Anti-Money Laundering Enforcement And De-Banking

In a government full of nasty, obnoxious and extra-legal regulatory initiatives to harass the people, the effort to regulate “money laundering” out of existence has to rank at the top. The basic idea is for the government to require all banks to become involuntary deputies of law enforcement to spy on their customers behind their backs, so that the bureaucrats can gain access to detailed information on what every single person is doing all the time. And thus will all criminality be stomped out! In the real world, what anti-money laundering (AML) regulation means is that the government gains vast information on the innocent citizenry. This information in almost all cases has nothing to do with criminality and instead finds its principal use in hobbling and harassing the political opponents of the régime. Meanwhile, the real crooks have plenty of ways (cash, Bitcoin, ten other forms of crypto, gold, MoneyGram, etc., etc.) to continue business as usual.

I had two big posts on this subject back in the early days of this blog, one in June 2015 (“The Joke Of Criminalizing Money Laundering”), and another in April 2016 (“The Joke Of Criminalizing Money Laundering — Part II”). The first of those pieces reported on a series of massive fines exacted by the regulators against big banks that had failed to detect money launderers in their midst. The second cited a Wall Street Journal article reporting that the effect of stepped-up AML enforcement had merely been to drive the “organizations considered suspicious or high-risk” to use non-bank means of money transfer. What a shock. Fast forward to this year, and we have the events I just covered in my November 24 post (33 million small to tiny corporate entities suddenly required to register with the IRS); plus the additional events covered in my most recent post (December 7), where federal AML regulators have been systematically forcing the de-banking of crypto moguls, not to mention of Melania and Barron Trump and other such suspicious entities. Nothing political here! Meanwhile, nobody has noticed any effect of AML regulation on reducing, for example, drug dealing.

For a deeper look at what AML regulators have recently been up to, consider the just-ended investigation and prosecution of a bank called TD Bank. TD (Toronto Dominion) is a very large bank originally from Canada, that in recent years has put on a big growth spurt in the U.S., and has become the 10th largest bank in this country. It appears that federal regulators have been investigating TD Bank over money laundering compliance for many years. Both FinCEN (part of the Treasury Department) and the Justice Department have been involved. The investigation ended in TD agreeing to a Consent Order with FinCEN and a guilty plea with Justice. Here is a copy of the FinCEN Consent Order (undated), and here is the Justice Department press release (October 10, 2024) announcing the guilty plea.

The guilty plea announcement alludes to a payment of $1.8 billion by TD to resolve the charges. However, according to the ABA Banking Journal, yet other regulators (Comptroller of the Currency, Federal Reserve) piled on to get in on some of the loot, and the total paid to all agencies by the bank came of over $3 billion.

So what exactly is TD supposed to have done wrong? The gist of FinCEN’s allegations is that TD failed to devote enough “resources” to spying on the customers. From page 7 of the Consent Order:

The Bank did not invest sufficient time, money, or managerial resources in the creation and maintenance of TD Bank’s AML program, nor did the Bank take sufficient steps to ensure TD Bank’s ongoing compliance with the BSA. As described more fully below, TD Bank failed to devote sufficient resources to BSA compliance, and refused to invest in improvements to address such gaps when they were deemed too costly, thus allowing illicit activity to flow through the Bank. TD Bank vastly underinvested in its AML compliance efforts, with TD Bank knowingly spending an order of magnitude less than its peers.

So what amount of resources is the correct amount to spend spying on the customers? From page 8-9 of the Consent Order:

TD Bank was required to designate an individual to be responsible for coordinating and monitoring the Bank’s day-to-day compliance with the BSA—a “BSA Officer.” Longstanding regulatory guidance has made clear that . . . the mere act of appointing an individual to the role of BSA Officer is insufficient to assure and monitor the bank’s compliance with the BSA. . . . To have an effective AML program, a bank’s board of directors must ensure that the designated BSA Officer has appropriate authority, independence, and access to resources to administer an adequate BSA compliance program.

Ah, so there is nothing in the statute, or even in regulations, the tells you how much you are supposed to spend. You have only the famous “longstanding regulatory guidance” — and even that only has the vague demand that the amount spent must be “sufficient” to have an “adequate BSA compliance program.” The regulators reserve to themselves the complete ability to second-guess whatever you do and then hit you up for a multi-billion dollar payment to their slush fund.

You might wonder how much it costs a bank to spy on customers sufficiently to keep these regulators at bay. This November 2024 piece from the Financial Crimes Academy reports that “large banks reportedly spend up to $1 billion per year to maintain regulatory compliance standards.” The Consent Order, page 3, states that the 2023 earnings of TD’s U.S. affiliate were approximately $2.3 billion.

Go over to the Justice Department announcement to get an idea of the scope of what TD was supposed to be looking for. The release says that between January 2018 and April 2024 TD had some $18.3 trillion of “unmonitored” transaction activity. Of this, from 2019 to 2023 some $670 million was transferred by what they call three “money laundering networks.” They don’t say what a “money laundering network” is, or how one would know what these three were or what they were up to. Recognize that the government’s position is that any use of illegally obtained money is “money laundering.” So if a drug dealer pays his cable TV bill, that’s “money laundering.” Could the term “money laundering network” as used here mean nothing more than a crypto exchange? That is likely. But even if you assume that all of the $670 million is something that anyone would immediately recognize to be a crime, it’s still $670 million divided by $18.3 trillion, or 0.0036% of the transactions processed.

Read on in the Consent Order to page 13, and you will find out what the regulators ultimately want this bank to do. It’s all about “de-marketing,” which is the term used here for de-banking. The regulators demand that TD act more quickly to “de-market” disfavored customers:

TD Bank did not have a process to apply restrictions or appropriate mitigating controls to customers that are the subject of SAR filings. Instead, the Bank left demarketing adjudication to an investigator after a certain number of SAR filings. As the Bank’s AIU began working through its large queue of potentially suspicious transactions, inevitably a portion would be found to be suspicious, and some of the related customers would be subject to the Bank’s demarketing processes. TD Bank’s lack of staffing and backlogs allowed these customers—which the Bank deemed to pose an unacceptable money laundering risk—to continue transacting without appropriate controls consistent with the Bank’s own AML program.

On December 5 the Wall Street Journal reported that TD Bank had called a halt to its ambitious growth plans in the U.S.:

The Canadian bank said Thursday that part of the challenges to its finances would be the spending needed to strengthen its risk and controls following a settlement with regulators and prosecutors that involved money laundering . . . .

With regulators demanding that they spend up to half of earnings on completely useless spying on customers, can you blame them for pulling back?

Elon and Vivek, here is a great place to start!

UPDATE, December 10: On the subject of how AML regulation transforms into harassment of political opponents, let me throw in this link to the Report just out December 6 from the House Special Subcommittee on the Weaponization of the Federal Government, title “FINANCIAL SURVEILLANCE IN THE UNITED STATES:
HOW THE FEDERAL GOVERNMENT WEAPONIZED THE BANK SECRECY ACT TO SPY ON AMERICANS.” An excerpt or three:

The FBI has manipulated the Suspicious Activity Report (SAR) filing process to treat financial institutions as de facto arms of law enforcement, issuing “requests,” without legal process, that amount to demands for information related to certain persons or activities it considers “suspicious.” 8 With narrow exception, federal law does not permit law enforcement to inquire into financial institutions’ customer information without some form of legal process.9 The FBI circumvents this process by tipping off financial institutions to “suspicious” individuals and encouraging these institutions to file a SAR—which does not require any legal process—and thereby provide federal law enforcement with access to confidential and highly sensitive information.10 In doing so, the FBI gets around the requirements of the Bank Secrecy Act (BSA), which, per the Treasury Department, specifies that “it is . . . a bank’s responsibility” to “file a SAR whenever it identifies ‘a suspicious transaction relevant to a possible violation of law or regulation’” . . .

In the days and weeks after January 6, 2021, the FBI coordinated with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) to encourage financial institutions across the country to scour their data and file SARs on hundreds of Americans, if not more, without any clear criminal nexus. . . .

Financial institutions and FinCEN are expanding their capacity to surveil Americans through new, confidential projects and emerging technologies. Officially, the Bank Secrecy Act Advisory Group (BSAAG) serves as an advisory body to the Treasury Department on issues related to the BSA.22 However, in practice, documents obtained by the Committee and Select Subcommittee indicate that it is also a tool for federal law enforcement and financial institutions to monitor the private, financial data of American citizens.

Bold is in the original. Use cash.