Toronto-Dominion Bank OFAC Finding of Violation (2017)

TD Bank's case involves two distinct resolutions arising from conduct by its wholly owned subsidiaries Internaxx Bank SA ("Internaxx") and TD Waterhouse Investment Services (Europe) Limited ("TDWIS").

Internaxx is an international online brokerage and banking operation based in Luxembourg that acts as an "order entry system" for securities-related transactions, automatically forwarding customer orders to TDWIS. TDWIS, a broker-dealer, executed trades in its own name, without including identifying information related to underlying parties, through a U.S. broker-dealer.

Between 2003 and 2008, Internaxx opened accounts for four customers who were either resident in Iran or Cuba at the time of account opening or who later moved to Iran or Cuba. Internaxx maintained these accounts, and Internaxx and TDWIS processed U.S. securities transactions for these customers over several years. In 2010, TD Bank's annual Anti-Money Laundering (AML) Risk Assessment identified Internaxx as a high-risk business and selected it for increased review; that review concluded that Internaxx had been providing securities-related products and services to customers in OFAC-sanctioned countries and may have processed transactions through the U.S. financial system on their behalf.

In total, between August 7, 2007 and November 18, 2013, Internaxx and TDWIS processed 3,491 securities-related transactions totaling approximately $92,868,862 to, through, or within the United States for or on behalf of persons ordinarily resident and located in Iran or Cuba. These transactions form the basis of the Finding of Violation for 3,491 violations of the CACR and ITSR. The settlement covers 167 apparent violations of § 515.201 of the CACR and § 560.204 of the ITSR.

The settlement resolves 167 apparent violations, with TD Bank agreeing to remit $516,105. The source does not separately detail the penalty calculation methodology for this component.

For the 3,491 violations covered by the Finding of Violation, OFAC determined that a monetary penalty was not appropriate and instead issued a Finding of Violation, pursuant to the General Factors under OFAC's Economic Sanctions Enforcement Guidelines, 31 C.F.R. part 501, app. A. OFAC's determination reflected that Internaxx had information in its possession showing that its customers were located in countries subject to comprehensive OFAC sanctions, which it shared with TDWIS prior to processing transactions to, through, or within the United States; Internaxx processed a large volume of transactions constituting violations over several years; and Internaxx does not appear to have had an OFAC compliance program in place or controls to identify sanctioned-country customers until October 2011. OFAC also considered that the violations do not constitute or result from a pattern of misconduct but from insufficient compliance policies and procedures; the harm caused by the CACR violations was largely cabined to one individual who was in Cuba as a diplomat for a third country; Internaxx is a small institution with relatively little business outside Luxembourg; the institution had not received a penalty notice or Finding of Violation from OFAC in the five years preceding the earliest transaction date; and Internaxx, through TD Bank's initiatives, took remedial action and improved its OFAC compliance program and procedures.

This enforcement action highlights the importance of institutions taking appropriate measures to ensure compliance with all applicable sanctions when they have subsidiaries in high-risk industries – such as securities firms – that may not be aware of the parent's U.S. sanctions compliance obligations. Separately, this action also highlights the risk associated with online payment platforms when the financial institution is unable to restrict access for individuals and entities located in comprehensively sanctioned countries.

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