TD Bank’s failure to thwart money laundering in the U.S. prompts calls for stronger regulation at home

TD Bank CEO Bharat Masrani said Thursday during the bank’s second-quarter earnings call that he had repeatedly failed to thwart criminal activity after a tumultuous few weeks that saw several developments in the U.S. Department of Justice (DOJ) investigation. regarding a struggling financial institution.

Some experts say Canada’s regulatory system needs to more aggressively punish banking institutions that allow financial crimes to go unchecked.

The Justice Department’s investigation is reportedly focused on how Chinese drug traffickers allegedly used the bank to launder at least $653 million and bribed TD employees to do so.

TD did not comment directly on the report, but said its anti-money laundering safeguards were inadequate. It faces investigations by three other US regulators over its handling of suspicious transactions.

Pointing to a press release earlier this month, Masrani told shareholders and investors that “there have been serious incidents where the bank failed to monitor, detect, report and respond to suspicious activity.”

“Criminals regularly attack financial institutions and in such cases TD has not effectively thwarted their actions. This is unacceptable. TD is working closely with authorities to help them pursue these criminals.”

Masrani said the bank had taken disciplinary action against the “responsible employees”, including dismissal. He did not immediately provide more information about additional penalties the bank may face.

Last month, the bank said it had allocated $450 million to pay one regulator that it is preparing to impose other penalties — including potential non-monetary penalties that analysts say could limit the bank’s U.S. operations.

TD’s efforts to buy U.S. bank First Horizon last year were thwarted by a Justice Department investigation. During the earnings call, executives said the bank still had plans to expand its operations south.

After telling shareholders in April that TD was working to improve its anti-money laundering program, stating that “unfortunately… it is not where it needs to be,” Masrani reiterated that the bank had committed $500 million to repair its U.S. anti-money laundering program money laundering laundering program.

Some analysts say U.S. fines may be much harsher than expected (up to 1 billion US dollars), but more significant – and telling – are the penalties that can limit how a bank operates, experts say to CBC News.

“Can crime be profitable? Unfortunately yes. Is it costly for banks to monitor themselves and try to avoid insurance crimes? Indeed,” said Matthew Sooy, an assistant professor at the Ivey Business School at Western University in London, Ontario.

“But when banks insure crime, we all lose.”

From CDN$45 billion to CDN$113 billion it’s washed according to estimates by the Canadian Criminal Intelligence Service.

Financial crime experts say TD’s troubles shed light on the difference between the way the United States holds financial institutions accountable for illegal transactions and the loopholes in Canada’s regulatory systems that allow financial crime to flourish.

American punishments were supposed to be punishable: expert

According to Christian Leuprecht, author of the book, “US financial regulators have a stringent supervisory structure that encourages “active reporting” of suspicious transactions. Dirty money: financial crime in Canada.

“The American people have shown time and time again in the past that they are willing to uphold their responsibility to ensure that if you do business in the United States, you must comply with U.S. law and be sure that the way you do business is consistent with U.S. interests,” Leuprecht told CBC News.

Leuprecht noted that the penalties imposed by US authorities are expected to be high enough to damage the bank’s reputation and financial results. They also often include requirements for future reporting of illegal transactions and may impose restrictions on the bank’s activities.

According to Leuprecht, the Canadian system works differently because federal financial crime watchdog Fintrac has a “much, much more limited, restricted and conservative structure.”

Fintrac has the power to impose fines of up to $500,000 for serious violations or can warn authorities about failure to comply with rules for disclosing illegal transactions. It can only do one or the other for a single case.

TD was recently fined $9 million by Fintrac for failing to disclose suspicious transactions and several additional violations. Other Canadian banks have recently faced similar money laundering penalties, although with fewer violations than TD: RBC was fined $7.5 million i CIBC was fined $1.3 million.

According to the regulator’s website, the penalty imposed on TD on Fintrac has already been resolved: the penalty has been paid in full by the bank and the proceedings have been completed.

The $9.2 million fine is “a small thing for a bank like TD,” said Susan Côté-Freeman, a board member and former president of Transparency International Canada, an anti-corruption organization.

She noted that the fines imposed by Fintrac are not punitive in nature and that this type of money is “certainly not a deterrent.”

Sooy, the Western University professor, agreed.

“When we limit enforcement to just fines, it’s very easy for a person or company that puts profits first to simply weigh the amount of the fine against the potential profits and choose the one that’s larger, right?” he said. “And that’s not what we want people to do. We don’t want them to even consider the idea.”

TD spokeswoman Lisa Hodgins confirmed to CBC News that the bank is in talks with Canada’s banking regulator, the Office of the Superintendent of Financial Institutions, to improve its risk management practices.

The impact on consumers is still unclear

TD’s troubles rocked the bank’s stock earlier this month as the institution tried to reassure worried board members and shareholders.

Experts speaking to CBC News disagree on whether the bank’s troubles will impact its retail customers.

“My feeling is that it won’t have an impact on consumers, but it could certainly have an impact on shareholders,” Côté-Freeman said.

She said other Canadian banks operating in the U.S. are likely struggling to ensure their anti-money laundering programs meet domestic standards.

Between compliance, risk management and fraud costs, some of those fees will ultimately be passed on to consumers, Leuprecht said.

“Make no mistake, when financial institutions are fined, consumers will ultimately feel the impact,” he said.