TD Bank Fined $3 Billion for Anti-Money Laundering Failures

Within the tightly regulated walls of the financial system, there is an undercurrent of illicit activity, and TD Bank has been revealed as a significant enabler. Recently, TD Bank, ranked as the 10th largest bank in the U.S., was fined a staggering $3 billion by the U.S.

Treasury’s Financial Crimes Enforcement Network (FinCEN) for severe anti-money laundering (AML) compliance failures. This penalty marks TD Bank as the first in history to be implicated in money laundering conspiracies, exposing long-hidden flaws within its AML systems. The settlement between FinCEN and TD Bank sheds light on several critical issues:

1. TD Bank’s Historical Issues

This is not the first time TD Bank has faced scrutiny for failing to meet AML obligations. As early as 2013, the bank was penalized for not reporting suspicious activity related to the Scott Rothstein Ponzi scheme. However, the latest investigation reveals that similar lapses were not corrected and have persisted, now involving much larger sums of money and more complex system vulnerabilities.

From 2012 to 2024, TD Bank failed to establish and maintain an AML program in compliance with the Bank Secrecy Act, allowing large volumes of suspicious funds to enter the U.S. financial system. Notably, these compliance challenges are not exclusive to traditional banking.

Major players in the cryptocurrency industry, such as Binance, have also faced hefty fines for failing to implement effective customer due diligence and reporting suspicious transactions. These incidents highlight how both traditional financial institutions and crypto platforms face significant AML risks, threatening the transparency and security of the financial ecosystem.

Many of the suspicious funds that went unnoticed are believed to be linked to high-risk activities, including terrorist financing and Ponzi schemes. According to regulators, TD Bank’s AML officers failed to carry out their responsibilities effectively, which was a key contributor to these issues.

2. A Weak Defense Against Money Laundering

The settlement describes TD Bank’s AML system as a “paper-thin defense.” The most critical flaw was the bank’s inability to monitor large domestic ACH transactions, checks, and other financial flows. This oversight allowed hundreds of billions of dollars to move through TD Bank’s accounts without proper scrutiny, much of which included funds with suspicious or illegal origins.

The bank introduced a generic transaction monitoring system in 2008, but it did not customize the system to address its specific products and services. This “one-size-fits-all” approach meant many transactions, especially ACH and check payments, escaped proper oversight. These types of transfers are among the most commonly used for laundering money.

3. Large Crypto Transfers and High-Risk Jurisdictions

One of the most glaring failures involved “Client Group C,” for which TD Bank conducted insufficient due diligence. When this client group opened accounts, they promised minimal wire transfer activity, with each transaction not exceeding $25,000 and annual sales remaining under $1 million.

In reality, they processed over $1 billion in transactions, with more than 90% of the funds coming from a UK-based cryptocurrency exchange. Additionally, more than 60% of these funds were sent via wire transfers to a financial institution in Colombia that also dealt in virtual assets.

Client Group C’s activity showed an average monthly wire transfer volume exceeding $100 million over a nine-month period (July 2023 to April 2024). Most of these transactions supported third-party cryptocurrency trading and involved high-risk jurisdictions, including Colombia, China, and multiple countries in the Middle East. This was in stark contrast to their initial documentation, which made no mention of Colombia or China as intended destinations for cross-border transactions.

During this period, Client Group C received over $650 million from an international cryptocurrency exchange. TD Bank had no knowledge of the purpose, origin, or identity of the actual parties behind these funds. Despite these glaring irregularities, TD Bank continued processing transactions for this client, including transferring over $420 million to a Colombian financial institution involved in cryptocurrency services.

The bank’s failure to recognize the risks posed by these high-risk clients and transactions underscores its inability to manage the unique challenges posed by cryptocurrency transactions. Although TD Bank had policies in place to require enhanced oversight of virtual asset activities, no such measures were implemented for Client Group C.

This lack of due diligence and failure to enforce enhanced monitoring led to the unchecked cross-border flow of suspicious funds, further increasing the risk of money laundering and other illicit activities.

Additionally, despite multiple “red flag” warnings involving high-risk jurisdictions and rapid transfers of large sums, TD Bank failed to report these suspicious activities in a timely manner. It was only after law enforcement inquiries that the bank took action.

Even more concerning, four months after Client Group C began operating, regulators ordered the closure and liquidation of their related companies, but TD Bank only identified this issue after law enforcement became involved. This lack of timely due diligence highlights TD Bank’s inadequate preparedness in handling the risks posed by emerging financial technologies and products.

4. Management’s Negligence and Slow Response

Perhaps most alarming is that TD Bank’s management was aware of these system vulnerabilities but chose to address them in the most cost-effective way possible. Budget cuts and a focus on “operational leverage” were prioritized, with management opting to save money rather than invest in strengthening AML compliance.

This decision directly contributed to long-term understaffing in the AML team. The report reveals that between 2017 and 2019, the bank’s asset growth far outpaced its AML budget growth, leaving the compliance team overwhelmed and unable to meet increasing demands.

Management’s choices not only allowed system vulnerabilities to persist but also created enormous pressure on the compliance team, which struggled to handle the workload. FinCEN’s report shows that TD Bank delayed addressing key issues even after being notified of serious deficiencies in its transaction monitoring.

The bank didn’t begin upgrading its outdated monitoring system until 2019, and even then, the process was delayed due to insufficient funding and resources.

Additional Violations:

• Transaction Monitoring Failures: TD Bank’s system failed to monitor crucial transaction types, including domestic ACH and P2P payments (e.g., Zelle). Despite management’s awareness of these gaps, no corrective action was taken, leading to unmonitored transfers of billions of dollars, including high-risk transactions from jurisdictions like Colombia.
• Delayed Suspicious Activity Reports (SARs): TD Bank failed to file timely SARs in cases such as those involving Customer A and the Sze network, which moved over $200 million in suspicious funds. Over 600 SARs were delayed, with transactions totaling more than $500 million.
• Employee Involvement in Money Laundering: An internal bank employee, identified as “Individual A,” accepted bribes to open more than 2,000 accounts for fake companies, facilitating over $200 million in transactions, including drug-related funds. These transactions were primarily conducted through ATMs in Colombia, which TD Bank failed to detect and close in time.

The report reveals how TD Bank’s systemic and managerial failures allowed massive illicit fund flows and amplified financial risks. FinCEN noted that thousands of account holders used TD Bank to funnel large amounts of money into high-risk areas, particularly through ATM withdrawals in Colombia and Mexico. In some cases, ATM withdrawals in Colombia exceeded those in Mexico, a country with an economy four times larger.

More seriously, TD Bank failed to monitor P2P payment channels like Zelle, allowing millions of dollars in suspicious transactions, some linked to human trafficking and other illicit activities. These issues were only discovered and reported after law enforcement stepped in.

This event may lead to tighter regulatory oversight of the crypto industry by traditional financial institutions. While such a crackdown seems inevitable at the banking level, as global regulatory frameworks evolve and mature, traditional banks are expected to adjust to the fast-paced innovations brought by the Web3 era.