Davis Polk partner Dan Stipano discussed the consequences of anti-money laundering (AML) lapses and weak compliance programs with American Banker. Dan noted that following the financial crisis of 2008, regulators found that AML at banks had fallen through the cracks while those institutions were focused on survival. He explained that the consequences of such lapses can include fines, expenses to update AML systems that divert resources from other operations, reputational damage, and consent orders, which can torpedo growth strategies like mergers and acquisitions.

Dan highlighted that a common thread in many major AML cases is that the strength of the bank’s compliance program and the risk levels of its clients and services aren’t aligned. Professional money launderers are adept at finding weak links in banks’ compliance systems. He said that preventing major crimes should be a joint effort between banks and law enforcement agencies, since banks are uniquely positioned to see the side of crimes – moving money – that law enforcement doesn’t.

Dan also added that banks should be expected to identify and report suspicious activity before letting law enforcement officials take the investigations from there.

‘Tougher before it gets better’: TD faces a long road on AML woes,” American Banker (May 16, 2024) (subscription required)