3. Ten (10) Key Takeaways

1. Guilty of Money Laundering: The severity of the charges, fines and penalties are unique and leaves no one in any doubt as to the serious systemic and long standing weaknesses in TD Bank USA’s AML programme, which allowed serious ML and potentially HT and TF to be undertaken and major AML programme weaknesses to subsist for almost a decade from January 2014 to October 2023. The acceptance of guilty plea’s by TD US regulated entities including to a charge of conspiracy to money launder in the USA is unique and sets a new benchmark standard for criminal charges where underlying criminal activity is identified and weaknesses in AML programme compliance are confirmed. The level of identified criminality is serious, for example money laundering between 2018 and 2023 (mostly between 2019-2021) of at least approx US$636 million from 3 separate ML cases investigated by LEA which have been identified with these money launderers receiving help from some TD employee insider assistance And possible additional human trafficking proceeds of US$3.5 million and TF at US$3 million also potentially of concern.

2. The largest ML fine Globally ever: The  level of the combined fine is very high at US$3.03 billion, but results essentially from double jeopardy, as fines for both criminal and civil cases have been levied essentially relating to the same behaviour and or activity and or lack of activity. This is the largest in aggregate fine for AML related failures in US history & anywhere else and comes with additional significant businesses restrictions, stringent remediation requirements including look backs and monitorships for a minimum of 3 years.  Whilst TD had announced it had budgeted C$500 million back in April 2024 for the clean up, this will become much more expensive to fix than this level of investment suggests and the clean up costs are more likely to run into the US$billions. Whilst the remediation and monitorships are for 3 years, expect these to take much longer and probably at least 5, despite remediation announced as already underway, and a new experienced, well regarded team hired. No monitor is going to green light TD Bank USA in 3 years.

3. Excessive Fines Compared to Other Cases: Total fines represent 76% of TD US generated profits for 2023 and 28% of TD group 2023 profits. Compare these US fines to the fine levied earlier this year against TD in Canada by FINTRAC which levied a fine of C$9.185 million (US$6.64 million) for AML programme failings following an examination. Also compare the fine and penalties with 2 relevant important third cases. The first a criminal prosecution and conviction against the UK’s Nat West Bank in 2021, where the Bank accepted that £247 million (US$322 million) in illicit funds (probably from illicit drugs sales deposited in cash at the Bank), resulting in a fine of £264 million (US$345 million). The case was brought by the FCA, the UK regulator under its powers and no double jeopardy civil fine was levied. With the underlying criminality in the Nat West case around half of that of the TD Bank USA case, the US fine is 5 times more severe. Comparing this to the HSBC case which was announced in 2012, where HSBC paid a then record US$1.9 billion fine in aggregate for helping to launder at least US$881 million in drug trafficking proceeds through its USA operations, the HSBC fine represented approx 2.15 times estimated laundered funds, whereas the TD Bank USA fine represents approx 4.75 times estimated laundered funds and is therefore more than 2 times more severe.

4. Criminal Asset Recovery: Whilst almost all the fines will go to the US Treasury, one element will be forfeited and go into the DOJ Forfeiture fund. The US$452.4 million criminal forfeiture which related to the inaccurate filings of CTRs will join other criminal funds seized and or recovered by US authorities from criminal activity, including alongside the US$3 million plus seized from Case 1 David Sze. This shows that seizing and confiscating amounts of criminal assets from those perpetrating the crimes, which is a challenge for all countries, with estimates at less than 1% of estimated criminal proceeds, may be increased by targeting financial intermediaries and criminalising reckless or negligent behaviour. This however does nothing to take the profit out of crime, and should not be included in country statistics when effectiveness against FATF IO8 Confiscations is considered.

5. Accountability: Whilst the Group CEO will take early retirement, and former TD Bank USA CEO and other senior AML officers have left the Bank, US government authorities have made it plain that they intend to also focus on individuals next. Those lower level employees involved as insiders have already had their employments terminated and more importantly arrests have been made. In terms of senior management, some compensation has been clawed back. Based on the information published by the US authorities, they appear to be focused on 3 senior AML leaders, a former TD Group Global AML Head, a former US BSA AML Head who reported to that person as well as a former TD Group Head of AML Operations who also reported to the Global Head. Whilst AML leaders will have to take their share of responsibility, if as seems likely it’s the US authorities case that it was the underinvestment and budget caps that were the root cause of the AML programme failings, then those responsible for imposing budget caps should share responsibility and accountability. As the DOJ have stated, “budgetary pressure originated with senior bank executives and was achieved within GAML and US AML by individual 1 and Individual 2 both of whom touted their abilities to operate within a flat cost paradigm without compensating risk appetite” in their self assessments.

6. AML Leaders Lessons to be Learned: TD’s former AML leaders are likely to pay a very significant penalty for failing to focus on what they were employed and expected to do. An AML leader is not simply an employee of the Bank, nor a product of the regulators. They have a difficult role, which if they get it wrong as appears in this case has personal consequences, with termination at best, reputation damage and or other penalties including clawback likely and or in a worst case scenario, even criminal prosecution. It is a challenging role, and conflicts can arise, including from cost pressures which is part of the job, but the AML leader must never act or fail to act, where that:

• • • puts the Bank at long term risk, which can mean disagreeing with current management

• • is likely to result in violations of AML laws and regulations, particularly serious ones and ones that can lead to severe fines and penalties
  • is likely to encourage increased and or elevated levels of ML/TF 

7. Money Laundering: Chinese professional money laundering has been highlighted in the last 2 USA national AML Risk Assessments, who work with drug cartels in particular to launder their illicit drug proceeds. There are a number of techniques that professional money launderers employ, and a number of these were used and have been described in the TD Bank USA case, but are also very well known and should generate many potential red flags and have been described in public advisories. The fact that David Sze, which is described in Case 1 laundered in total of US$653 million, and US$470 million of this through TD Bank USA suggest that was his preferred US FI. He presumably laundered the remaining US$183 million, through other FI’s. He also confirmed that his commission was around 1% -2%, which would have generated him approx US$6.5 million to US$13 million. Historically money launderers charged 4-6% commission. With levels of commissions at 1% -2%, this indicates the ease with which professional money launderers are still able to launder large amounts of illicit funds in the USA. The US authorities were able to seize US$3.6 million in cash, from Sze and his co conspirators, in May 2021, as well as US$245,000 in checks & approximately US$25,000 in money orders as well as a Lexus 570. They were also able to seize all monies in a number of US Bank accounts, including at: Bank of America (1 account), Royal Business Bank, (2 accounts), Amerasia, (3 accounts), Citibank (5 accounts), JP Morgan Chase (1 account) & Capital One (2 accounts).

Boards: There is precious little on what was provided to Boards on the problems TD Bank USA had as described in the information published recently. Some examples are provided but with such a long “Relevant Period”, the level of discussion time and attention given to AML must have been limited, otherwise more would have been provided in the materials published. As the DoJ stated. “while TD Bank had certain aspects of an AML program that seemed sufficient on the surface, the presence of significant and pervasive deficiencies rendered the institution a vulnerable target for those engaged in financial crime”. Without proper AML experience (and that doesn’t mean former prosecutors, regulators or compliance officers – but means actual former Bank AML specialists) on TD Boards it may be that they aware not in a position to adequately question, probe and challenge to the degree necessary. With the release of the materials showing the level and severity and the long-standing nature of the matters described and at least with the benefit of hindsight, these Boards overseeing the TD Bank USA Operations should have asked more questions, probed harder and sought more assurances and held management including AML leaders to account. Whilst there is little information on what was provided to oversight boards, what is available and has been released suggests AML leaders either underplayed the challenges and the risks or did not understand or appreciate them enough.

9. The role of Supervisors: There is also little in the the published official information about the role of the supervisors but it’s pretty clear they could and or should have done more. The DoJ is not going to publicly call out failures in supervision from the public sector and neither are the supervisors themselves. Nevertheless information released suggests the supervisors did raise issues of concern but were too passive to stay on top of concerns or were too accommodating, and or were misinformed at key times.  Whatever the position no supervisor can accept after a serious fine in 2013 including a requirement to improve TM at TD Bank USA (which was a top 10 US Bank) that for a decade after such pervasive and comprehensive failings could be revealed in TD Bank USA’s AML programme and likely only revealed, not through supervision, but because of LEA investigations and findings related to underlying criminality and money laundering. The DOJ tellingly stated. “TD Bank had certain aspects of an AML program that seemed sufficient on the surface”, but this is not enough to explain why the weaknesses weren’t discovered earlier and or supervisors didn’t act earlier as supervisors are their for this very purpose – to see through presentational programmes and to assess the substance. The fact that the supervisors are supporting a 3 year monitorship is not unusual but suggests there may not be the resources or expertise available within supervision to oversee BSA AML compliance remediation which raises bigger and more fundamental questions.

10. Embarrassment for the Industry: Finally, as an esteemed colleague responded to this case as his main takeaway that such basic but serious systemic and longstanding failures in AML compliance from a so called Tier 1 Bank, should be a thing of the past. This case hurts all FI’s and particularly those AML professionals that have done a lot to improve AML compliance and fighting financial crime at so many FI’s over the last decade and more. Whilst it is probably an outlier, though no one should be complacent, as a new cohort of senior mangers and AML leaders take up their roles, these cases will continue to exist, and their will be cases where management, AML and supervision is not up to the task. The TD case is likely to be used in the short term as a case for those in favour of stricter compliance and more regulation and greater penalties, at a time when what’s needed over the medium and longer term is better compliance, smarter regulation, and appropriate penalties as well as recognition for those that outperform and deliver an effective AML programme. We also need to move beyond the current constraints for those that are doing well to enable innovation and more risk based strategies as well as information sharing to flourish.

4. Conclusion

We will never really know why TD Bank USA got into the mess that it did, though the opinion from the US authorities is that TD Bank USA failed to invest sufficiently in its US AML programme, because of senior management budget caps and complicit AML leadership and that this led to serious weaknesses that allowed money laundering to flourish. Whilst information on the size of the AML budget was not released in the information published, it was historically likely to have been approx at least 700 AML personnel and US$434 million in 2019, which is not a small budget, and dwarfs for example FinCENs 300 budgeted employees today. The increases in AML budgets and personnel will now have doubled and are likely to increase further once monitors get involved and remediation in 3 years feels unlikely with 5 years more realistic.

TD Bank USA and it’s parent TD Group from Canada are the new poster child for AML non compliance and for money laundering through the financial system. Of course at the same time we know that money laundering is happening, is pervasive, but is hard to pin down or visualise. The TD case is not just about failures of controls, it’s about money laundering and drug trafficking and the harms that come from these illicit activities.

The US authorities, by this action are sending a strong message to money launderers and to the banking sector, that penalties can be harsh and have big consequences. Boards, CEO’s, AML leaders & Regulators have much to learn from this case.

The TD case is likely to be used in the short term as a case for those in favour of stricter compliance and more regulation and greater penalties, including jail time for some. Over the medium and longer term what is needed is however better compliance (more effective activities), smarter regulation and effective regulators, and appropriate penalties as well as recognition for those that outperform and deliver an effective AML programme. We also need to move beyond the current constraints for those that are doing well to enable innovation and more risk based strategies as well as information sharing, with safeguards to flourish.