Non-Compliance Leads to Major Fines, Personal Liability for Top Banking Firms

Last week was a rough one for several of the world’s largest banks. Two household names in the domestic financial sector were ultimately forced to take action to amend for lapses found within their comprehensive anti-money laundering (AML)/counter terrorism financing (CFT) safeguards, developments for both institutions that have been years in the making. With this week’s enforcement actions however, not only were the usual staunch monetary penalties levied by regulators against these institutions, but terminations for several officials holding “leadership” positions within one bank’s compliance department were also formally announced associated with these shortcomings – an aspect of a firm’s regulatory proceedings that are not generally disclosed publicly – with additional enforcement actions against these individual officers potentially looming. These developments once again raise several questions for those operating within the banking compliance realm, including is the growing risk of personal liability associated with holding one of these key positions truly worth it? It also begs the question as to when the world’s big banks will truly be held responsible – and see the appropriate repercussions – for non-compliance. 

The growing issue that is big bank arrogance (bordering on sheer negligence) versus ever-evolving compliance standards is not new. While covered institutions small and large across the United States have mostly complied with implementing and maintaining appropriate AML/CFT programs to avoid these repercussions, the fact remains that large-scale penalties for non-compliance with new regulatory standards remain far too prevalent. For decades, the largest financial firms across America and beyond have been able to take regulatory fines and penalties in stride while continuing to operate virtually unimpeded, with few actually committing the resources necessary to mending the identified deficiencies in their compliance protocols that ultimately led to their fines. Going back in recent history, there has been no shortage of examples of banks that have faced the consequences of overlooking today’s increasingly-complex landscape of regulatory and sanctions guidelines. The list of repercussions against non-compliant firms have come to include much more than fines, but also strict remediation mandates, complete closures, and now pinpointed terminations and legal proceedings against the individuals found responsible for these errors. Yet even with the scope of penalties growing, many firms with more substantial balance sheets have been able to keep their doors open without much issue, leading many to question whether or not these penalties are actually having any true impact.

JPMorgan Chase & Co. is currently the single largest financial firm operating primarily out of the United States, and is also the largest bank in the world by gross market capitalization. The firm has consolidated assets amounting to a whopping $3.4 trillion, boasting powerful asset & wealth management, commercial and community banking, and investment banking divisions and carrying thousands of branches across the U.S. alone. Truly no one has more resources than JPM, and yet this past week it was announced that the firm’s securities wing too fell short in its oversight of consumer activity, engaging in what has been determined as unsafe or unsound business practices. Last week, the Commodity Futures Trading Commission (CFTC) announced a $200 million fine against JPMorgan Securities for trade surveillance gaps created during the onboarding of a new system in 2021. The CFTC’s fine will be offset by $100 million, money the bank will pay to the Treasury Department’s Office of the Comptroller of the Currency and the Federal Reserve Board as part of a $348 million settlement announced in March for related trade surveillance failures.¹ All told, JPMorgan discovered it had not been properly surveilling trades on up to 30 global trading venues dating all the way back to 2014, amounting to improper oversight of tens of billions of total trades.¹

Toronto-Dominion (TD) Bank was also in the spotlight again last week, this after the firm announced its decision to set aside nearly a half-billion dollars in early May to brace for incoming regulatory penalties on behalf of U.S. regulators tied to their alleged involvement with international fentanyl trafficking operations. The Wall Street Journal recently reported more fallout from U.S. Justice Department investigations into the firm’s American operations, writing that TD’s Chief Executive Officer Bharat Masrani has since moved to fire more than a dozen of their staff in direct correlation with their failure to effectively monitor, detect, and report suspicious activities. Reports have indicated some of the employees that were let go were the leading officers of the bank’s anti-money laundering division, along with others operating in the firm’s domestic branches who violated TD’s code of conduct.² TD’s $13.4-billion takeover of Tennessee-based First Horizon Corp. was ultimately blocked by the U.S. Department of Justice last year after the DOJ failed to clear the Canadian lender due to similar concerns over how the bank handled suspicious transactions.

Following the terminations, TD Bank spokeswoman Elizabeth Goldenshtein stated that the firm has “significantly strengthened the leadership of our U.S. anti-money-laundering function”, this as TD has already launched a major overhaul of its U.S. AML program. In total, TD has invested over $350 million into in its comprehensive anti-money laundering program since CEO Masrani took the helm in 2014. And though Masrani could not deny that tangible progress has been made to date with respect to improving his company’s compliance with regulatory standards across their North American operations, he alluded to the fact that there remains much more work to be done to avoid future transgressions of this scale. This has already included increased investment into new regulatory technologies (RegTech), risk management protocols, and trend analysis tools by the firm that they believe will pay dividends moving forward. At current however, the massive fines facing TD have only been surmounted by increased pressure faced from investors and consumers alike to fix their shortcomings and better sustain the integrity of their funds.

Altogether, the events of the past week should serve as a stark reminder of the negative potential developments for financial institutions as well as their employees when it comes to the possible consequences for lack of appropriate due diligence. If it can happen to the most powerful financial institutions in the world, it can happen to you. Regulators are out to prove that no individual nor firm itself is too big to ignore regulations, and the consequences for regulatory shortcomings can expand far beyond conventional fines and sanctions. In the latter instance, TD Bank employees are being blamed for their failures on an individual level and have been left jobless because of it, while potentially facing further repercussion as regulator-led investigations conclude. Financial industry employees, especially those operating within the compliance space, should keep this in mind whenever they are tempted to cut corners.

Citations

1. Nicodemus, Aaron. “JPMorgan Will Pay Additional $100m to CFTC to Settle Trade Surveillance Lapses.” Compliance Week, Compliance Week, 31 May 2024. 
2. Stewart, Robb M. “Exclusive | Toronto-Dominion Bank Fired More than a Dozen in Wake of  Anti-Money-Laundering Failings, Source Says.” The Wall Street Journal, 23 May 2024.