BANKS FAILING TO IDENTIFY UP TO 90% OF SUSPICIOUS CRYPTO TRANSACTIONS

The world of cryptocurrency, with its promise of decentralized finance, has also attracted a darker side: money laundering and illicit activities.While financial institutions are tasked with being the gatekeepers against such abuses, a disturbing truth has emerged: banks are failing to identify a staggering 90% of suspicious crypto transactions.This alarming figure, highlighted by recent reports and enforcement actions, underscores a critical vulnerability in the global financial system.The repercussions are far-reaching, enabling criminals to move funds undetected and undermining the integrity of the crypto ecosystem. A new Financial Crime Enforcement Network (FinCEN) report alleges TD Bank did not disclose suspicious activity involving two international crypto exchanges. Crypto Exchanges Involved With TDThis issue isn't just about compliance; it's about protecting the financial system from abuse and ensuring the responsible growth of the digital asset landscape. Likewise, the group initially brought in 90% of its funds from an unnamed UK-based crypto exchange. Later, it transferred 60% of the funds to Colombian financial firms offering digital asset services. Meanwhile, it failed to name Colombia as one of the regions it would transact with while getting started with TD Bank.Recent investigations show that many banks, even large ones like TD Bank, are struggling to keep up with the complexity and volume of crypto transactions, leading to significant regulatory penalties and reputational damage.Understanding the reasons behind this failure, and exploring potential solutions, is crucial for both financial institutions and the broader crypto community.

The TD Bank Case: A Wake-Up Call for the Banking Industry

The recent case involving TD Bank serves as a stark example of the challenges banks face in monitoring crypto transactions.FinCEN (Financial Crimes Enforcement Network) levied a massive fine of over $3 billion against TD Bank for violating the Bank Secrecy Act (BSA) and failing to implement adequate anti-money laundering (AML) controls.The charges stem from TD Bank's failure to report suspicious activity related to cryptocurrency transactions.

Specifically, FinCEN alleged that TD Bank processed over 2,000 transactions for a customer group (""Customer Group C""), a group that misrepresented its true activities. In a landmark enforcement action, TD Bank was fined over $3 billion for failing to monitor suspicious cryptocurrency transactions, including over $1 billion funneled through a single client to high-risk regions.While claiming to be involved in sales finance and real estate, this group derived 90% of its revenue from a UK-based crypto exchange.These transactions, totaling over $1 billion, raised numerous red flags that TD Bank allegedly ignored.

Key Failures of TD Bank

• Failure to Monitor: TD Bank allegedly failed to adequately monitor the activities of Customer Group C, despite clear indicators of suspicious behavior.
• Inadequate Reporting: The bank failed to proactively report suspicious activity, even after receiving multiple law enforcement inquiries about Customer Group C.
• Misrepresentation of Business: Customer Group C misrepresented its business activities, which should have triggered enhanced due diligence by TD Bank.
• High-Risk Jurisdictions: A significant portion of the funds (60%) was transferred to Colombian financial firms offering digital asset services, a high-risk jurisdiction that TD Bank failed to adequately address.

The TD Bank case is significant for several reasons.First, it represents one of the largest penalties ever imposed for BSA violations. TD Bank failed to disclose suspicious activity relating to crypto transactions, according to FinCEN. Canada s second-largest bank pleaded guilty to money laundering charges, agreeing to pay $3 billion in fines. The crackdown on TD Bank is likely to fuel further speculation of Operation 2.0.Second, it highlights the growing scrutiny of banks' involvement in the crypto space. FDIC Insurance: For US customers, the platform provides FDIC insurance for dollar balances in custodial accounts, covering up to $250,000 per user in the event of a bank failure. It applies as long as the exchange maintains accurate records and the relevant federal regulators confirm the bank s receivership.Finally, it serves as a warning to other financial institutions that they must strengthen their AML controls to effectively monitor and report suspicious crypto transactions.

Why Banks are Struggling to Identify Suspicious Crypto Activity

The failure of banks to identify a significant percentage of suspicious crypto transactions is a multifaceted problem with several contributing factors:

• Complexity of Crypto Transactions: Crypto transactions can be complex and difficult to trace, especially when involving multiple exchanges, wallets, and privacy-enhancing technologies.
• Lack of Understanding: Many bank employees lack a deep understanding of cryptocurrency and blockchain technology, making it difficult for them to identify suspicious patterns.
• Inadequate AML Controls: Existing AML systems are often not designed to handle the unique characteristics of crypto transactions.
• Resource Constraints: Monitoring crypto transactions can be resource-intensive, requiring specialized software and trained personnel.
• Regulatory Uncertainty: The evolving regulatory landscape surrounding cryptocurrency adds to the complexity and makes it difficult for banks to stay compliant.

CipherTrace's report indicating that a significant percentage of suspicious crypto transactions bypass banks' radar highlights this struggle.The sheer volume of transactions, coupled with the sophistication of illicit actors, overwhelms many traditional monitoring systems.Banks need to upgrade their capabilities and adopt more sophisticated tools to effectively combat crypto-related financial crime.

Specific Challenges in Crypto Transaction Monitoring

Consider these specific challenges that hinder effective monitoring:

1. Mixing Services (Tumblers): These services obscure the origin and destination of crypto funds, making it difficult to trace illicit transactions.
2. Privacy Coins: Cryptocurrencies like Monero prioritize privacy, making transactions virtually untraceable.
3. Decentralized Exchanges (DEXs): These exchanges operate without intermediaries, making it harder to enforce AML regulations.
4. Cross-Border Transactions: Crypto transactions can easily cross international borders, making it challenging to track funds and enforce regulations across jurisdictions.

Leveraging Technology to Enhance Crypto Transaction Monitoring

To effectively combat the rising tide of illicit crypto activity, banks must embrace technology-driven solutions.Artificial Intelligence (AI) and Machine Learning (ML) are emerging as powerful tools in the fight against crypto-related financial crime.

AI and ML for AML Compliance

According to a 2025 survey by PwC, a significant percentage of financial institutions are already using AI and ML in their AML activities, and this is projected to increase substantially. The bank then failed to proactively report this suspicious activity until after it had received multiple law enforcement inquiries about Customer Group C. TD Banks Pays Up. News of the report comes nearly one week after the financial institution pleaded guilty to violating anti-money laundering provisions.AI-driven systems can analyze vast amounts of data to identify complex patterns and anomalies that might indicate money laundering, fraud, or other illicit activities.

Here's how AI and ML can improve crypto transaction monitoring:

• Pattern Recognition: AI algorithms can identify unusual patterns in transaction data, such as rapid cashouts, transfers to high-risk regions, or transactions involving known illicit entities.
• Anomaly Detection: ML models can learn the normal behavior of accounts and flag transactions that deviate from these patterns.
• Real-Time Monitoring: AI-powered systems can monitor transactions in real-time, allowing for immediate intervention when suspicious activity is detected.
• Enhanced Due Diligence: AI can automate the process of gathering and analyzing information about customers, helping banks to identify high-risk individuals and entities.

Transaction monitoring is a crucial aspect. The US Department of Justice fined TD Bank $3.09 billion for failing to monitor a significant portion of its transactions, leaving 92% of its total transaction volume unchecked between Janu, and Ap.It involves continuously monitoring financial transactions to detect unusual or suspicious activities. TD Bank, one of the largest financial institutions in the US, has come under intense crypto scrutiny after being hit with the largest penalty ever imposed under the Bank Secrecy Act (BSA). The $3.09 billion fine stems from allegations of failing to report suspicious activities, including significant cryptocurrency-related transactions.These systems can identify patterns, anomalies, and potential risks indicative of money laundering or fraud, allowing for proactive measures to prevent harm.Transaction monitoring analyzes patterns and trends in customer activity over extended periods, identifying potential financial crimes.

Data Sharing and Collaboration: A Key to Success

Effective crypto transaction monitoring requires collaboration and data sharing among financial institutions, crypto exchanges, and regulatory agencies.Data from crypto exchanges played a role in the vast majority of crypto investigations in 2025. The banking giant was fined over $3 billion for violations related to the Bank Secrecy Act and money laundering the largest fine ever imposed under the act. TD Bank allegedly facilitated millions worth of suspicious crypto activity for an unnamed company, referred to as Customer Group C inAgencies should leverage data-sharing agreements with compliant exchanges to identify account holders involved in suspicious transactions, such as rapid cashouts or transfers to high-risk regions.

Benefits of Data Sharing

• Improved Detection Rates: Sharing data allows institutions to build a more comprehensive picture of suspicious activity.
• Reduced False Positives: By sharing information, institutions can better distinguish between legitimate and illicit transactions.
• Faster Response Times: Sharing data enables institutions to respond more quickly to emerging threats.
• Enhanced Compliance: Data sharing can help institutions meet their regulatory obligations.

However, data sharing also raises concerns about privacy and security.It's crucial to establish clear guidelines and protocols to ensure that data is shared responsibly and securely.One way to mitigate concerns is to implement privacy-preserving technologies, such as homomorphic encryption, which allows institutions to analyze data without revealing the underlying information.

The Regulatory Landscape: What Banks Need to Know

The regulatory landscape surrounding cryptocurrency is constantly evolving.Banks must stay informed about the latest regulations and guidance from regulatory agencies, such as FinCEN, the SEC, and the OCC.

Key Regulatory Considerations

• Bank Secrecy Act (BSA): The BSA requires financial institutions to implement AML programs and report suspicious activity.
• FinCEN Guidance: FinCEN has issued numerous guidance documents on how to comply with the BSA in the context of cryptocurrency.
• FATF Recommendations: The Financial Action Task Force (FATF) has issued recommendations for regulating virtual assets and virtual asset service providers.
• Travel Rule: The Travel Rule requires virtual asset service providers to collect and transmit information about the originators and beneficiaries of virtual asset transfers.

Compliance with these regulations can be complex and challenging.Banks should consider engaging with legal and compliance experts to ensure that they are meeting their regulatory obligations. Detecting Suspicious Activity: By continuously monitoring financial transactions, these systems can identify suspicious patterns, anomalies, and potential risks that may indicate money laundering, fraud, or other illicit activities. Early detection allows organizations to take appropriate action and prevent potential harm.The penalties for non-compliance can be severe, as demonstrated by the TD Bank case.

Practical Steps for Banks to Improve Crypto Transaction Monitoring

Here are some practical steps that banks can take to improve their crypto transaction monitoring capabilities:

1. Invest in Technology: Invest in AI-powered AML solutions that can analyze vast amounts of data and identify suspicious patterns.
2. Train Employees: Provide employees with comprehensive training on cryptocurrency, blockchain technology, and AML compliance.
3. Enhance Due Diligence: Implement enhanced due diligence procedures for customers who engage in cryptocurrency transactions.
4. Monitor Transactions: Continuously monitor transactions for suspicious activity, such as rapid cashouts, transfers to high-risk regions, or transactions involving known illicit entities.
5. Share Data: Participate in data-sharing initiatives to improve detection rates and reduce false positives.
6. Stay Informed: Stay informed about the latest regulations and guidance from regulatory agencies.
7. Collaborate: Work with crypto exchanges and other stakeholders to combat illicit activity.
8. Implement Risk-Based Approach: Identify and assess the risks associated with different types of crypto transactions and tailor monitoring efforts accordingly.

The Future of Crypto Transaction Monitoring

The future of crypto transaction monitoring is likely to be shaped by several trends:

• Increased Use of AI and ML: AI and ML will play an increasingly important role in detecting and preventing crypto-related financial crime.
• Greater Collaboration: Collaboration among financial institutions, crypto exchanges, and regulatory agencies will become even more critical.
• Evolving Regulations: The regulatory landscape will continue to evolve as regulators grapple with the challenges of overseeing the crypto space.
• Adoption of New Technologies: New technologies, such as blockchain analytics and privacy-preserving technologies, will emerge to enhance transaction monitoring capabilities.

As the crypto ecosystem matures, banks must adapt and evolve their monitoring capabilities to stay ahead of illicit actors.The failure to do so could have serious consequences, not only for the banks themselves but also for the integrity of the global financial system.

What About Customers Using Crypto Exchanges?

Many users of crypto exchanges worry about the safety of their funds. According to a 2025 survey by PwC, 62% of financial institutions already use AI and ML in some capacity for AML activities, and this is expected to increase to 90% in 2025. AI-driven systems are being developed to detect complex patterns in financial transactions, improving the efficiency and accuracy of identifying suspicious activity.While not directly related to banks missing suspicious activity, a related concern is protecting customer assets.

FDIC Insurance and Crypto

For US customers, some platforms provide FDIC insurance for dollar balances in custodial accounts, covering up to $250,000 per user in the event of a bank failure.This insurance applies as long as the exchange maintains accurate records and the relevant federal regulators confirm the bank's receivership. The agency alleges Canada s second-largest bank processed over 2,000 transactions for an entity deriving 90% of its revenue from a U.K. crypto exchange. These transactions totaled more than $1 billion despite the customer reporting that annual sales would not exceed $1 million, with 60% of the funds going to Colombia a high-risk jurisdiction.However, FDIC insurance does NOT cover losses due to crypto price volatility or exchange hacks.

Conclusion: Addressing the Challenge of Undetected Crypto Transactions

The fact that banks are failing to identify up to 90% of suspicious crypto transactions is a serious concern that demands immediate attention. CipherTrace asserts that a significant percentage of suspicious crypto transactions still bypass banks' radar.The TD Bank case serves as a wake-up call for the entire banking industry, highlighting the need for stronger AML controls and a deeper understanding of the crypto ecosystem.To effectively combat crypto-related financial crime, banks must embrace technology-driven solutions, foster collaboration with other stakeholders, and stay informed about the evolving regulatory landscape.Ignoring this issue is not an option. Transaction monitoring is broader and focuses on detecting unusual or suspicious transactions by continuously monitoring them over time. This process looks at patterns and trends in customer activity, both in real-time and retrospectively, that can potentially stretch over days, weeks, or months to identify potential financial crimes such asThe integrity of the financial system, and the future of responsible crypto adoption, depends on it. Data from a 2025 Crypto Crime Report notes that transaction data from exchanges played a role in more than 90% of crypto investigations in 2025. Agencies should leverage data-sharing agreements with compliant exchanges to: Identify account holders involved in suspicious transactions like rapid cashouts or transfers to high risk regions.As the digital asset space evolves, the need for vigilance and proactive measures to prevent illicit activities remains paramount.The adoption of AI and ML, enhanced data sharing practices, and a clear understanding of regulatory requirements are crucial steps toward bridging the gap in crypto transaction monitoring and protecting the financial system from abuse.Ultimately, a collaborative effort involving financial institutions, regulatory bodies, and the crypto community is essential to create a safer and more transparent digital asset ecosystem.

Key Takeaways:

• Banks are missing a significant percentage of suspicious crypto transactions.
• The TD Bank case highlights the consequences of inadequate AML controls.
• AI and ML can significantly improve crypto transaction monitoring.
• Data sharing and collaboration are crucial for success.
• Banks must stay informed about the evolving regulatory landscape.

Are you ready to take the next step in understanding and mitigating the risks associated with suspicious crypto transactions? FinCEN reveals TD Bank s suspicious crypto trading activities with Customer Group C. TD Bank facilitated over $420 million to a bank offering crypto seContact your financial institution today to learn more about their AML policies and procedures.