November 12, 2024 • 40 mins
In October, TD Bank pled guilty to money laundering and violations of the Bank Secrecy Act, incurring $3.1 billion dollars in penalties, putting the general public at risk, and shattering the trust of its own customers. Sadly, this latest case of money laundering and lack of transparency is nothing new, joining a past roster of scandals involving many of the biggest banks in the U.S. Charges against TD Bank indicate some employees knowingly facilitated these illegal banking practices, turning a blind eye in pursuit of profits including executives at the highest level of TD Bank who failed in their duty to oversee the bank’s Anti-Money laundering program. But how exactly did a bank, trusted by millions, known as “the nation’s most convenient bank,” become an enabler of fraud and what can we do to end this trend of impropriety and prevent the next banking scandal?
On this episode of
Designated,
host Yaya Jata Fanusie speaks with veteran banking executive and financial crime fighter, Jim Richards, for a deep dive into the questionable banking practices at TD Bank and how best to keep dirty money out of the financial system.
See omnystudio.com/listener for privacy information.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Today's podcast is supported by Winston and Strong ll Winston
and Strong, a trusted legal advisor and advocate for clients
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Hummingbird is a modern compliance platform designed to make financial
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(00:23):
criminals are sophisticated, savvy, and agile, meaning the tools used
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dot co. Ever had your trust shaken by a financial institution?
(00:45):
For many TD Bank customers, that trust has been shattered.
In October, multiple US financial regulators penalized TD Bank three
point one billion dollars for a series of questionable business
practices putting its own customers and the general public at risk.
At the center of this controversy is a series of
suspicious transactions, services for fraudsters, and an overall lack of
(01:08):
transparency that turned TD Bank into an anti money laundering
or AML disaster. The charges indicate some employees at TD
Bank knowingly facilitated these practices, turning a blind eye in
pursuit of profits, and higher up executives who were supposed
to be overseeing the bank's AML program, while they didn't
oversee well enough. Today we dive deep into these activities,
(01:32):
examining how a bank trusted by millions, known as the
nation's most convenient bank, could become an enabler of fraud.
My guest, Jim Richards, spent years at other major global
banks working to keep dirty money out of the financial system.
Jim shed light on the practices in question in the
TD Bank case, the impact on individuals and the financial sector,
(01:55):
and the ongoing quests for accountability. I'm yaia Jata Finoussi,
and it's time to get designated with anti money laundering
expert Jim Richards. Jim, I've got one question for you.
Why do you care so much about anti money laundering?
You're very passionate about it.
Speaker 2 (02:18):
It impacts so much in our lives that people don't understand.
It impacts our communities, It impacts our wives, our daughters,
our family members, It impacts institutions. And I've always been
sort of a law and order kind of a guy,
and it just seems like if there's anything i can
(02:41):
do as a private citizen to help the public good
that I'm any good at, it's fighting financial crime.
Speaker 1 (02:52):
And you, I would say, have been a financial crime
fighter for quite a while. You have an illustrious career.
You've been consulting for a while now with your own firm.
But can you tell us a little bit about what
you were doing before you started your private consulting.
Speaker 2 (03:09):
Sure, and it sort of goes back to fighting financial crime.
When I was entering law school back in the nineteen eighties,
I was recruited by the Royal Canadian Mounted Police to
be a special constable, which I did for a year,
and it was a ball I just had. I had
(03:30):
a wonderful time. And there were twelve people in my
troop as they called it, and I was the only
one of the twelve that didn't sign up after the
sort of the probation period. But I had a ton
of fun doing that, and that sort of got my
appetite wedded a little bit for the fighting crime kind
of career. And then I moved to the United States
(03:51):
years later with my wife, and I became a prosecutor
in Massachusetts and I did that for I was in
a special investigations unit. We did organize crime, corruption and
that sort of stuff. I did that for four years
and then I got into banking as a Bank Secrecy
Act officer in Boston, worked for Bank of America for
a number of years, and then worked for Wells Fargo
(04:14):
as their global head of Financial Crime from two thousand
and five until April twenty eighteen, when I retired and
went out on my own.
Speaker 1 (04:23):
So, before you went out on your own as a
bank secrecy as a BSA Bank Secrecy Act officer and
head of global financial crime, what were you doing day
to day for the person who doesn't know about the
AML world.
Speaker 2 (04:35):
Yeah, So a Bank Secrecy Act, that's the sort of
the name of the statute statutes that set out all
of the anti money laundering laws and regulations in the
United States, and every financial institution is compelled to have
one person that is responsible for monitoring day to day
compliance with that AML program that you have to have
(05:00):
a BSA officer. You're responsible for all the policies and procedures.
You're responsible for monitoring all the activity of your customers
and clients. You're responsible for the teams that are doing
the investigations, the reporting, et cetera. So it's really the
kind of think of it as a chief of police
for a bank.
Speaker 1 (05:19):
And so you were the chief of police for some
very very big banks, Bank of America, Wells Fargo. But
we're talking today about another big bank that was just
fined right to the tune of three billion dollars, and
we're going to get into that TD Bank. So I mean,
looking at the TD Bank story, you know, I almost
(05:42):
see it as a a maybe that an apt metaphor
would be it seems like it's been a problem child.
What do you think about that? Do you agree?
Speaker 2 (05:51):
Oh? Absolutely, and it's it's been a problem child. It
had some issues back in twenty thirteen, and then it
had the issues that were in anounced on October tenth
of twenty twenty four. But I think you need to
put it in perspective. Yeah, yeah, a little bit. So
there's about forty five hundred banks in the United States,
and in the last ten years, FINSEN, the Financial Crimes
(06:15):
Enforcement Network, which is the Treasury agency that's responsible for
administrating this Bank Secrecy Act regime. FINSEN has brought thirty
nine enforcement actions in ten years, but only ten of
those have been against banks. So that's on average, one
AML related FINSEN enforcement action a year for the last
(06:38):
ten years, with forty five hundred banks. So you know,
if you got forty five hundred siblings and only one
goes bad, yeah, I'd call that a problem child.
Speaker 1 (06:51):
So what are the problems that this bank, that TD
Bank has had going back, you know, a decade or so.
Speaker 2 (06:58):
So going back to twenty thirteen, it entered into three
consent orders or three orders with three different government agencies. FinCEN,
the Office of the Controller of the Currency or the
OCC which is its primary regulator, and the Securities and
Exchange Commission paid about fifty seven million dollars in fines.
But those three enforcement actions all related to one thing,
(07:23):
and that was TD's failures with respect to one client
that it had, and that client was a law firm
run by a guy named Scott Rothstein, and Rothstein happened
to be running a Ponzi scheme through TD Bank and
through a couple of other banks, and so they got
jammed up by their regulators because of that in twenty
(07:43):
thirteen and then from twenty fourteen, go forward to twenty
twenty four and the orders that just came down in
twenty twenty four TD simply failed to properly run its
anti money laundering from soup to nuts. Didn't have the
right policies, it didn't have the right personnel, It wasn't
(08:05):
doing the right monitoring, It wasn't reporting suspicious activity, it
wasn't reporting large cash transactions, which banks are required to
do so, just an abject failure across the board. But
what made this one worse ya was that there was
actual money laundering going on in the bank, and the
(08:26):
Department of Justice and the other regulators identified three main
criminal networks that moved about six hundred and seventy million
dollars through TD. TD knew it was happening. TD did
nothing about it, so they really got the book thrown
at them.
Speaker 1 (08:42):
So you said, money laundering happening in the bank, they
knew it was happening.
Speaker 2 (08:47):
Who knew well, the frontline employees knew what was going on,
the compliance people, the anti money laundering people knew it
was going on, and it just wasn't properly reported up.
It wasn't properly senior management wasn't properly engaged. It was
an underfunded program as well, and so although TD grew
(09:12):
from it actually doubled in size from twenty thirteen to
twenty twenty four. Although it doubled in size, it didn't
raise the sort of expenditures it had on its anti
money laundering program. So it's transaction monitoring looking at the
activity of the customers. Those systems were stagnant and weren't
actually working appropriately. They knew they were stagnant, they knew
(09:36):
they weren't working, they didn't fix them, and so there's
all sorts of issues that the TD ran afoul of.
Speaker 1 (09:44):
So then what type of money laundering was happening, Well.
Speaker 2 (09:48):
There were three groups, and there was a group that
was laundering money for Chinese fentanyl rings. There was people
that were moving money that was down in Columbia, so
the accounts were opened up in the US, and then
cash transactions were being done in Colombia through ATMs in Colombia.
(10:14):
And there was just a number of different things like
that that TD should have identified, failed to identify, and
certainly didn't properly report, either through suspicious activity reports or
through currency transaction reports.
Speaker 1 (10:30):
So if there were frontline employees that you said knew
about this, who were supposed to be, I guess, minding
the store, why didn't they report?
Speaker 2 (10:39):
Some of them did apparently, and then nothing was done
with those internal referrals over to the sort of the
anti money laundering or compliance people. In fact, five TD employees,
frontline employees and the branches have been criminally charged with
accepting bribes from one of these eminal groups. They accepted.
(11:01):
Believe it or not, it was only fifty something thousand
dollars worth of gift cards to look the other way
when these guys were depositing hundreds of thousands of dollars
in cash literally at the teller window, just sort of
dumping bundles and bricks of cash at the teller window
that wasn't being reported. These guys knew it was wrong.
(11:24):
They escalated it up to the anti money laundering group.
The anti money laundering group didn't deal with it properly,
and again it just perpetuated for years and years, to
the tune of six hundred and seventy million dollars that's
been identified so far.
Speaker 1 (11:38):
Wow. Well, you know, I've heard TD Bank use the
slogan that it was the most convenient bank. What's what's
behind that? What do they mean by that? How they
get that? You know that that that name?
Speaker 2 (11:54):
Well, and this is absolutely fascinating, at least to an
AML geek like me. So TD's marketing tagline is America's
most Convenient Bank. And it's I think it's an interesting
and now ironic background to that phrase or to that
marketing line, because in twenty thirteen, again I mentioned TD
(12:19):
had sent onled those three enforcement actions from the OCC
Finsen and the SEC paid over fifty million in fines,
and that was related to that Scott Rothstein ponzi scheme,
and that ponzi scheme ran from two thousand and six
to two thousand and nine. TD got jammed up in
those enforcement actions for what it did in two thousand
and eight to two thousand and nine. What happened was
(12:42):
TD actually bought Commerce Bank back in two thousand and
seven and then it closed in two thousand and eight.
Scott Rothstein was actually a Commerce Bank customer, and they
inherited the Scott Rothstein ponzi when they purchased Commerce Bank.
(13:02):
It was Commerce Bank that had the tagline America's most
Convenient Bank. TV liked it so much they kept it
and they're still using it.
Speaker 1 (13:11):
I mean, it sounds like they were so convenient. They
were convenient for everyone, convenient for criminals, you know, coming in.
And this was in the US, so there were drug
deals that were happening, cash that was coming connected to
criminals elsewhere. But you're saying they would walk right into
a branch and basically almost like drop a bag of
cash and deposit it with no questions asked.
Speaker 2 (13:33):
Almost yeah, no, absolutely, Yeah. The Attorney General in his
press conference on October tenth even mentioned this tagline America's
most convenient bank and it was the most convenient bank
for criminals. I think he said something like that, Yeah,
these guys were bringing in whether it was duffel bags
or bags or briefcases of cash, and there were there's
(13:55):
video stills from the bank cameras that actually show these
guys with stacks of cash sitting at the tailor window. Stunning.
Speaker 1 (14:05):
Actually, so this is you know this, uh, this case
has been in the headlines because of the huge fine
three billion dollars. Can you break down for us, you
know why so much? Where's what? How is? How is
that amount determined?
Speaker 2 (14:25):
Yeah, it's it's interesting, so and it's complicated, and I
apologize for this, but the headline is three point one
billion dollars and Fincent in its press release, touted one
point three billion dollar fine the biggest fine it has
ever imposed. The details are a little more complicated. So again,
(14:45):
there were four agencies, Federal Reserve, the OCC, Fincent, and
the Department of Justice collectively imposed fines and forfeitures, which
is kind of the same thing. Let's not get into
the nuance. So that that totaled more than three point
seven billion dollars, But as they usually do when multiple
(15:08):
agencies get together and go after one institution, they'll actually
credit back and forth some that's paid to a few
of the others, et cetera. And they got the total
down to just under three point one billion. So for
example of that was FinCEN said, our fine is one
point three billion dollars. That was the headline. But then
(15:30):
when you keep reading, Finceen credited TD's payment of four
hundred and fifty million dollars to the OCC, and for
some reason I haven't been able to track down, they
credited ninety three million dollars of what TD paid to
the DOJ, So that net amount was about seven hundred
(15:52):
and fifty seven million dollars.
Speaker 1 (15:55):
And so that that amount is huge or for the
everyday person, you know, you know, three billion dollars, right,
most of us don't have that in our in our
pocket books. But you know, how is that relative to
one other actions that have happened, but two their overall funding,
(16:21):
their overall revenue.
Speaker 2 (16:24):
Sure, let me start with the second one if I can.
So the period of activity of the criminal activity was
twenty fourteen to twenty twenty four. Okay, So I went
back through ten years of TD's financial statements, and in
that period, TD's revenues were just over three hundred and
(16:45):
sixty billion dollars and its total NIT income for that
ten year period was about one hundred and five billion dollars.
Speaker 1 (16:54):
That's what they took home.
Speaker 2 (16:56):
Yeah, that's what they took home. So just over one
hundred million in So the three point one billion is
about three percent of its profit for that same.
Speaker 1 (17:08):
Period of time, right right right, you said one hundred
over one hundred billion in profit. So yeah, so so
so so a three percent penalty that sounds like a
drop in the bucket.
Speaker 2 (17:21):
It's it's a it's a big bucket, and it's a
big drop. I mean, it's it's still a lot of money.
But again it's and this may sound a bit odd,
it's just money, right, And I've said before that you know,
a fine is an expense to be paid. It's not
(17:44):
particularly a problem that needs to be managed, right. So
in this case, the agencies have imposed a bunch of
go forward obligations on TD Bank, and it's those go
forwardations and some of the restrictions they've placed on TD
that will prove to be more problematic than just the
(18:08):
three point one billion dollars in fines and forfeitures.
Speaker 1 (18:12):
So the fine itself is is I don't know if
you're saying it's the least of your their worries, but
it's it's there are other things that that they'll be
concerned about, like.
Speaker 2 (18:21):
What, well, when when TD held a press conference on
October tenth to sort of explain what happened and what
they're going to do and what they've already done to
do the remediation, et cetera, they they actually included a
(18:41):
nineteen page PowerPoint for that investor call or that press
conference that they had, and so they've and that deck
shows a bunch of different things. It talks about how
they've already hired a whole bunch to new people for
(19:01):
remediation and to replace the people that messed things up
in the first place. And when you sort of look
at the numbers there. That's probably about one hundred million
dollars in new salaries for TD.
Speaker 1 (19:13):
What would that stop them from doing, growing other branches,
acquiring you know, you know, acquiring more assets.
Speaker 2 (19:21):
Yeah. Absolutely, it's going to hit the loans they can
they can give out, they can't buy any other banks.
They're really stuck where they are. And this has happened
before Wells Fargo back in twenty eighteen. You might recall
that in the twenty fifteen twenty sixteen timeframe, Wells Fargo
(19:41):
got hit with a ton of bad publicity around their
sales practices. They were opening up accounts for people that
people didn't know about. In February of twenty eighteen, they
got hit with a three billion dollar fine. There's that
three billion dollar number again. But they also got hit
with an a set cap by the Federal Reserve. It's
(20:03):
twenty twenty four and that asset cap is still in place.
So where JP Morgan and the Bank of America have
grown ballpark sixty percent since twenty eighteen, Wells Fargo is
the same size it was. So TD's been hit with
that same asset cap. But what is unique about this one?
(20:25):
It may be unique. I've never heard of another one
like it. The occ said, Oh, by the way, TD,
if you don't complete the remediation within the timeframe that
you are going to set out, we could compel you
to reduce your assets by as much as seven percent
(20:46):
a year for every year you fail to complete the remediation.
So that's unique, and that's really it hits hard, No
go ahead. Yeah. But the other thing about this this
power point that TD put out, when you read it carefully,
they outline what they think is probably about another two
(21:10):
point seven billion dollars in costs that they are going
to incur, whether it's reduction and net interest income, you know,
whatever it might be. And then they're also going to
have to hire a whole bunch of lawyers and consultants
and all sorts of other stuff. So I did the
(21:31):
math and I came up with about three point one
billion dollars on top of the three point one billion dollars,
so it's about six point two billion.
Speaker 1 (21:42):
So huge amount, six point two billion. But you said
before that a fine like this could be an expense,
So if there are other things that they have to
worry about, who really pays for all of this? Who's
who's left holding the bag?
Speaker 2 (22:01):
Basically, Yeah, and that's that's really interesting because the headline
is obviously TD Bank has to pay a three point
one billion dollar fine. Technically it's the shareholders that end
up paying it. Why there's three point one billion dollars
less that can be either reinvested in the bank to
(22:25):
be paid in dividends to the shareholders, or used to
buy back stock, which is a which is done to
shore up the stock price, which again benefits shareholders. So
it's the shareholders get hit. Also, on October tenth, when
all of this was announced, TD bank stock plung It
(22:47):
plunged about seven percent. None of its peers plunged, and
it hasn't really made that back up in the last
in the last month. And then you know, we talk
about her talk about shareholders, but shareholders are actually people, right,
I mean their institutions. Oddly enough, five of the seven
(23:09):
biggest shareholders of TD bank stock are the other five
big Canadian banks. Now, they don't own much of that
stock for their own account. They own it for their clients.
And who are their clients. Their clients are pension funds,
Their clients are retirement programs, and all of those behind
(23:32):
all of those are just regular folks like you, me
and your folks and my parents, et cetera, et cetera.
So it's the shareholders that they're going to pay for it.
Speaker 1 (23:42):
So if I have a pension fund, you know which
is you know, partially taken a hit or I was
an investor. I'm an investor. You know I've taken the
hit in my portfolio, my earnings. You know, I'm not
going to be happy. But you mentioned earlier that you
frontline employees. I think we have been charged. Maybe you
(24:04):
mentioned that I think that's the case, or or have
gone to jail. You talked about the frontline employees anyone
else go to jail a little bit higher up than
the teller.
Speaker 2 (24:16):
Well, these are sort of bankers or tellers or whatever
they wear, frontline folks in the branches. And I believe
it's five. There was certainly five that accepted bribes, and
I think at least two of those five have been charged.
There was a sales rep down and I think he
was down in Florida who aided one of the three
criminal networks I talked about. He's been indicted, but I
(24:41):
think two or either three of the five actions that
td signed on to October tenth compel the TDS monitor,
So they have to select a monitor to sort of
oversee all this remediation. And one of the tasks that
the government has gon in this monitor is to do
a review of employees and to provide both the regulators
(25:06):
and the DOJ with the people the monitor finds responsible
for the misconduct. Then it'll be up to the regulators
to possibly find people and perhaps ban them from the industry,
and then up to the DOJ whether whether to charge anybody.
So back to the Wells Fargo case, which was a
(25:27):
sales you know, opening up on authorized accounts. About a
million customers were impacted. Nobody went to jail on that one.
The person who ran that division, she was criminally charged
but didn't go to jail. But the OCC brought administrative
proceedings against ten senior people at Wells Fargo, and some
(25:50):
of those folks. I think the CEO paid a seventeen
and a half million dollar fine. The woman who ran
the division paid seventeen million dollar fine. The agencies, the
OCC in particular, can find people and the DOJ could
criminally charge folks, but I wouldn't hold my breath that
they do that.
Speaker 1 (26:11):
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at hummingbird dot Co. That's Hummingbird dot Co. Well, Jim,
I want to get to the future and how to
stop things like this from happening. But I'm wondering because
you served as a BSA officer, you know that is
(28:00):
these sorts of AML compliance programs. If you were in
this position, if you were at TD Bank at when
this was going on, what would you have done?
Speaker 2 (28:13):
Well, I hope I would have done a lot of
things differently. There are a lot of people involved in
running and overseeing and monitoring an AML program At a
large institution like TD Bank. You've got, again, the directors
(28:35):
are ultimately responsible. You've got a BSA officer that has
a big team of people either directly reporting to them
or indirectly reporting to them. They might be a technology
and operations group that are running the monitoring systems. You
might have an investigative team in a different division, but
they all are ultimately responsible or rolling up to that
(28:58):
BSA officer. That BSA officer then works very closely with
their audit team to make sure that the auditors are
auditing all of these different programs and identifying any potential
issues and then getting those issues ruled up to the board,
and it's the board's responsibility to say, hang on, the
(29:22):
BSA officer and even the auditor are telling us there
are issues in the bank, and we've got to make
sure that those issues are addressed and fixed before the
regulators come in and hit us. Then there's the regulators,
and this is sort of one of the Yah. Yeah,
it's one of the unresolved issues. I think about the
(29:45):
TD Bank case is what were all of these regulators
doing from twenty fourteen to twenty twenty four We do
know from a class action lawsuit that's been filed. It
was filed in February of this year, and that suggests
(30:05):
that the OCC finished its exam of TD Bank and
twenty twenty two told TD Bank in October of twenty
twenty two that its program was a complete failure. They
referred it to the Department of Justice, they being the OCC.
So it was late twenty twenty two when it was
(30:26):
certainly known to their regulators and to the OCC and
the Department of Justice that all of this was going
to come to a head, and it did come to
a head on October ten of twenty twenty four. But
what was the OCC doing in the years before twenty
twenty two? You know, people need to understand that for
the largest banks in the United States, and they're all
(30:50):
regulated and supervised by the OCC. There's about nineteen of them,
I believe, or part of what's called the Large Bank
Supervision Group at the OCC. But all of those large
banks have and embedded the OCC exam team embedded in
the bank physically in the bank. They share offices, their
(31:11):
share office space, they're embedded in the bank. And it
might be thirty fifty a hundred OCC examiners that are
working solely on that one bank.
Speaker 1 (31:26):
I mean, it sounds like it was an AML fail
on so many levels, not just not just some of
the tellers, not just you know, the folks, the executives,
but that there were indications early on that there was
a bigger problem and even the regulators also may have
been a sleep of the wheel, if I can say that,
(31:47):
I mean, I give them a benefit of the doubt,
but it sounds like it wasn't just one person who
slipped up. But it makes me, really, then, you know,
think about how do you prevent this? I mean, you've
been you've been dealing with big banks for a long time.
What's the prescription so that this sort of disaster does
(32:11):
not happen or is not likely to happen again?
Speaker 2 (32:15):
Well, I think a disaster similar to this will happen
again and again and again. You know, there's forty five
hundred banks, there's roughly forty five hundred credit unions, there's
hundreds of large money transmitters, check cashers, all the crypto exchanges,
(32:35):
all the broker dealers that are out there. So there's
you know, tens of thousands of financial institutions that are
required to have these programs. They're required to properly onboard customers.
They're required to monitor for unusual activity and report suspicious activity.
The program requirements are very complicated, are exhaustive, and you're
(33:02):
going to screw something up, and it's just how bad
are you going to screw it up and how long
are you going to are you going to screw it
up for? And so it's that piece how bad does
it get and how long does it stay bad? That
makes sort of certain cases outliers. And I think that's
what we can try to prevent as much as possible.
(33:24):
Bad things will happen, money laundering will occur, but money
laundering shouldn't occur with the knowledge of the institution for
ten years. That's that's what we can we can focus
on to do that. I think the regulators need to
be more aggressive because the way it generally works is,
(33:48):
you know, the examiners will do an exam, they'll identify
issues and they'll say to the bank, look, here's some issues.
They're serious, they're not serious. We need you to fix them,
and we'll give you a couple of years to fix them.
So they come back in, Oh, you still haven't fixed them.
Come on, guys, you got to fix them. So we'll
give you another couple of years to fix them. And
then you know, so those might be matters requiring attention
(34:11):
is the phrase that's used in the regulatory world, and
then it's escalated to the board and the board gets
involved and then if they still don't fix them, that's
when these public orders come into play. So I think
the banks need to be more aggressive, or I'm sorry,
the regulators need to be more aggressive and say to
the banks, Okay, we're going to give you a year
(34:31):
to fix it. If you don't fix it, we're going
to find you and we're going to put an asset
cap in place. We're going to impose a director that
you don't want on the board. We're going to clawback
executive pay. I think they just need to be more aggressive.
Speaker 1 (34:47):
When it comes to the bank itself and the personnel. Right,
it sounds like the directors are the one sort of
steering the ship. What needs to happen in terms of
board of directors to prevent this sort of thing.
Speaker 2 (35:00):
Well, and this is it's a fascinating issue because the
directors are not they're not managing the bank day to day,
but they are ultimately responsible to the shareholders. They're voted
on by, you know, the shareholders elect the directors, and
the directors are responsible for overseeing the bank and to
(35:24):
ensure that the bank does what it's supposed to and
they obviously failed in that duty. I can't recall a
situation or a large US bank or a large foreign
bank operating in the US that has had a consent
order or an enforcement action against it for aml related
(35:47):
reasons where the directors ever sanctioned themselves. To me, and
I hate hate to say it, I'm not a bank director,
but nothing will change unless the people that are responsible
(36:08):
for the misconduct, which are the senior management of the
bank and the directors, are held accountable. You know, I've
got three boys. They're all in their twenties and thirties now,
but when they were teenagers and driving, if they ever
got a speeding ticket, and a couple of them did,
(36:30):
they paid that speeding ticket. I didn't pay it, and
it really hurt them because they did the misconduct. They
paid the fine. But we have a situation here where
the shareholders like, they're like the parents in the teenage
driver situation, right, the parents are paying the speeding tickets
(36:50):
of their sons. The sons aren't going to change their behavior,
are they. It's to me, it's bizarre, frankly.
Speaker 1 (36:57):
Yeah, it all comes down to accountability, and you know,
accountability for the government, accountability for the employees, for the management,
and as you said, there needs to be maybe some stronger,
more aggressive stance by some of the regulators. But what
(37:18):
about the everyday person. Is there any advice you have
for those of us who are the customers of these banks?
What should we be doing to make sure folks are accountable?
Speaker 2 (37:33):
You know, oddly enough, when you when you look at
the banks that have been sanctioned for AML failures, their
customers generally did not leave them. Clients did not leave them.
So I differentiate between customers sort of mass market people
(37:55):
like you and me at a bank, and then clients
are the you know, the corporations that have big credit
relationships or the private client group type type clients They
don't leave. You know, it's a very sticky relationship that
we have with our financial institution. You just want the
ATMs to work and your bill pay to work, right,
(38:17):
and if that's working, then you're kind of fine. That said,
I think that it's incumbent upon us as consumers to
make sure that the institutions we deal with are acting
in a way that sort of fits your you know,
the way you think they should be acting. And in
(38:40):
the case of TD Bank, you know, they were, you know,
allowing people to launder money for fentanyl dealers, et cetera,
et cetera. You could, you know, vote with your feet
and move your accounts elsewhere, or certainly, let you know,
the social media people understand your views, let the marketing
(39:04):
people at the bank understand your views, and they'll they'll
listen to you.
Speaker 1 (39:08):
I think, well, Jim, I mean, I think you know,
half the battle. They used to say, is knowing right.
Knowing is half the battle if I could say it
the right way. And I think what you've done is
actually helped to educate us, educate the not only the clients,
but the customers, those of us who are using these
institutions and who want them to do what is good
(39:30):
and to do something for the public good, which is
what you stated as being your mission. So I want
to thank you for educating us and for the work
that you're doing. We I appreciate it, and thank you
for coming on designated.
Speaker 2 (39:46):
It's been my pleasure, Yah, thanks for having me.
Speaker 1 (39:49):
Jim Richards pointed out that the failure at TD Bank
will most likely not be the last aml disaster we see.
Perhaps like natural disasters in the world, these mishaps of
a lit at finance are somewhat inevitable part of the
reality of the financial ecosystem. But the difference with money
laundering disasters is they don't rise out of nowhere. The
(40:10):
warning signs are often right under our noses, evident for years,
but overlooked when employees, managers, executives and regulators don't bring
their a game to the fight against financial crime. Maybe
we can't stop all AML disasters, but we can strengthen
our early warning systems, and that means heeding the advice
(40:31):
of folks like Jim whose mission it is to keep
us safe from forces of illicit finance. I'm Yaya Jata
Finussi and this is designated on the Illicit Edge Network
Today's podcast is supported by Winston and Strong ll Winston
and Strong, a trusted legal advisor and advocate for clients
across virtually every industry designated, is proudly supported by a Hummingbird.
Hummingbird is a modern compliance platform designed to make financial
crime investigations smarter, faster, and more effective because today's financial
(00:23):
criminals are sophisticated, savvy, and agile, meaning the tools used
to fight them should be two. Learn more at Hummingbird
dot co. Ever had your trust shaken by a financial institution?
(00:45):
For many TD Bank customers, that trust has been shattered.
In October, multiple US financial regulators penalized TD Bank three
point one billion dollars for a series of questionable business
practices putting its own customers and the general public at risk.
At the center of this controversy is a series of
suspicious transactions, services for fraudsters, and an overall lack of
(01:08):
transparency that turned TD Bank into an anti money laundering
or AML disaster. The charges indicate some employees at TD
Bank knowingly facilitated these practices, turning a blind eye in
pursuit of profits, and higher up executives who were supposed
to be overseeing the bank's AML program, while they didn't
oversee well enough. Today we dive deep into these activities,
(01:32):
examining how a bank trusted by millions, known as the
nation's most convenient bank, could become an enabler of fraud.
My guest, Jim Richards, spent years at other major global
banks working to keep dirty money out of the financial system.
Jim shed light on the practices in question in the
TD Bank case, the impact on individuals and the financial sector,
(01:55):
and the ongoing quests for accountability. I'm yaia Jata Finoussi,
and it's time to get designated with anti money laundering
expert Jim Richards. Jim, I've got one question for you.
Why do you care so much about anti money laundering?
You're very passionate about it.
Speaker 2 (02:18):
It impacts so much in our lives that people don't understand.
It impacts our communities, It impacts our wives, our daughters,
our family members, It impacts institutions. And I've always been
sort of a law and order kind of a guy,
and it just seems like if there's anything i can
(02:41):
do as a private citizen to help the public good
that I'm any good at, it's fighting financial crime.
Speaker 1 (02:52):
And you, I would say, have been a financial crime
fighter for quite a while. You have an illustrious career.
You've been consulting for a while now with your own firm.
But can you tell us a little bit about what
you were doing before you started your private consulting.
Speaker 2 (03:09):
Sure, and it sort of goes back to fighting financial crime.
When I was entering law school back in the nineteen eighties,
I was recruited by the Royal Canadian Mounted Police to
be a special constable, which I did for a year,
and it was a ball I just had. I had
(03:30):
a wonderful time. And there were twelve people in my
troop as they called it, and I was the only
one of the twelve that didn't sign up after the
sort of the probation period. But I had a ton
of fun doing that, and that sort of got my
appetite wedded a little bit for the fighting crime kind
of career. And then I moved to the United States
(03:51):
years later with my wife, and I became a prosecutor
in Massachusetts and I did that for I was in
a special investigations unit. We did organize crime, corruption and
that sort of stuff. I did that for four years
and then I got into banking as a Bank Secrecy
Act officer in Boston, worked for Bank of America for
a number of years, and then worked for Wells Fargo
(04:14):
as their global head of Financial Crime from two thousand
and five until April twenty eighteen, when I retired and
went out on my own.
Speaker 1 (04:23):
So, before you went out on your own as a
bank secrecy as a BSA Bank Secrecy Act officer and
head of global financial crime, what were you doing day
to day for the person who doesn't know about the
AML world.
Speaker 2 (04:35):
Yeah, So a Bank Secrecy Act, that's the sort of
the name of the statute statutes that set out all
of the anti money laundering laws and regulations in the
United States, and every financial institution is compelled to have
one person that is responsible for monitoring day to day
compliance with that AML program that you have to have
(05:00):
a BSA officer. You're responsible for all the policies and procedures.
You're responsible for monitoring all the activity of your customers
and clients. You're responsible for the teams that are doing
the investigations, the reporting, et cetera. So it's really the
kind of think of it as a chief of police
for a bank.
Speaker 1 (05:19):
And so you were the chief of police for some
very very big banks, Bank of America, Wells Fargo. But
we're talking today about another big bank that was just
fined right to the tune of three billion dollars, and
we're going to get into that TD Bank. So I mean,
looking at the TD Bank story, you know, I almost
(05:42):
see it as a a maybe that an apt metaphor
would be it seems like it's been a problem child.
What do you think about that? Do you agree?
Speaker 2 (05:51):
Oh? Absolutely, and it's it's been a problem child. It
had some issues back in twenty thirteen, and then it
had the issues that were in anounced on October tenth
of twenty twenty four. But I think you need to
put it in perspective. Yeah, yeah, a little bit. So
there's about forty five hundred banks in the United States,
and in the last ten years, FINSEN, the Financial Crimes
(06:15):
Enforcement Network, which is the Treasury agency that's responsible for
administrating this Bank Secrecy Act regime. FINSEN has brought thirty
nine enforcement actions in ten years, but only ten of
those have been against banks. So that's on average, one
AML related FINSEN enforcement action a year for the last
(06:38):
ten years, with forty five hundred banks. So you know,
if you got forty five hundred siblings and only one
goes bad, yeah, I'd call that a problem child.
Speaker 1 (06:51):
So what are the problems that this bank, that TD
Bank has had going back, you know, a decade or so.
Speaker 2 (06:58):
So going back to twenty thirteen, it entered into three
consent orders or three orders with three different government agencies. FinCEN,
the Office of the Controller of the Currency or the
OCC which is its primary regulator, and the Securities and
Exchange Commission paid about fifty seven million dollars in fines.
But those three enforcement actions all related to one thing,
(07:23):
and that was TD's failures with respect to one client
that it had, and that client was a law firm
run by a guy named Scott Rothstein, and Rothstein happened
to be running a Ponzi scheme through TD Bank and
through a couple of other banks, and so they got
jammed up by their regulators because of that in twenty
(07:43):
thirteen and then from twenty fourteen, go forward to twenty
twenty four and the orders that just came down in
twenty twenty four TD simply failed to properly run its
anti money laundering from soup to nuts. Didn't have the
right policies, it didn't have the right personnel, It wasn't
(08:05):
doing the right monitoring, It wasn't reporting suspicious activity, it
wasn't reporting large cash transactions, which banks are required to
do so, just an abject failure across the board. But
what made this one worse ya was that there was
actual money laundering going on in the bank, and the
(08:26):
Department of Justice and the other regulators identified three main
criminal networks that moved about six hundred and seventy million
dollars through TD. TD knew it was happening. TD did
nothing about it, so they really got the book thrown
at them.
Speaker 1 (08:42):
So you said, money laundering happening in the bank, they
knew it was happening.
Speaker 2 (08:47):
Who knew well, the frontline employees knew what was going on,
the compliance people, the anti money laundering people knew it
was going on, and it just wasn't properly reported up.
It wasn't properly senior management wasn't properly engaged. It was
an underfunded program as well, and so although TD grew
(09:12):
from it actually doubled in size from twenty thirteen to
twenty twenty four. Although it doubled in size, it didn't
raise the sort of expenditures it had on its anti
money laundering program. So it's transaction monitoring looking at the
activity of the customers. Those systems were stagnant and weren't
actually working appropriately. They knew they were stagnant, they knew
(09:36):
they weren't working, they didn't fix them, and so there's
all sorts of issues that the TD ran afoul of.
Speaker 1 (09:44):
So then what type of money laundering was happening, Well.
Speaker 2 (09:48):
There were three groups, and there was a group that
was laundering money for Chinese fentanyl rings. There was people
that were moving money that was down in Columbia, so
the accounts were opened up in the US, and then
cash transactions were being done in Colombia through ATMs in Colombia.
(10:14):
And there was just a number of different things like
that that TD should have identified, failed to identify, and
certainly didn't properly report, either through suspicious activity reports or
through currency transaction reports.
Speaker 1 (10:30):
So if there were frontline employees that you said knew
about this, who were supposed to be, I guess, minding
the store, why didn't they report?
Speaker 2 (10:39):
Some of them did apparently, and then nothing was done
with those internal referrals over to the sort of the
anti money laundering or compliance people. In fact, five TD employees,
frontline employees and the branches have been criminally charged with
accepting bribes from one of these eminal groups. They accepted.
(11:01):
Believe it or not, it was only fifty something thousand
dollars worth of gift cards to look the other way
when these guys were depositing hundreds of thousands of dollars
in cash literally at the teller window, just sort of
dumping bundles and bricks of cash at the teller window
that wasn't being reported. These guys knew it was wrong.
(11:24):
They escalated it up to the anti money laundering group.
The anti money laundering group didn't deal with it properly,
and again it just perpetuated for years and years, to
the tune of six hundred and seventy million dollars that's
been identified so far.
Speaker 1 (11:38):
Wow. Well, you know, I've heard TD Bank use the
slogan that it was the most convenient bank. What's what's
behind that? What do they mean by that? How they
get that? You know that that that name?
Speaker 2 (11:54):
Well, and this is absolutely fascinating, at least to an
AML geek like me. So TD's marketing tagline is America's
most Convenient Bank. And it's I think it's an interesting
and now ironic background to that phrase or to that
marketing line, because in twenty thirteen, again I mentioned TD
(12:19):
had sent onled those three enforcement actions from the OCC
Finsen and the SEC paid over fifty million in fines,
and that was related to that Scott Rothstein ponzi scheme,
and that ponzi scheme ran from two thousand and six
to two thousand and nine. TD got jammed up in
those enforcement actions for what it did in two thousand
and eight to two thousand and nine. What happened was
(12:42):
TD actually bought Commerce Bank back in two thousand and
seven and then it closed in two thousand and eight.
Scott Rothstein was actually a Commerce Bank customer, and they
inherited the Scott Rothstein ponzi when they purchased Commerce Bank.
(13:02):
It was Commerce Bank that had the tagline America's most
Convenient Bank. TV liked it so much they kept it
and they're still using it.
Speaker 1 (13:11):
I mean, it sounds like they were so convenient. They
were convenient for everyone, convenient for criminals, you know, coming in.
And this was in the US, so there were drug
deals that were happening, cash that was coming connected to
criminals elsewhere. But you're saying they would walk right into
a branch and basically almost like drop a bag of
cash and deposit it with no questions asked.
Speaker 2 (13:33):
Almost yeah, no, absolutely, Yeah. The Attorney General in his
press conference on October tenth even mentioned this tagline America's
most convenient bank and it was the most convenient bank
for criminals. I think he said something like that, Yeah,
these guys were bringing in whether it was duffel bags
or bags or briefcases of cash, and there were there's
(13:55):
video stills from the bank cameras that actually show these
guys with stacks of cash sitting at the tailor window. Stunning.
Speaker 1 (14:05):
Actually, so this is you know this, uh, this case
has been in the headlines because of the huge fine
three billion dollars. Can you break down for us, you
know why so much? Where's what? How is? How is
that amount determined?
Speaker 2 (14:25):
Yeah, it's it's interesting, so and it's complicated, and I
apologize for this, but the headline is three point one
billion dollars and Fincent in its press release, touted one
point three billion dollar fine the biggest fine it has
ever imposed. The details are a little more complicated. So again,
(14:45):
there were four agencies, Federal Reserve, the OCC, Fincent, and
the Department of Justice collectively imposed fines and forfeitures, which
is kind of the same thing. Let's not get into
the nuance. So that that totaled more than three point
seven billion dollars, But as they usually do when multiple
(15:08):
agencies get together and go after one institution, they'll actually
credit back and forth some that's paid to a few
of the others, et cetera. And they got the total
down to just under three point one billion. So for
example of that was FinCEN said, our fine is one
point three billion dollars. That was the headline. But then
(15:30):
when you keep reading, Finceen credited TD's payment of four
hundred and fifty million dollars to the OCC, and for
some reason I haven't been able to track down, they
credited ninety three million dollars of what TD paid to
the DOJ, So that net amount was about seven hundred
(15:52):
and fifty seven million dollars.
Speaker 1 (15:55):
And so that that amount is huge or for the
everyday person, you know, you know, three billion dollars, right,
most of us don't have that in our in our
pocket books. But you know, how is that relative to
one other actions that have happened, but two their overall funding,
(16:21):
their overall revenue.
Speaker 2 (16:24):
Sure, let me start with the second one if I can.
So the period of activity of the criminal activity was
twenty fourteen to twenty twenty four. Okay, So I went
back through ten years of TD's financial statements, and in
that period, TD's revenues were just over three hundred and
(16:45):
sixty billion dollars and its total NIT income for that
ten year period was about one hundred and five billion dollars.
Speaker 1 (16:54):
That's what they took home.
Speaker 2 (16:56):
Yeah, that's what they took home. So just over one
hundred million in So the three point one billion is
about three percent of its profit for that same.
Speaker 1 (17:08):
Period of time, right right right, you said one hundred
over one hundred billion in profit. So yeah, so so
so so a three percent penalty that sounds like a
drop in the bucket.
Speaker 2 (17:21):
It's it's a it's a big bucket, and it's a
big drop. I mean, it's it's still a lot of money.
But again it's and this may sound a bit odd,
it's just money, right, And I've said before that you know,
a fine is an expense to be paid. It's not
(17:44):
particularly a problem that needs to be managed, right. So
in this case, the agencies have imposed a bunch of
go forward obligations on TD Bank, and it's those go
forwardations and some of the restrictions they've placed on TD
that will prove to be more problematic than just the
(18:08):
three point one billion dollars in fines and forfeitures.
Speaker 1 (18:12):
So the fine itself is is I don't know if
you're saying it's the least of your their worries, but
it's it's there are other things that that they'll be
concerned about, like.
Speaker 2 (18:21):
What, well, when when TD held a press conference on
October tenth to sort of explain what happened and what
they're going to do and what they've already done to
do the remediation, et cetera, they they actually included a
(18:41):
nineteen page PowerPoint for that investor call or that press
conference that they had, and so they've and that deck
shows a bunch of different things. It talks about how
they've already hired a whole bunch to new people for
(19:01):
remediation and to replace the people that messed things up
in the first place. And when you sort of look
at the numbers there. That's probably about one hundred million
dollars in new salaries for TD.
Speaker 1 (19:13):
What would that stop them from doing, growing other branches,
acquiring you know, you know, acquiring more assets.
Speaker 2 (19:21):
Yeah. Absolutely, it's going to hit the loans they can
they can give out, they can't buy any other banks.
They're really stuck where they are. And this has happened
before Wells Fargo back in twenty eighteen. You might recall
that in the twenty fifteen twenty sixteen timeframe, Wells Fargo
(19:41):
got hit with a ton of bad publicity around their
sales practices. They were opening up accounts for people that
people didn't know about. In February of twenty eighteen, they
got hit with a three billion dollar fine. There's that
three billion dollar number again. But they also got hit
with an a set cap by the Federal Reserve. It's
(20:03):
twenty twenty four and that asset cap is still in place.
So where JP Morgan and the Bank of America have
grown ballpark sixty percent since twenty eighteen, Wells Fargo is
the same size it was. So TD's been hit with
that same asset cap. But what is unique about this one?
(20:25):
It may be unique. I've never heard of another one
like it. The occ said, Oh, by the way, TD,
if you don't complete the remediation within the timeframe that
you are going to set out, we could compel you
to reduce your assets by as much as seven percent
(20:46):
a year for every year you fail to complete the remediation.
So that's unique, and that's really it hits hard, No
go ahead. Yeah. But the other thing about this this
power point that TD put out, when you read it carefully,
they outline what they think is probably about another two
(21:10):
point seven billion dollars in costs that they are going
to incur, whether it's reduction and net interest income, you know,
whatever it might be. And then they're also going to
have to hire a whole bunch of lawyers and consultants
and all sorts of other stuff. So I did the
(21:31):
math and I came up with about three point one
billion dollars on top of the three point one billion dollars,
so it's about six point two billion.
Speaker 1 (21:42):
So huge amount, six point two billion. But you said
before that a fine like this could be an expense,
So if there are other things that they have to
worry about, who really pays for all of this? Who's
who's left holding the bag?
Speaker 2 (22:01):
Basically, Yeah, and that's that's really interesting because the headline
is obviously TD Bank has to pay a three point
one billion dollar fine. Technically it's the shareholders that end
up paying it. Why there's three point one billion dollars
less that can be either reinvested in the bank to
(22:25):
be paid in dividends to the shareholders, or used to
buy back stock, which is a which is done to
shore up the stock price, which again benefits shareholders. So
it's the shareholders get hit. Also, on October tenth, when
all of this was announced, TD bank stock plung It
(22:47):
plunged about seven percent. None of its peers plunged, and
it hasn't really made that back up in the last
in the last month. And then you know, we talk
about her talk about shareholders, but shareholders are actually people, right,
I mean their institutions. Oddly enough, five of the seven
(23:09):
biggest shareholders of TD bank stock are the other five
big Canadian banks. Now, they don't own much of that
stock for their own account. They own it for their clients.
And who are their clients. Their clients are pension funds,
Their clients are retirement programs, and all of those behind
(23:32):
all of those are just regular folks like you, me
and your folks and my parents, et cetera, et cetera.
So it's the shareholders that they're going to pay for it.
Speaker 1 (23:42):
So if I have a pension fund, you know which
is you know, partially taken a hit or I was
an investor. I'm an investor. You know I've taken the
hit in my portfolio, my earnings. You know, I'm not
going to be happy. But you mentioned earlier that you
frontline employees. I think we have been charged. Maybe you
(24:04):
mentioned that I think that's the case, or or have
gone to jail. You talked about the frontline employees anyone
else go to jail a little bit higher up than
the teller.
Speaker 2 (24:16):
Well, these are sort of bankers or tellers or whatever
they wear, frontline folks in the branches. And I believe
it's five. There was certainly five that accepted bribes, and
I think at least two of those five have been charged.
There was a sales rep down and I think he
was down in Florida who aided one of the three
criminal networks I talked about. He's been indicted, but I
(24:41):
think two or either three of the five actions that
td signed on to October tenth compel the TDS monitor,
So they have to select a monitor to sort of
oversee all this remediation. And one of the tasks that
the government has gon in this monitor is to do
a review of employees and to provide both the regulators
(25:06):
and the DOJ with the people the monitor finds responsible
for the misconduct. Then it'll be up to the regulators
to possibly find people and perhaps ban them from the industry,
and then up to the DOJ whether whether to charge anybody.
So back to the Wells Fargo case, which was a
(25:27):
sales you know, opening up on authorized accounts. About a
million customers were impacted. Nobody went to jail on that one.
The person who ran that division, she was criminally charged
but didn't go to jail. But the OCC brought administrative
proceedings against ten senior people at Wells Fargo, and some
(25:50):
of those folks. I think the CEO paid a seventeen
and a half million dollar fine. The woman who ran
the division paid seventeen million dollar fine. The agencies, the
OCC in particular, can find people and the DOJ could
criminally charge folks, but I wouldn't hold my breath that
they do that.
Speaker 1 (26:11):
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(27:38):
should the tools you use to stop it. Learn more
at hummingbird dot Co. That's Hummingbird dot Co. Well, Jim,
I want to get to the future and how to
stop things like this from happening. But I'm wondering because
you served as a BSA officer, you know that is
(28:00):
these sorts of AML compliance programs. If you were in
this position, if you were at TD Bank at when
this was going on, what would you have done?
Speaker 2 (28:13):
Well, I hope I would have done a lot of
things differently. There are a lot of people involved in
running and overseeing and monitoring an AML program At a
large institution like TD Bank. You've got, again, the directors
(28:35):
are ultimately responsible. You've got a BSA officer that has
a big team of people either directly reporting to them
or indirectly reporting to them. They might be a technology
and operations group that are running the monitoring systems. You
might have an investigative team in a different division, but
they all are ultimately responsible or rolling up to that
(28:58):
BSA officer. That BSA officer then works very closely with
their audit team to make sure that the auditors are
auditing all of these different programs and identifying any potential
issues and then getting those issues ruled up to the board,
and it's the board's responsibility to say, hang on, the
(29:22):
BSA officer and even the auditor are telling us there
are issues in the bank, and we've got to make
sure that those issues are addressed and fixed before the
regulators come in and hit us. Then there's the regulators,
and this is sort of one of the Yah. Yeah,
it's one of the unresolved issues. I think about the
(29:45):
TD Bank case is what were all of these regulators
doing from twenty fourteen to twenty twenty four We do
know from a class action lawsuit that's been filed. It
was filed in February of this year, and that suggests
(30:05):
that the OCC finished its exam of TD Bank and
twenty twenty two told TD Bank in October of twenty
twenty two that its program was a complete failure. They
referred it to the Department of Justice, they being the OCC.
So it was late twenty twenty two when it was
(30:26):
certainly known to their regulators and to the OCC and
the Department of Justice that all of this was going
to come to a head, and it did come to
a head on October ten of twenty twenty four. But
what was the OCC doing in the years before twenty
twenty two? You know, people need to understand that for
the largest banks in the United States, and they're all
(30:50):
regulated and supervised by the OCC. There's about nineteen of them,
I believe, or part of what's called the Large Bank
Supervision Group at the OCC. But all of those large
banks have and embedded the OCC exam team embedded in
the bank physically in the bank. They share offices, their
(31:11):
share office space, they're embedded in the bank. And it
might be thirty fifty a hundred OCC examiners that are
working solely on that one bank.
Speaker 1 (31:26):
I mean, it sounds like it was an AML fail
on so many levels, not just not just some of
the tellers, not just you know, the folks, the executives,
but that there were indications early on that there was
a bigger problem and even the regulators also may have
been a sleep of the wheel, if I can say that,
(31:47):
I mean, I give them a benefit of the doubt,
but it sounds like it wasn't just one person who
slipped up. But it makes me, really, then, you know,
think about how do you prevent this? I mean, you've
been you've been dealing with big banks for a long time.
What's the prescription so that this sort of disaster does
(32:11):
not happen or is not likely to happen again?
Speaker 2 (32:15):
Well, I think a disaster similar to this will happen
again and again and again. You know, there's forty five
hundred banks, there's roughly forty five hundred credit unions, there's
hundreds of large money transmitters, check cashers, all the crypto exchanges,
(32:35):
all the broker dealers that are out there. So there's
you know, tens of thousands of financial institutions that are
required to have these programs. They're required to properly onboard customers.
They're required to monitor for unusual activity and report suspicious activity.
The program requirements are very complicated, are exhaustive, and you're
(33:02):
going to screw something up, and it's just how bad
are you going to screw it up and how long
are you going to are you going to screw it
up for? And so it's that piece how bad does
it get and how long does it stay bad? That
makes sort of certain cases outliers. And I think that's
what we can try to prevent as much as possible.
(33:24):
Bad things will happen, money laundering will occur, but money
laundering shouldn't occur with the knowledge of the institution for
ten years. That's that's what we can we can focus
on to do that. I think the regulators need to
be more aggressive because the way it generally works is,
(33:48):
you know, the examiners will do an exam, they'll identify
issues and they'll say to the bank, look, here's some issues.
They're serious, they're not serious. We need you to fix them,
and we'll give you a couple of years to fix them.
So they come back in, Oh, you still haven't fixed them.
Come on, guys, you got to fix them. So we'll
give you another couple of years to fix them. And
then you know, so those might be matters requiring attention
(34:11):
is the phrase that's used in the regulatory world, and
then it's escalated to the board and the board gets
involved and then if they still don't fix them, that's
when these public orders come into play. So I think
the banks need to be more aggressive, or I'm sorry,
the regulators need to be more aggressive and say to
the banks, Okay, we're going to give you a year
(34:31):
to fix it. If you don't fix it, we're going
to find you and we're going to put an asset
cap in place. We're going to impose a director that
you don't want on the board. We're going to clawback
executive pay. I think they just need to be more aggressive.
Speaker 1 (34:47):
When it comes to the bank itself and the personnel. Right,
it sounds like the directors are the one sort of
steering the ship. What needs to happen in terms of
board of directors to prevent this sort of thing.
Speaker 2 (35:00):
Well, and this is it's a fascinating issue because the
directors are not they're not managing the bank day to day,
but they are ultimately responsible to the shareholders. They're voted
on by, you know, the shareholders elect the directors, and
the directors are responsible for overseeing the bank and to
(35:24):
ensure that the bank does what it's supposed to and
they obviously failed in that duty. I can't recall a
situation or a large US bank or a large foreign
bank operating in the US that has had a consent
order or an enforcement action against it for aml related
(35:47):
reasons where the directors ever sanctioned themselves. To me, and
I hate hate to say it, I'm not a bank director,
but nothing will change unless the people that are responsible
(36:08):
for the misconduct, which are the senior management of the
bank and the directors, are held accountable. You know, I've
got three boys. They're all in their twenties and thirties now,
but when they were teenagers and driving, if they ever
got a speeding ticket, and a couple of them did,
(36:30):
they paid that speeding ticket. I didn't pay it, and
it really hurt them because they did the misconduct. They
paid the fine. But we have a situation here where
the shareholders like, they're like the parents in the teenage
driver situation, right, the parents are paying the speeding tickets
(36:50):
of their sons. The sons aren't going to change their behavior,
are they. It's to me, it's bizarre, frankly.
Speaker 1 (36:57):
Yeah, it all comes down to accountability, and you know,
accountability for the government, accountability for the employees, for the management,
and as you said, there needs to be maybe some stronger,
more aggressive stance by some of the regulators. But what
(37:18):
about the everyday person. Is there any advice you have
for those of us who are the customers of these banks?
What should we be doing to make sure folks are accountable?
Speaker 2 (37:33):
You know, oddly enough, when you when you look at
the banks that have been sanctioned for AML failures, their
customers generally did not leave them. Clients did not leave them.
So I differentiate between customers sort of mass market people
(37:55):
like you and me at a bank, and then clients
are the you know, the corporations that have big credit
relationships or the private client group type type clients They
don't leave. You know, it's a very sticky relationship that
we have with our financial institution. You just want the
ATMs to work and your bill pay to work, right,
(38:17):
and if that's working, then you're kind of fine. That said,
I think that it's incumbent upon us as consumers to
make sure that the institutions we deal with are acting
in a way that sort of fits your you know,
the way you think they should be acting. And in
(38:40):
the case of TD Bank, you know, they were, you know,
allowing people to launder money for fentanyl dealers, et cetera,
et cetera. You could, you know, vote with your feet
and move your accounts elsewhere, or certainly, let you know,
the social media people understand your views, let the marketing
(39:04):
people at the bank understand your views, and they'll they'll
listen to you.
Speaker 1 (39:08):
I think, well, Jim, I mean, I think you know,
half the battle. They used to say, is knowing right.
Knowing is half the battle if I could say it
the right way. And I think what you've done is
actually helped to educate us, educate the not only the clients,
but the customers, those of us who are using these
institutions and who want them to do what is good
(39:30):
and to do something for the public good, which is
what you stated as being your mission. So I want
to thank you for educating us and for the work
that you're doing. We I appreciate it, and thank you
for coming on designated.
Speaker 2 (39:46):
It's been my pleasure, Yah, thanks for having me.
Speaker 1 (39:49):
Jim Richards pointed out that the failure at TD Bank
will most likely not be the last aml disaster we see.
Perhaps like natural disasters in the world, these mishaps of
a lit at finance are somewhat inevitable part of the
reality of the financial ecosystem. But the difference with money
laundering disasters is they don't rise out of nowhere. The
(40:10):
warning signs are often right under our noses, evident for years,
but overlooked when employees, managers, executives and regulators don't bring
their a game to the fight against financial crime. Maybe
we can't stop all AML disasters, but we can strengthen
our early warning systems, and that means heeding the advice
(40:31):
of folks like Jim whose mission it is to keep
us safe from forces of illicit finance. I'm Yaya Jata
Finussi and this is designated on the Illicit Edge Network
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