Background
The “TD Bank case” tells us how important it is for any business, regardless of its size, to invest in a strong compliance department. This historic case resulted from the bank’s “pervasive” failure to monitor its own anti-money laundering (AML) programs, which allowed over $670 million from criminal networks, including drug traffickers, to be laundered through its accounts. However, in its analysis, the Department of the Treasury stressed the significant importance of fostering a department that would protect a company from legal and financial penalties, safeguard its reputation, and foster trust with stakeholders.
In Depth
The term “flat cost paradigm” became a widely discussed phrase due to its use by TD Bank in its failure to invest adequately in its anti-money laundering (AML) compliance programs. Here, the court held that the company “did not substantively update the bank’s automated transaction monitoring system from 2014 through 2022 – including to address known gaps and vulnerabilities in the [bank’s] transaction monitoring program – despite increases in volume and risks business and significant changes in the nature and risk of transactional activity”.
Unfortunately, many businesses underestimate the risk of incurring avoidable liabilities.
There are many instances where businesses:
- Willfully fail to establish an adequate and effective compliance program.
- Do not invest sufficient time, money, or managerial resources to create and maintain a compliance program in line with the law and the regulations of the industry.
- Refuse devoting sufficient resources or fail to invest in improvements to address issues when they may be too costly.
- Consistently decide to address issues in the least costly way possible, even if it means ignoring failures and refusing to meaningfully remediate issues and prevent recurrences.
- Fail to properly train its staff on legal and regulatory risks.
- Fail to appoint officers who can help the staff to maintain the proper skills and expertise necessary to support timely identification, monitoring, reporting, and management of legal and regulatory issues.
And the risk for many companies is to fall behind of what is generally considered a reasonable compliance program. In 2024, the U.S. Department of Justice – Criminal Division, provided guidelines for the “implementation of an adequate and effective corporate compliance program or to improve an existing one”. Even though there is not a standard formula to assess the effectiveness of corporate compliance programs, there are, however, common questions that every reasonable compliance program should answer:
- Is the corporation’s compliance program well designed?
- Is the program being applied earnestly and in good faith? In other words, is the program adequately resourced and empowered to function effectively?
- Does the corporation’s compliance program work in practice?
Conclusions
In conclusion, regardless of their size and the industry in which they operate, companies should always consider the effectiveness of their risk assessment. Companies should periodically “assess the risk […] and shall take appropriate steps to design, implement, or modify each requirement [of the compliance program] to reduce the risk . . .”. To limit any possible misconduct that may impact their operations, overseas businesses that intend to invest in the United States should have a deep understanding of the legal environment in which they operate. In addition, the use of emerging technologies, such as Artificial Intelligence (AI) requires suitable management of risks to ensure compliance with the applicable law.
How does the company assess the potential impact of new technologies? This requires careful planning, adaptation, and ensuring adherence to domestic laws and regulations.
Dream bright but think straight.
Image article from Freepik