Proactive Compliance for Start-Up MSBs: Why Checking the Boxes Isn’t Enough
For start-up money service businesses (MSBs), it’s tempting to approach compliance as a checklist task. Many believe that if they follow the regulations and implement basic anti-money laundering (AML) protocols, they’re in the clear. However, the TD Bank case with the U.S. Department of Justice serves as a reminder that compliance requires more than ticking boxes—it demands proactive efforts to detect and report suspicious activities.
Compliance Is Not a Checklist—It’s a Strategy
In the case of TD Bank, the issue wasn’t just about filing reports late; it was about failing to recognize red flags. Despite having AML protocols, the bank missed signs of fraudulent transactions, resulting in a significant case tied to a Ponzi scheme. For start-up MSBs, the lesson is that compliance must be vigilant and adaptive, not passive.
When regulators examine your business, they aren’t simply looking for whether you followed the rules. They want to see if you actively worked to prevent and address criminal behavior. This is an area where small businesses can easily slip up, mistakenly thinking that basic compliance is enough.
What Is a Suspicious Activity Report (SAR)?
A Suspicious Activity Report (SAR) is a document that financial institutions must file with FinCEN (Financial Crimes Enforcement Network) when they detect any suspicious behavior that could indicate money laundering, fraud, or other financial crimes. The goal of SARs is to help authorities investigate potential illegal activities, and failure to file them in a timely manner can result in hefty penalties, as seen in the TD Bank case.
Be Proactive, Not Reactive
Even if your start-up is small, you are still vulnerable to regulatory scrutiny. Checking the boxes for compliance won’t protect you if you fail to identify suspicious activities. It’s crucial to stay ahead of potential problems, even if it means erring on the side of caution.
What does proactivity look like for a small MSB?
- Regularly update your AML protocols: Criminal methods evolve, and so should your detection systems.
- Investigate when something seems off: Don’t rely solely on automated systems. If a transaction looks strange, have someone manually investigate.
- Train your staff continuously: Ensure that employees are not just following protocols blindly, but also thinking critically about suspicious activity.
Small Business, Big Risks
Start-up MSBs might assume that big institutions like TD Bank face more scrutiny, but this isn’t the case. Regulators are often even more watchful of start-ups because they lack established compliance systems. Failing to file SARs or recognize suspicious behavior can lead to severe fines and damage to your reputation.
In the case of TD Bank, simply following protocol wasn’t enough. Failing to address red flags and failing to act proactively led to their involvement in a Ponzi scheme scandal, resulting in major legal consequences.
The Cost of Being Passive
TD Bank’s failure to act on suspicious transactions was seen not just as a mistake, but as complicity. For small MSBs, this underscores the importance of proactivity. Just doing what’s expected isn’t enough to protect you from serious consequences.
| Authority | Concept | Amount |
|---|---|---|
| Office of the Comptroller of the Currency (OCC) | Civil Money Penalty for BSA/AML violations | $450,000,000.00 |
| U.S. Department of Justice | Plea agreement-related penalties (TD Bank N.A.) | $1,200,000,000.00 |
| U.S. Department of Justice | Plea agreement-related penalties (TD Bank USA N.A.) | $500,000,000.00 |
| Total | $2,150,000,000.00 |
Lessons for Start-ups:
- Over-report when in doubt: It’s better to file a SAR unnecessarily than to overlook a suspicious transaction.
- Don’t rely solely on technology: Automated systems are helpful, but human intuition and oversight are critical for spotting unusual activity.
- Know your customers (KYC): Understand your clients well. Fraudsters often target smaller companies because they assume they can fly under the radar.
Conclusion: Proactivity Is Key
For small MSBs, the TD Bank case shows that checking the boxes is not enough. Your compliance program needs to be active, vigilant, and forward-thinking. Build a strong culture of compliance from day one, and always stay on the lookout for anything unusual. The cost of failing to recognize and report suspicious activity is far greater than the effort it takes to be proactive.
For more details on the case and the legal consequences TD Bank faced, you can find the full plea agreement and related documents here:
- TD Bank Holdings Plea Agreement
- TD Bank N.A. Plea Agreement
- OCC Consent Order
- OCC Civil Money Penalty
These documents provide valuable insight into the risks of failing to maintain proactive compliance measures.
Walker Guidance 