On Monday January 20, 2025, we recorded the Law'80 Visiting Lecture with Sanaa Ahmed. Sanaa's talk was on Canada’s money laundering problem: Is TD the exception or the rule?
Description: Waves of self-recrimination have plagued Canada since U.S. regulators slapped TD Bank with the largest fine in U.S. banking history. TD’s C-suite is under fire for conspiring to launder, as are Canadian regulators for their failure to detect this laundering. But are these calls for self-flagellation justified? Is TD the exception or the rule?
You can find the transcript and podcast below. Be sure to subscribe to the QLaw Podcast via your favourite podcast provider.
Podcast:
Transcript:
[Auto-generated transcript. Edits may have been applied for clarity.]
Well. Welcome, everyone. Um, both here in the room and online to this year's law 80 lecture in business Law.
The topic of today's talk involves the flow of funds.
Um, but the focus, I think, on illicit funds, uh,
around the globe and advances in technology increasingly disconnect capital from a particular place, um, for better or for worse.
And I think can also make us, as human beings, feel disconnected from the physical earth and a particular place.
So I think it's useful to start by grounding ourselves, uh, in this place, by showing respect to the original and continuing stewards of this land.
And we do so by acknowledging that the land on which those of us in the room gather today on
Queen's University campus is the traditional territory of the Anishinaabe back in the Shawnee.
And we are grateful to be able to share this talk with you today from this territory.
The law 80 lecture is an annual event funded by a generous gift from the Queen's Law class of 1980,
and I'm thrilled that some members of the law 80 Committee are joining us today for the talk via zoom.
If you are joining us on zoom, uh, when we get to the Q&A portion, please type your questions in the Q&A box and I'll monitor that.
The topic of money laundering has increasingly moved, I think, from, uh,
criminal law and conversations about organised crime to corporate law in the boardrooms of Bay Street.
In October last year, TD Bank pled guilty to criminal charges in the US related to money laundering.
The guilty pleas by TD Bank made headlines around the world and especially here in Canada.
And so I thought it would be a fitting and timely topic for this year's lecture.
And I'm thrilled that, um, one of Canada's leading legal legal experts on money laundering.
Doctor Santa Ahmed is this year's law lecturer.
Doctor. Ahmed is an assistant professor of law at the University of Calgary.
Um, she, as I mentioned, she's an expert on money laundering, and she teaches and researches on this topic.
More generally, Doctor Ahmed's introduced, which is interdisciplinary research,
examines the regulatory, constitutional and governance issues at the heart of global regulation.
She is also a contributor to, uh, the book Dirty Money Financial Crime in Canada, um,
edited by, uh, Queens Professor Christian Lippert, uh, who's also here with us today.
Um, and thanks to an arrangement, the publisher the book is available to anyone is a free download from Q space.
Prior to joining the University of Calgary, Doctor Ahmed was a Killam Post-Doctoral Fellow at Dalhousie University.
She is a PhD from Osgoode Hall Law School, an LLM from the University of Warwick, and a BA LLB from the University of Karachi,
and prior to pursuing a career as a legal academic doctor Ahmed was an editor, writer,
producer and reporter for several media outlets in Pakistan, including BBC Urdu Service.
And so now she's on the other side of the mic, in the pen, so to speak.
As a frequent media commentator and speaker. So please join me in welcoming Professor Ahmed to Queen's Law.
Thank you so much, Gail, for that very generous introduction.
I'm thrilled to be here to be talking about T.D., which is obviously, as Gail mentioned, it's been in the news for a while now.
I wanted to begin today's talk with a confession.
As a former journalist, I am rarely caught completely off guard when the TDI story broke in May last year.
I predicted much of what we've seen since we saw some corporate reorganisation.
We've seen a few Mia Culpas. We've seen jail time for a few employees, and we've seen a host of red faced Canadian regulators.
The only thing that truly surprised me about the TDI story was level of surprise that the TDI story evokes across Canada,
and the only thing that worries me is how this reaction of surprise is shaping the
narrative about both money laundering in Canada as well as the legal landscape.
Let me unpack these two claims. The Oxford Dictionary tells us that surprise is something that is unexpected or an astonishing event.
Fact or thing? The second largest bank in the country.
Getting hold up for laundering would be an unexpected or astonishing event only if it had never happened before.
What you see up on the screen is a snapshot of Canadian banking history that shows us that many others have been here before.
So RBC, BMO, CIBC, Nova Scotia as part of smaller outfits.
Exchange. Bank of Canada HSBC Canada.
All these banks have either laundered money or they've had deficiencies in their anti-money laundering, or the acronym is AML in their AML frameworks.
So is it truly surprising that TD has joined the ranks of the others comprising the big five?
Or to flip this question on its head. What was it about TV that made us think it would remain an outlier?
Now. Let's go around these developments in the broader Canadian context for at least ten years now.
Canada has made headlines as a premier onshore destination for laundering money across the world.
Now, during this time, a bunch of developments have shown us repeatedly laundering is not an isolated
one off phenomenon which is restricted to biker gangs or tentacle smugglers.
Laundering happened b a system conceived it would qualify as an industry in its own right.
Now snapshot runs us through the major laundering related events in the last ten years.
So some of you may remember the 2015 Charbonneau Commission inquiry into corruption in the construction industry in Quebec, and the stand out by name.
There was that Mafia type criminal organisations had long standing relationships with politicians,
big business and service industry professionals that that would include lawyers, accountants, those kinds of people.
Laundering was just how the industry worked.
Meanwhile, between 2016 and 2021, we had the Dyes and Pandora papers, which revealed a flourishing made in Canada laundering industry.
Now the phrase snow washing as opposed to the relatively pedestrian term laundering, the phrase snow washing was made by us for us in 2017.
We heard about the Vancouver model of laundering, which happened at casinos in B.C.
In 2022. The Cullinan Commission inquiry told us that while the Vancouver model was breaking news to many of us.
Gaming regulators in the province had known about the phenomenon for at least seven, eight years before we found out.
Similarly, when the Toronto method of mortgage fraud was unearthed at HSBC Canada.
We discovered that while we were finding about it, thanks to a whistleblower within HSBC Canada.
The fraud had been operative for eight nine years by then.
Meanwhile, we've got a fin track report being tracked, by the way.
That's the Canadian AML supervisor.
We've got a fin track report from 22, 2324 that says most banking and real estate companies do not adhere to AML regulations.
So to come back to the original question.
A Canadian bank laundering should then be no shocker by Canadian standards.
But now let's just. Zoom out a bit further.
This is one of my favourite slides ever and I use it frequently.
It's one of my favourite slides because as you see on this, these are not two bit fly by night kind of operators.
For the most part, they are solid, stolid, global financial institutions that either undertook laundering.
Or decided to ignore it or decided not to look for it.
And sometimes they did that repeatedly. Given this.
Why are we surprised that Dee Dee had been laundering for ten years?
If anything, we should be surprised. It had been laundering for only ten years.
The reason I'm. Worried about the surprised reaction to TD Bank.
The reason I'm worried is because of what this surprise signals about the state of understanding of money laundering as a phenomenon with Canada.
When did happen? As you can imagine, most media outlets were looking for commentators, and I was one of, um, the people approached.
Except, almost without exception, everyone wanted a soundbite about how terrible it was,
how Canadian regulators were caught napping at the wheel, and how ashamed Canada should be because U.S. regulators had caught them napping.
We are good Canadians, so we have this instinct to self-flagellating and apologise.
But this instinct needn't override our common sense.
Didi laundered as many other banks do and continue doing they laundered because it's profitable for them to do so.
Didi is not the exception, it is the rule.
Banks are financial intermediaries and the profit imperative.
The desire to make profits is central to their function.
Laundering drug proceeds or avoiding sanctions.
Avoiding taxes. Helping us with capital flight from countries such as China.
All these activities, they generate hits for financial institutions.
When we ignored his this central principle behind, uh, a bank's operation.
When we expect a bank to self-police its its profit generating activities, it's akin to asking a paedophile to self-regulate.
It's too much of an ask. We've seen this previously with casinos in B.C.
Nobody, including the government appointed regulators, were willing to say no to obviously dodgy money.
We are talking about hockey bags full of cash that were coming into casinos in B.C. that
the gaming regulators had known about for 7 or 8 years and decided to say nothing about.
And the reason they didn't do so is because the political economy of the city, of the province,
and even of the country is linked to that, that that money was useful and it was relied upon.
And so it is with banks. Money deposits are what enabled banks to continue with their real business, which is financial intermediation.
They pick up deposits from certain lots of people, and they pass it around to other lots of people,
and they charge their financial intermediation fees for it.
That's their core business and AML compliance or even fines and penalties.
In the larger structure of how banking is conducted, AML compliance, fines and penalties, they are rationalised as the cost of doing business.
Now. Obviously, this is not to say that banks deliberately seek out, um, drugs, money or trafficking proceeds.
It's just that more is more. Bear in mind we are also talking about an industry, which is where you see continued employment promotions, um, bonuses.
All of these rewards are linked to the generation of business for the bank.
So it's not just your front line teller who stands to make money or who has targets to chase.
It's their boss and their boss's boss. Let me switch a little now.
I have a serious problem with this framing of Didi as.
The cliff or the exception to the rule.
Because this framing isn't quite as benign as it looks.
The most significant consequence.
Of the lone wolf myth is that it subsumes the very real and the much larger problems which
are implicated in this in this particular model of financial policing through banks.
First of all, asking civilian institutions to police other citizens.
It poses a series of serious legal, constitutional and ethical issues, including an impact on civil liberties.
Second, there is also a serious conflict of interest issue because the banks have a profit imperative undergirding all their actions.
When we paint TD as an exception, we essentially gloss over the underlying legal and ethical problems,
but also the fact that we have a compromised, conflicted institution that is tasked with policing us.
Third. And this is, I think, the most problematic piece in this.
Once we characterise exception, we narrow our conception of aberrant behaviour as well as the range of corrective punishments that are merited.
We end up with new, entirely subjective determinations of who should be punished and how they should be punished.
Let me put this in context. This chart is a breakdown of the composition of illicit financial flows across the world in a given year.
As you can see, crime makes up less than one third of this pie.
That's the chart on the left. And drug trafficking is even smaller component of that 30%.
The rest of the pie comprises dodgy corporate behaviour,
included including trade related malpractices and tax abuse, which is tax evasion as well as tax avoidance.
Now. When we hold up Ed as the exemplar of laundering.
We reinforce this notion that money laundering is mostly about criminal activity,
and it's not about the tax avoidance that we see Apple or Microsoft doing.
But then we drill down further and we conclude about Didi,
that it was a few bad apples within TDI that were able to launder because the bank lacked effective technology to screen on you on the actions.
This is significant because in this moment, we have decided that laundering is a one off,
isolated event and we don't need to look at the systemic inducements to words laundering within the broader financial industry.
For those of you who've been reading about the TDI story, once we buy into corporate culture and or bad governance as the root cause of laundering,
we start ignoring the very real financial incentive for banks to launder money.
As long as we continue blaming TD's culture and its board of directors,
we cannot appreciate that the supposed these financial system to laundering are in fact endemic and systemic.
They are not spontaneously occurring accidents.
They are a carefully curated, designed feature.
Now. With this accordingly.
Our understanding of the punishment that this behaviour merits, our understanding of that punishment changes.
As one plucks out the bad apples from the barrel.
So we've seen a few lower level employees jailed.
We've seen a few people who are higher up in the corporate hierarchy.
We've seen them randomly disappear. Graham and the board of directors is recomposed.
This, we are told, is 2D being held accountable.
Now, I've never been lucky enough to work for companies that offer performance linked bonuses or stock options.
But even I know how one exits when he determines end of impact on one's personal finances.
When someone leaves for undisclosed reasons, like TD's chief compliance officer, or because they are retired.
Like TDs global chief auditor and its CEO.
The financial implications of this exit are far less severe than they would have been if that person had been fired.
Tell us. By the way, I don't know if any of you have seen that wonderful story in the Globe and Mail,
which estimates the value of the exiting CEO's stock options.
Now given this. Forgive me for being the Debbie Downer here, but I'm not persuaded that this is truly being held accountable.
I'm also equally unimpressed by the recomposition of the tea board, in line with the deal that TD cut with US regulators.
The new directors, we are told, are going to bring deep international expertise.
They are going to have AML experience and they are going to have ties to U.S. regulators.
And so with all the rumours are that the new board will have former compliance and accounting executives from Morgan Stanley,
uh, as well as J.P. Morgan, uh, JP Morgan Chase.
Sorry. These sound like?
Wonderful choices. Except for the fact that both these banks have been implicated in money laundering issues.
In just 2024, JP Morgan was identified in the money laundering racket in March last year and in November 2020 for one fourth
of Morgan Stanley's international accounts were being identified as being at high risk for money laundering.
And that's from a Wall Street Journal story. Now there are.
Several layers of irony here. Some of you may be familiar with the Basel EML index.
This is an index which measures a country's vulnerability to money laundering, as well as its capacity to respond to that risk.
Now, according to the latest iteration of the index.
Canada is 20 places ahead of the US.
Being schooled by the US on how to deal with.
Money laundering risk then becomes slightly amusing.
Being told by US regulators to choose directors from American financial institutions that are at the cutting edge of money laundering innovation.
Then it's laughable. There is an element within.
Corporate Canada that suffers from what I like to call.
Anxiety or perceived anxiety regarding Canadian provincialism vis-a-vis their US counterparts.
I am thinking of this Globe and Mail story.
About how the old board, which was so terrible and oversaw all this laundering activity, they comprised people primarily.
At the Toronto club. But.
On the flip side.
A new set of directors with us, experience is unlikely to deliver the outcomes that have been imagined or being thought of at present,
simply for the reasons that we've discussed. When the TDI story broke in May last year.
We saw even a bunch of the most sensible commentators in Canada demand that
Canadian regulators and law enforcement agencies ought to fall on this machine.
This is a popular view in the mainstream media.
But we need to remember two points here. First of all.
We need to be sensible of how our banking industry is structured in an oligopolistic banking environment like we have in Canada.
Punishing TDI severely is not really an option.
There is just too much riding on it politically.
And of course, some of you will remember how we dealt with SNC-Lavalin when we discovered that they were engaging in bribery and corruption abroad.
Didi is to pay U.S. regulators 3 billion U.S. dollars, while within Canada they've only recently been asked to pay a $9 million.
This is Canadian dollars penalty to fine track.
And this is because our law says that when Fine track is imposing penalties on anyone supposed to consider their ability to pay.
Even in the new raft of regulations that were outlined in the Fall Economic Statement of 2024.
The maximum penalty being advocated is 20 million, or 3% of the annual gross revenue.
The dramatic difference between the US penalties and the Canadian penalties is being played up a lot in the media.
However, we need to understand that this difference exists because of the political leverage that TD wields within Canada.
And depicting regulatory hierarchy isn't going to solve that political problem.
The second point, I want to make clear that it's about the nature of policing financial crime.
US law enforcement agencies pursue money laundering aggressively.
The money laundering us aggressively because they get to take home a cut of what is recovered.
Our laws and our law enforcement agencies are not designed around such financial inducements, and we need to bear that in mind.
The final piece I want to leave you with. Is my own anxiety regarding the future legal landscape.
Moments such as Tedi are significant because they authorise departures from the legal norms that we are familiar with.
The exceptional nature of the triggering event.
It's often seen as justification for exceptional measures.
And so it's been with TD as well. The changes to the penalty structure that we saw in the fall economic statement of 2024.
That is the cosmetic piece to my mind. The truth.
Proposed regulations lies in the far more invasive financial surveillance strategies that they endorse.
One of these is the requirement that all reporting entities share information with each other, which means that my bank, my accountant, my realtor,
my mortgage broker and my jeweller, everyone gets to pull information about me that gets reported to fintech and other government agencies.
But then friend track will also provide this information to Elections Canada and provincial asset forfeiture regimes.
One could argue here. What does a mild mannered law professor have to fear from such a process?
And to that, I'd say just this.
What has the mild mannered law professor done to mitigate invasive surveillance?
There are also. There are.
A host of significant constitutional issues with the provincial civil affairs gene, which will be compounded further by these new regulations.
But. When the dust settles, will we remember how the Toy Story played into all of this?
That's all I have for now.