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.
Let’s examine the five largest fines imposed in 2024, and how entities can protect themselves from similar violations.
The 5 Largest AML Penalties of 2024
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:
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:
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:
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:
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.
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