AML Penalties in 2024 - How to Prevent Similar Violations | EBA, FinCEN, FINTRAC news | Other News

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Let's see an outline of the topics to be covered in this edition:

1. Discussion of the month: AML Penalties in 2024 - How to Prevent Similar Violations
2. Regulatory Developments:

• EBA's Explainer on Preventing ML/TF in the EU's Crypto Asset Sector
• FinCEN Issued Joined Statement on Risk Management Examples for Elder Financial Exploitation
• FINTRAC announces significant amendments to its AML/CFT regulations
• The US Treasury Sanctioned 28 Individuals

3. Other News:

• Former TD Bank Employee Charged for Money Laundering
• OCC issues a cease-and-desist order against Bank of America
• Customs Authorities Seize €2.7 Million in Cash During Pan-European Operation
• FINTRAC imposes an administrative monetary penalty of $2,457,750 on Exchange Bank of Canada

Let’s start...

AML Penalties in 2024: How to Prevent Similar Violations

The financial industry faced a significant increase in Anti-Money Laundering (AML) fines in 2024. These penalties highlight the growing importance of robust compliance programs as regulators intensify their scrutiny.

As I have already examined the 5 largest AML Penalties in a previous LinkedIn post, in this newsletter I will focus on how entities can protect themselves from similar violations.

The 5 Largest AML Penalties of 2024 - what we can learn

1. TD Bank

Penalty:

$3.5 billion by:

• U.S. Department of Justice (DOJ): $1.8 billion (Bank Secrecy Act violation).
• Financial Crimes Enforcement Network (FinCEN): $1.3 billion (record fine for a depository institution).
• Office of the Comptroller of the Currency (OCC): $450 million civil money penalty, coupled with a cease-and-desist order.

Violations:

• Ineffective AML program, failing to prevent and detect suspicious activity.
• Bank staff accepting bribes to process suspicious deposits and open accounts for shell companies.
• Non-filing of thousands of Suspicious Activity Reports (SARs) for transactions amounting to $1.5 billion.
• Delayed Currency Transaction Reports (CTRs) for large cash movements
• Did not effectively monitor customers’ transactions, enabling over $670 million in criminal proceeds to be laundered, including funds from drug trafficking.

How to avoid similar violations:

The TD Bank case highlights the importance of robust Anti-Money Laundering (AML) programs for financial institutions. To prevent similar violations, banks should focus on the following key areas:

• Strengthen their AML program: Implement robust AML/CFT procedures and ensure that your compliance department is adequately resourced to effectively prevent money laundering and terrorist financing activities.
• Conduct Enhanced Due Diligence: Ensure adequate scrutiny when there is high risk for money laundering and terrorist financing.
• Report Suspicious Transactions: Identify and report transactions that may be linked to illegal activity.
• Employee Training: Establish a clear code of conduct that prohibits bribery and other unethical behavior. Additionally, ensure that employees understand their legal obligations.

2. City National Bank

Penalty:

$65 million by U.S. Office of the Comptroller of the Currency (OCC).

Violations:

• Failure to establish effective operational risk management frameworks.
• Inadequate internal controls for AML and Bank Secrecy Act (BSA) compliance.
• Shortcomings in fair lending and investment management operations.

How to avoid similar violations:

To prevent AML violations similar to those encountered by City National Bank, financial institutions can adopt several practices:

• Establish a Strong Compliance Culture: Ensure that all employees, including senior management and board members understand their legal obligations and do not prioritise profit over AML compliance.
• Enhance Risk Management Controls: Regularly perform comprehensive risk assessments to identify vulnerabilities and implement robust controls to identify suspicious activities.
• Invest in Quality Control Mechanisms: Establish quality control processes to evaluate the effectiveness of AML program. This includes pre- and post-transaction reviews to ensure compliance with established protocols and to identify areas of improvement.

3. SkyCity Adelaide Pty Ltd

Penalty:

A$67 million (approx. $42 million USD) by AUSTRAC.

Violations:

• Weak AML/CTF programs and lack of ongoing customer due diligence.
• Enabling high-risk customers to transfer large sums without scrutiny, enabling potential money laundering.

How to avoid similar violations:

Casinos may implement the following measures to avoid similar violations:

• Implement Comprehensive Know Your Customer (KYC) Procedures: Establish KYC processes to verify the identities of patrons, including checks against databases of Politically Exposed Persons (PEPs) and sanctioned entities.
• Conduct Risk Assessments: Perform risk assessments as per the regulatory requirements considering the specific risks of casinos including its business model, location, customers and way of interacting with their clients.
• Employ Enhanced Due Diligence (EDD): Especially in the case of high-risk clients, ensure that EDD is implemented including scrutiny of their transactions.

4. Klarna Bank AB

Penalty:

SEK 500 million (approx. $45 million USD) by Finansinspektionen (Swedish Financial Supervisory Authority).

Violations:

• Inadequate risk assessments for potential misuse of products/services for money laundering.
• Lack of proper due diligence processes for customers using its invoice products.

How to avoid similar violations:

To prevent similar violations and enhance their AML compliance frameworks, fintechs and challenger banks can adopt the following strategies:

• Conduct Comprehensive Risk Assessments: Implement thorough risk assessments that evaluate all products and services for potential misuse in money laundering or terrorist financing. This should include identifying high-risk customer and transaction types.
• Develop Clear Customer Due Diligence Procedures: Establish detailed procedures for customer due diligence that specify when and how to conduct checks based on risk profiles. This should include enhanced due diligence measures for high-risk customers, such as PEPs or those with complex financial backgrounds.

5. Starling Bank

Penalty:

￡28.9 million (approx. $36 million USD) by Financial Conduct Authority (FCA), UK.

Violations:

• It has only been screening customers against a fraction of the full list of sanctioned individuals and entities – from 2017 – 2023.
• Opening accounts for over 54,000 high-risk customers between 2021-2023, despite it has voluntarily agreed in 2021 not to do so.

How to avoid similar violations:

• Implement Effective Sanctions Screening Systems: Ensure that sanctions screening systems are comprehensive and regularly updated to include all relevant lists of sanctioned individuals and entities. Regular screening should be performed for new and existing customers, as well as transactions.
• Ensure Compliance with Voluntary Agreements: Fully comply with potential agreements with regulators and establish internal controls to ensure compliance with these requirements.
• Establish a Culture of Compliance: Foster a corporate culture that prioritises compliance at all levels of the organization. Leadership should actively promote ethical practices and ensure that compliance is viewed as a critical component of business operations.

The 5 largest AML penalties of 2024 emphasize the critical need for financial institutions to maintain robust compliance frameworks and proactive risk management strategies. These cases highlight the importance of aligning organizational practices with regulatory expectations to prevent financial crime and safeguard the company’s integrity.

The question is: Would a regulator be satisfied with the effectiveness and compliance of your current Anti-Money Laundering (AML) program?

Contact us for a free consultation on how we can help you mitigate AML risks, avoid costly penalties, and protect your business reputation:

https://calendly.com/amlcube/book-an-appointment

EBA's Explainer on Preventing ML/TF in the EU's Crypto Asset Sector

The European Banking Authority (EBA) has issued an explainer document on “Preventing money laundering and terrorism financing in the EU’s crypto assets sector”. The explainer provides a clear and concise overview of the evolution of EU's regulatory approach to crypto-assets, the role of the EBA, and the regulatory instruments issued to assist institutions and their supervisors.

FinCEN Issued Joined Statement on Risk Management Examples for Elder Financial Exploitation

The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has joined five federal financial regulatory agencies and state financial regulators in issuing a statement to provide supervised institutions with examples of risk management and other practices that may be effective in combatting elder financial exploitation.

FINTRAC announces significant amendments to its AML/CFT regulations

The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) has announced significant amendments to its anti-money laundering (AML) and counter-terrorist financing (CFT) regulations. These changes expand the scope of regulated entities to include factoring companies, financing and leasing entities, and cheque-cashing businesses. They also include provisions to report discrepancies found in the federal beneficial ownership registry and guidance on how to establish risk-based AML programs.

The US Treasury Sanctioned 28 Individuals

The U.S. Treasury Department sanctioned 28 individuals and entities involved in a global gold smuggling and money laundering network led by Kamlesh Pattni, a Zimbabwean businessman, on International Anti-Corruption Day. This network, facilitated by bribery, exploited Zimbabwe's natural resources, enriching corrupt officials while depriving citizens of their benefits. The sanctions, coordinated with the FBI and the UK, highlight the global nature of corruption and the importance of international cooperation to combat it.

Former TD Bank Employee Charged for Money Laundering

Leonardo Ayala, a former 24-year old TD Bank employee was charged in U.S. for facilitating money laundering to Colombia. This follows TD's guilty plea to money laundering charges and a $3 billion penalty for its role in shuttling hundreds of millions of dollars in drug proceeds. Ayala allegedly exploited his position by issuing debit cards for shell company accounts in exchange for bribes, enabling these accounts to be used to launder millions of dollars in narcotics proceeds through ATMs in Colombia.

OCC issues a cease-and-desist order against Bank of America

The Office of the Comptroller of the Currency (OCC) issued a cease-and-desist order (order) against Bank of America, N.A. (bank) for deficiencies related to its Bank Secrecy Act (BSA) and sanctions compliance programs. The OCC identified significant compliance violations at Bank of America, including inadequate internal controls, poor governance, deficient independent testing and systemic gaps in transaction monitoring and suspicious activity reporting.

Customs Authorities Seize €2.7 Million in Cash During Pan-European Operation

Customs authorities across 23 EU Member States, supported by Europol, conducted a two-week operation targeting money laundering, transnational crime, and terrorism financing. Authorities searched over 300 passengers at airports, ports, train stations and borders of EU countries. The operation resulted in the seizure of nearly €2.7 million in cash, along with valuable items like gold and jewelry. Over 500 cash movement checks were conducted.

FINTRAC imposes an administrative monetary penalty of $2,457,750 on Exchange Bank of Canada

The Bank was found to have committed the following violations: Failure to submit suspicious transaction reports where there were reasonable grounds for this, failure to conduct ongoing monitoring of business relationships and failure to report amounts of $10,000 or more in cash.

That’s all for this month!

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Regards

Anna Stylianou