothing to remediate or ameliorate these deficiencies.

 The bottom line is that if there is ever going to be a case to validate the expansion of the Caremark Doctrine to include officers, this is likely the case.

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Blog

TD Bank: Part 5 – The Reckoning

Today, I want to review the OCC Consent Order to see the bank’s requirements. This is separate from the DOJ requirements under the Bank’s Plea Agreement(s) and the FinCEN Consent. Further, the DOJ and OCC have mandated separate monitors under their attendant settlement agreements. FinCEN’s Order imposes a four-year independent monitorship, and the DOJ Plea Agreement a 3-year Monitorship. As Matt Kelly noted in Radical Compliance, the remediation steps include:

  • Establishing a dedicated compliance committee at the board level;
  • Drafting a plan within 120 days to overhaul its AML compliance program;
  • Hiring an independent compliance consultant within 60 days to conduct their review of TD’s compliance program;
  • Hiring a senior-level AML compliance officer;
  • Staffing up a more robust AML compliance function; and
  • Implementing new policies, procedures, training, and all the other usual requirements we’ve seen from similar banking settlements.

In this blog post, we will consider some of the highlights above and beyond these remediation steps that the Bank must perform.

The Action Plan

The enforcement order mandates that within 120 days, TDBNA must submit a comprehensive BSA/AML Action Plan to the Examiner-in-Charge for approval. This plan must address the bank’s deficiencies in adhering to the Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) regulations. The action plan must include detailed corrective actions, reasonable timelines for implementation, and clear accountability for executing these measures. The board of directors is responsible for overseeing the implementation, ensuring adherence, and monitoring progress, with formal reviews required at least annually.

The Action Plan must be subject to continuous updates and modifications as necessary, particularly if directed by the Examiner-in-Charge or if the bank identifies further areas of improvement. The Examiner-in-Charge must approve any significant deviations or material changes to the plan. TDBNA must also submit quarterly progress reports detailing corrective actions, outstanding issues, and timelines for resolving compliance deficiencies, ensuring transparency in the bank’s efforts to remediate its AML program.

In the event of ongoing issues or independent assessments highlighting further weaknesses, the bank must provide written documentation to the Examiner-in-Charge. The board’s review and response to these assessments will drive accountability and ensure the continuous improvement of TDBNA’s BSA/AML compliance program.

AML Program Assessment and Remediation

TDBNA’s response to its enforcement action underlines the critical role of independent third-party assessments in fortifying a bank’s BSA/AML program. The bank must engage an independent consultant, approved by the OCC, to conduct an exhaustive end-to-end review of its entire BSA/AML framework. This process begins within 60 days of the enforcement order, where TDBNA must submit the proposed consultant’s qualifications, along with a detailed scope of work and timeline, for the OCC’s review. The consultant’s expertise in BSA/AML compliance is a key requirement to ensure the assessment is thorough and capable of addressing the bank’s regulatory obligations.

The independent consultant’s primary objective is to assess the bank’s BSA/AML program against its risk profile, identifying any gaps or weaknesses in its structure and operations. This review will examine whether the bank’s transaction monitoring, suspicious activity reporting, and overall governance are robust enough to meet the demands of U.S. regulatory requirements and the bank’s evolving risk landscape. The consultant’s findings will be critical in determining how effectively TDBNA’s AML framework functions and where improvements are necessary.

Upon completing the review, the consultant will deliver a comprehensive report to TDBNA’s board of directors detailing any deficiencies in the bank’s BSA/AML program. The report will also include recommendations for remediation, ensuring the bank addresses areas of concern in a structured and strategic manner. To ensure transparency and accountability, the board will document its review of the report in official meeting minutes, which must be submitted to the OCC. Additionally, the independent consultant will provide a copy of the report directly to the Examiner-in-Charge, ensuring that regulators have a clear view of the findings and the bank’s planned corrective actions.

Beyond simply identifying deficiencies, the bank must ensure it takes prompt and effective action to remediate the issues raised by the independent consultant. TDBNA must incorporate the necessary remediation efforts into its existing BSA/AML Action Plan, ensuring that all gaps are addressed promptly and comprehensively. This integration is crucial, as failure to properly implement corrective measures could lead to further regulatory actions and potentially severe penalties. The OCC will continue to monitor the bank’s progress by submitting updated action plans and progress reports.

Ultimately, this process highlights the importance of maintaining a dynamic and adaptable BSA/AML program that can respond to emerging risks and regulatory expectations. TDBNA’s engagement with an independent consultant reminds all financial institutions that complacency in AML compliance is not an option. By continually assessing and improving their compliance frameworks, banks can better mitigate risk, avoid regulatory scrutiny, and ensure their AML programs remain strong, effective, and compliant with the law.

Three is Not Always a Crowd

Are you beginning to see a pattern here? The Bank engaged third-party consultants who identified significant weaknesses in its AML program and reported these issues to the Bank’s AML leadership. In 2018, one consultant noted that increasing regulatory requirements and transaction volumes would pressure AML operations, making it difficult to meet demands and deadlines. Additionally, the consultant found that The Bank’s testing of its transaction monitoring scenarios took less than the industry average, highlighting inefficiencies in its ability to assess and capture suspicious activity.

In 2019, another consultant flagged sub-optimal transaction monitoring scenarios based on outdated parameters. These outdated scenarios generated many alerts, overwhelming the AML team and limiting their ability to focus on truly high-risk customers and transactions. This finding pointed to a broader issue in the bank’s ability to adapt its monitoring systems to changing regulatory and risk environments, significantly undermining the effectiveness of its AML compliance efforts.

In 2021, a third consultant identified additional limitations within the Bank’s transaction monitoring program, particularly its technology infrastructure. The consultant found that the bank faced technological barriers that restricted its ability to develop new scenarios or adjust existing parameters, further hampering its AML efforts. These ongoing challenges reflect a broader need for the Bank to modernize its systems and ensure its AML program is agile enough to meet regulatory expectations and address emerging risks effectively.

Restriction on Growth

The Consent Order also required the Bank to maintain its total consolidated assets at or below the level reported on September 30, 2024. This mandate prevents the banks from increasing their average total consolidated assets beyond this threshold until they achieve compliance with all actionable articles of the order. The total consolidated assets will be measured using the banks’ respective Consolidated Reports of Condition and Income.

The asset restrictions will remain in place until the banks meet all compliance obligations outlined in the order. However, the Deputy Comptroller can temporarily suspend the asset cap in unusual circumstances. If the banks fail to meet compliance deadlines, the Deputy Comptroller may require a reduction of up to 7% of their total consolidated assets, as reported in the most recent calendar quarter.

If the Bank is notified that a reduction is necessary, it must submit a plan within 30 days for the Comptroller’s approval and have 60 days to implement the asset reduction. If non-compliance continues beyond the first year, the Deputy Comptroller may impose an additional reduction of up to 7% annually, with the same plan submission and implementation requirements applying each successive year until full compliance is achieved.

Jon Hill wrote in Law360 that this is only the second time “that a federal banking agency has slapped such handcuffs on a financial institution’s overall growth.” The first was Wells Fargo, slapped for its fraudulent accounts scandal. Moreover, while the Wells Fargo “cap has remained in place much longer than many observers originally expected, the OCC has designed its cap for TD Bank with more of a need for remedial speed in mind. In particular, the OCC order establishing the cap includes express provisions that allow the agency to reduce the size limit — that is, tighten the cuffs — by up to 7% annually if the bank does not meet certain deadlines for strengthening its U.S. anti-money laundering compliance.” The article quoted Julie A. Hill, a banking law professor and dean at the University of Wyoming College of Law, for the following, “where the asset cap has gone on for years and years as the bank has tried to get compliant.”

Put Money Where Their Mouth Is

Even more than the commitment to do business ethically and in compliance with its AML/BSA requirements, the Bank must also financially commit to compliance. The Order requires that before the Bank can declare or pay dividends, engage in share repurchases, or make any other capital distributions, the Board of Directors must certify in writing to the Examiner-in-Charge that adequate resources and staffing have been allocated to the remediation efforts required by the OCC’s order. This certification must be submitted at least 30 days before any proposed capital action. It must include a detailed description of the Bank’s current allocation of compliance resources, its progress in remediation, any anticipated changes in resource allocation, and the funding source for the proposed payment or distribution. The goal is to ensure that remediation efforts take priority over capital distributions.

Join us next time, where I will consider TD Bank and the Caremark Doctrine.

Resources

OCC

OCC Press Release

Consent Order 

Civil Money Penalty 

DOJ

TD Bank US Holding Company Information

TD Bank N.A. Information

TD Bank US Holding Company Plea Agreement and Attachments

TD Bank N.A. Plea Agreement and Attachments

Merrick Garland Remarks

Nicole Argentieri Remarks

FinCEN

Press Release

Consent Order

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Blog

TD Bank: Part 3 – Lessons Learned for Compliance

We continue our exploration of the resolution of the AML/BSA enforcement action involving the TD Bank US (the Bank) wholly owned by the TD Bank Group,  a publicly traded (NYSE: TD) international banking and financial services corporation headquartered in Toronto, Canada. Today, we explore some key lessons learned for the AML compliance professional. We begin with what Attorney Merrick Garland noted: “Three money laundering networks took advantage of TD Bank’s failed anti-money laundering system.”

The 3 Money-Laundering Scheme

The David Scheme

Da Ying Sze, also known as David, used the Bank as a money laundering and unlicensed money transmitting scheme for which he pled guilty in 2022. David conspired to launder and transmit over $653 million, with more than $470 million laundered through TDBNA. He bribed bank employees with over $57,000 in gift cards to facilitate the scheme. David laundered money by depositing large amounts of cash, sometimes exceeding $1 million in a single day, into accounts opened by other individuals. He also instructed bank employees to send wires and issue official checks. The Bank needed to correctly identify David as the person conducting the transactions in over 500 CTRs, which covered more than $400 million in transaction value, despite David directly depositing large cash sums into accounts he allegedly did not control.

Bank Insiders

Five Bank employees provided material assistance to a second money laundering scheme, which laundered millions of dollars from the United States to Colombia. The five individuals, referred to as “TDBNA Insiders,” held various positions within the bank, including Financial Service Representative, Retail Banker, Assistant Store Manager, and Store Supervisor at TDBNA stores in New Jersey and Florida. These insiders helped the money laundering networks by opening accounts and providing dozens of ATM cards used to launder funds through high-volume ATM withdrawals. They also assisted in maintaining these accounts by issuing new ATM cards and overcoming internal controls and freezes on account activity. Through these actions, approximately $39 million was laundered through the bank. Despite significant internal red flags, TDBNA did not identify the insiders’ involvement in the money laundering scheme until law enforcement arrested Insider-1 in October 2023.

Shell Company Scammers

From March 2021 through March 2023, a money laundering organization known as “MLO-1,” which claimed to be involved in the wholesale diamond, gold, and jewelry business, maintained accounts for at least five shell companies at the Bank. These accounts moved approximately $123 million in illicit funds through the bank. The Bank knew these shell companies were connected, sharing the same account signatories. Despite these red flags, The Bank did not file a Suspicious Activity Report (SAR) on MLO-1 until law enforcement notified the bank in April 2022. By then, MLO-1’s accounts had been open for over 13 months and had transferred nearly $120 million through TDBNA.

Lessons Learned

This enforcement action is a sobering reminder of compliance’s critical role in preventing and detecting financial crimes like money laundering. With over $470 million laundered in one scheme, $39 million moved through insiders, and $123 million transferred via shell companies, significant compliance failures occurred.  Of course, these are only a part of the $18.3 trillion in transactions that the Bank does not monitor due to its conscious compliance failures. These incidents underscore the importance of maintaining robust internal controls, employee oversight, and proper reporting mechanisms.

Failing to Detect Obvious Red Flags

In this case, one of the most glaring issues is the bank’s failure to identify the obvious red flags associated with laundering large sums of money. In the case of David, the Bank failed to file accurate CTRs for over $400 million in transactions. David regularly deposited enormous amounts of cash, over $1 million in a single day, into accounts opened by others, yet the bank failed to link him to these transactions.

The key takeaway for compliance professionals is to ensure that their systems are calibrated to flag suspicious activities, especially when transactions exceed certain thresholds. Large cash deposits, frequent activity involving multiple accounts, and nominee account holders should always trigger enhanced due diligence and review. Automated systems must be updated and combined with human oversight to catch these patterns.

The Role of Corrupt Employees in Facilitating Money Laundering

The involvement of the Bank Insiders in the second laundering scheme is a textbook example of how internal corruption can undermine even the most sophisticated compliance programs. These employees assisted money laundering networks by opening accounts, providing ATM cards, and circumventing internal controls and account freezes. In exchange, they received bribes, showing the vulnerability of staff in critical roles.

This scenario mandates why employees must undergo regular anti-bribery and anti-corruption training to reinforce the consequences of accepting bribes and engaging in unethical behavior. In addition, a strong compliance culture should include mechanisms for detecting internal misconduct, such as anonymous reporting systems and independent audits to identify corrupt employees early. Creating ethical guardrails within your organization, alongside frequent checks and balances, can protect against insider threats.

CTRs and SARs Must be a Priority

A key regulatory requirement under the Bank Secrecy Act (BSA) is the filing of Currency Transaction Reports (CTRs) and Suspicious Activity Reports (SARs). The Bank’s failure to file accurate CTRs in David’s case and delayed filing of SARs in the Shell Company Scammers scheme underscores how devastating the consequences can be when compliance teams do not take their regulatory obligations seriously. Even after identifying that shell companies were linked to each other by shared account signatories, the Bank failed to act quickly, allowing nearly $120 million to be laundered through their systems.

The timely filing of CTRs and SARs is not just a best practice; it is a regulatory requirement. Compliance officers must ensure that processes for flagging suspicious activity are effective and swift. Training staff to recognize when CTRs and SARs are needed and implementing systems that automatically flag transactions for review will help ensure compliance with reporting obligations.

Third-Party Risk and Shell Companies: Know Your Customer (KYC) Failures

The shell companies used to launder $123 million demonstrate a significant lapse in the bank’s Know Your Customer (KYC) protocols. The Bank knew the shell companies were linked by the same account signatories yet failed to act for over a year. This gap in KYC enforcement allowed significant funds to pass through without appropriate scrutiny or action.

KYC processes should be foundational to every compliance program. Regular reviews and enhanced due diligence are required when dealing with high-risk entities like shell companies. Compliance professionals should prioritize the identification of ultimate beneficial ownership (UBO) and remain vigilant when patterns suggest potential fraud, even if account openings appear legitimate at first glance. Your KYC protocols must also integrate ongoing monitoring, not just one-time checks.

The Consequences of Ignoring Red Flags

Across all three schemes, the Bank ignored significant internal red flags—whether employees directly deposited large sums of cash, insiders actively assisting in laundering activities, or shell companies linked by shared signatories. Compliance must be more than just a checkbox exercise. Red flags must be taken seriously and escalated quickly to prevent further damage.

Compliance teams must be empowered to act decisively when red flags are raised. This includes having the authority to freeze accounts, file reports, and escalate issues to senior management and regulatory authorities when needed. Additionally, a strong culture of compliance, backed by leadership, should encourage immediate action when suspicious activity is detected.

Monitoring and Auditing: Preventing Future Failures

Finally, this case reveals the importance of ongoing monitoring and regular auditing. In all three schemes, the Bank failed to sufficiently monitor account activities and employees, which allowed the laundering schemes to continue for extended periods. Regular audits and automated transaction monitoring systems are essential to detect and prevent similar issues.

Auditing and monitoring systems should be built into your compliance framework, focusing on high-risk accounts, employees, and geographies. By continuously reviewing and auditing compliance processes, teams can identify gaps early and prevent further exploitation. Technology can be key in monitoring, but human oversight is critical to analyzing more complex behavior patterns.

This enforcement action is a stark reminder of the consequences of weak compliance controls, employee corruption, and failure to act on red flags. For compliance professionals, the lessons from this case are clear: robust internal controls, continuous training, effective KYC procedures, and timely reporting are essential to preventing and detecting money laundering. By learning from these failures, compliance officers can strengthen their programs and ensure their organizations remain vigilant in the fight against financial crime.

I will explore this matter in depth over the next several blog posts. Tomorrow, I will consider the Bank’s culture and flat cost paradigm.

Resources

OCC

OCC Press Release

Consent Order 

Civil Money Penalty 

DOJ

TD Bank US Holding Company Information

TD Bank N.A. Information

TD Bank US Holding Company Plea Agreement and Attachments

TD Bank N.A. Plea Agreement and Attachments

Merrick Garland Remarks

Nicole Argentieri Remarks

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Compliance Into the Weeds

Compliance into the Weeds: Adventures in Squeezing Out Compliance – TD Bank’s Flat Cost Paradigm

The award-winning Compliance into the Weeds is the only weekly podcast which takes a deep dive into a compliance related topic, literally going into the weeds to more fully explore a subject. Looking for some hard-hitting insights on compliance? Look no further than Compliance into the Weeds!

In this episode, Tom Fox and Matt Kelly take a deep dive into the TD Bank BSA and AML enforcement action, which led to $3 billion in fines and penalties.

Tom and Matt discuss TD Bank’s conscious strategy of not raising the budget, known as the Flat Cost Paradigm or Zero Expense Growth Paradigm, and how this strategy severely restricted the Bank’s compliance and AML functions. This tactic aimed to increase profits by keeping expenditures flat year after year. The impact of this strategy is particularly evident in the global AML team’s expenditures on the U.S. anti-money laundering program, which decreased in 2021 compared to 2018. Despite significantly growing U.S. assets and net income, the bank refrained from increasing its budget for essential programs, a fact highlighted in the Justice Department indictment. The Bank’s strategy serves as a clear warning about the dangers of prioritizing profits over compliance.

Key Highlights:

  • Introduction to the Flat Cost Paradigm
  • Details of the Budget Strategy
  • Impact on Anti-Money Laundering Efforts
  • Financial Growth Amidst Budget Constraints

Resources:

  1. Blogs

Matt in Radical Compliance

Tom in the FCPA Compliance and Ethics Blog

  1. Tom

Instagram

Facebook

YouTube

Twitter

LinkedIn

  1. Enforcement Related Material

OCC

OCC Press Release

Consent Order 

Civil Money Penalty 

 DOJ

TD Bank US Holding Company Information

TD Bank N.A. Information

TD Bank US Holding Company Plea Agreement and Attachments

TD Bank N.A. Plea Agreement and Attachments

Merrick Garland Remarks

Nicole Argentieri Remarks

Categories
Blog

TD Bank: Part 1 – Money Laundering and the China Syndrome

Last week, representatives of the US government announced one of the largest sets of fines and penalties for failures in anti-money laundering ever laid down. It involved TD Bank N.A. and TD Bank US Holding Company. It was over $3 billion in fines and penalties with a restriction in growth until the company gets its compliance act together. However, it is not the fine nor creative penalty that flags this matter but the underlying facts and raw brazen-ness of the 10th largest bank in the United States to either actively engage in an ongoing criminal enterprise or to willfully disregard specific evidence of criminal activity and failure of basic compliance which makes this enforcement action stand out. Employees from the front-line tellers who took in millions of dollars in cash, right up to the Board of Directors, knew the bank’s conduct was illegal or buried their collective heads so far down into the sand that they could have caused the China Syndrome to self-execute.

The regulators and enforcers in this sordid tale include the Department of Justice (DOJ), the Board of Governors of the Federal Reserve Board (FRB), the Treasury Department’s Office of the Comptroller of the Currency (OCC), and Financial Crimes Enforcement Network (FinCEN). According to a DOJ Press Release, TD Bank N.A. (TDBNA) and its parent company TD Bank US Holding Company (TDBUSH) (together with TDBNA, the Bank) pled guilty today. They agreed to pay over $1.8 billion in penalties to resolve the Department of Justice’s (DOJ) investigation into violations of the Bank Secrecy Act (BSA) and money laundering. Finally, TD Bank’s guilty pleas are part of a coordinated resolution with the FRB, the OCC, and FinCEN. With the additional fines and penalties due to these entities, the total fine and penalty is over $3 billion.

TDBNA pled guilty to conspiring to fail to maintain an anti-money laundering (AML) program that complies with the BSA, failing to file accurate Currency Transaction Reports (CTRs), and money laundering. TDBUSH pleaded guilty to causing TDBNA to fail to maintain an AML program that complies with the BSA and to fail to file accurate CTRs.

To add to all the above, the government put a restriction on TD’s growth until it fully remediates its compliance program because, as noted by Matt Kelly in Radical Compliance,  it specified that “TDBNA’s total assets cannot exceed $434 billion without OCC approval, and that approval will not come until TDBNA completes an extensive transformation of its AML compliance program.” Further, Kelly noted that if “TDBNA does not make progress on those compliance program reforms in a timely manner, OCC can reduce that asset cap by another 7 percent, and keep going until TD gets its compliance act together. In other words, the longer TD drags its feet on implementing compliance reforms, the tighter the leash around its neck will get.”

How did the Bank get to this point, what can it do to resolve this mess, and what are the lessons learned for the compliance professional, corporate executive, and Board of Directors? Additionally, what is the point of punishment? Will foreign entities always come to the US, open branches, and engage in illegal activities, all in the scramble for the all-mighty dollar? Will corporate executives ever be held liable for intentionally looking the other way or burying their heads in the sand? Several blog posts will explore the answers to these questions and more.

What They Said-Merrick Garland

In a rare appearance by Attorney General Merrick Garland to announce the guilty plea, fine, and penalty, he stated, “Today, TD Bank pled guilty to multiple felonies, including conspiring to violate the Bank Secrecy Act and commit money laundering. TD Bank has also agreed to a $1.8 billion criminal penalty. Combined with civil enforcement actions announced today by other agencies, the United States will impose a total [penalty] of approximately $3 billion against TD Bank. TD Bank created an environment that allowed financial crime to flourish. By making its services convenient for criminals, it became one.

Today, TD Bank became the largest bank in U.S. history to plead guilty to Bank Secrecy Act program failures and the first U.S. bank to plead guilty to conspiracy to commit money laundering. This is also the largest-ever penalty under the Bank Secrecy Act and the first time the Justice Department has assessed a daily fine against a bank. As part of the plea agreement, TD Bank will fundamentally restructure its corporate compliance program at its U.S.-based bank, the 10th largest in the United States. The bank has also agreed to impose a three-year monitorship and a five-year term of probation. While the bank has started its remediation, it will continue to remediate and improve its anti-money laundering compliance program to ensure that it operates lawfully and safely.”

What They Said-Lisa Argentieri

Deputy Assistant Attorney General Nicole M. Argentieri said, “Over the course of a decade, TD Bank placed profits over compliance, prioritizing a “flat cost paradigm” that limited spending across the bank — including on the bank’s anti-money laundering (AML) compliance program, despite growing risks — even while profits soared. The bank knew it had pervasive and systemic deficiencies in its AML program, including a transaction monitoring system that remained stagnant over 10 years despite warnings from regulators, consultants, and even its employees. AML employees joked that the Bank’s failed AML system made TD an “easy target” and a “convenient” bank for bad actors. And they were right. TD’s failed AML compliance program created vulnerabilities that criminals — including TD’s employees — used to launder money through the Bank. All told, three large money laundering networks, two prosecuted by our partners in the District of New Jersey and the third prosecuted in the District of Puerto Rico, laundered over $670 million through TD.

Notably, the Bank did not self-disclose any regulator. Yet after the Bank was notified of the investigation into its conduct, “the Bank provided strong cooperation. For example, TD identified additional misconduct and provided evidence of that misconduct to the department. Some of that evidence helped advance our investigation of individuals, including video surveillance footage TD provided after reviewing hundreds of hours of videotape and materials recovered because TD secured the workplaces of employees involved in misconduct.”

Additionally, and becoming increasingly standard in such resolutions, the culpable entities are engaged in clawbacks. Argentieri noted that the Bank “took steps on its own to hold its employees financially accountable. The Bank clawed back bonuses, including for its CEO and other executives, resulting in a dollar-for-dollar reduction of the Bank’s fine of approximately $2 million.” Yet she emphasized that the Bank’s “resolution marks a first. This is the first time a company has committed to clawing back compensation prospectively. Over the next few months, TD will identify additional compensation it will claw back from its employees. And if the bank is successful during the term of its agreement with the department, the Criminal Division will credit those clawbacks against the fine.”

I will explore this matter in some depth over the next several blog posts. Tomorrow, I will consider how profits over compliance led to disaster.

Resources 

OCC

OCC Press Release

Consent Order 

Civil Money Penalty 

DOJ 

TD Bank US Holding Company Information

TD Bank N.A. Information

TD Bank US Holding Company Plea Agreement and Attachments

TD Bank N.A. Plea Agreement and Attachments

Merrick Garland Remarks

Nicole Argentieri Remarks