The heads of Canada's biggest banks say they are confident they are doing enough to fight money laundering and tax evasion amid the release of the Panama Papers and other stories that have cast doubt on the sector's gold-plated reputation this week.

Royal Bank of Canada CEO David McKay said at the bank's annual general meeting in Montreal on Wednesday that the bank is currently combing through its records to see what ties the bank may have to Panamanian law firm Mossack Fonseca, which is at the heart of the current banking secrecy scandal.

On Monday, RBC was implicated in the Panama Papers scandal when documents in the leak unearthed that the bank had created at least 370 foreign corporations on behalf of its clients via Mossack Fonseca over the years.

While there's nothing illegal in and of itself from setting up a foreign bank account, such vehicles can be used to evade taxes, as opposed to avoiding and minimizing them via legitimate means.

McKay said he is unhappy the bank's name has been "dragged into" the controversy involving offshore tax evasion allegations, especially considering that there is no evidence to suggest the company has done anything illicit.

"As a CEO, I have to be concerned about our brand and reputation, particularly in a situation where there's absolutely no allegation of wrongdoing," McKay said.

"We just happen to have a couple hundred files, going back 40 years, that are attached to this legal firm," he said. "That's all that's been reported."

Nonetheless, RBC has assembled a team of people to review the company's files and try to determine what relationship the bank may have had with Mossack Fonseca and whether that relationship still exists, McKay said.

He added that he doesn't know how long the process could take, given that the information cited in the leaks spans four decades.

"You can imagine how difficult it is to go back in your files 40 years," McKay said.

BMO defends controls

RBC rival Bank of Montreal also defended its own and the banking sector's reputation this week, with CEO Bill Downe saying Canadian banks have "dramatically" beefed up anti-money laundering controls over the last seven to 10 years at the request of governments around the world.

"I would say that the current Bank Secrecy Act anti-money laundering provisions, particularly involving U.S. dollar accounts, are extremely robust," Downe said.

If any violations do emerge from documents leaked from the law firm Mossack Fonseca, he suspects they will be in relation to business that originated a long time ago — before the big push by the banks to bolster their anti-money laundering practices, Downe said following BMO's annual general meeting in Toronto on Tuesday.

But the Panama Papers aren't the only thing that has hurt the reputation of Canada's big banks this week.

The federal anti-money laundering agency known as Fintrac levied a $1.1-million penalty against an unnamed Canadian bank for failing to report a suspicious transaction and various money transfers.

The fine is the first such penalty since the agency was created in 2000.

The agency said it cannot legally discuss details of the bank's infractions, and the federal agency is exercising its discretion to withhold the identity of the financial institution, which recently paid the penalty of $1,154,670.

"I can't say to you that we've identified money laundering or terrorism financing," spokesman Darren Gibb said. "What I can say is that we've identified an entity that has not fulfilled its obligations" under the law.

"We're going to be extra diligent to ensure that entities are submitting suspicious transaction reports when they should be."

Unfair accusations

While we know the bank in question wasn't among the so-called "Big Five" of CIBC, TD, Scotiabank, Royal Bank or BMO, in the public's mind at least it's guilt by association for the entire sector, Ian Nakamoto of MacDougall,MacDougall & MacTier said in an interview Thursday.

"It's often an oversight," he said, "but right now the public takes the view that's more malicious because there's never love lost between the public and the banks."

Nakamoto firmly believes that Canada's banks are model citizens that drive the economy while avoiding the calamities that have brought other countries' financial systems to their knees. "For the Canadian banks, there is nothing in it for them to try to deceive or hide anything on an institutional level," he said.

"They recognize that with these transactions, if they get caught, they ruin their reputation so it's not worth it."

"The spirit of the big banks is one of ethical behaviour," he said, "but I don't know if the public would agree with me on that."

In an emailed statement, the Canadian Bankers Association said Canadian banks have a strong track record of compliance with anti-money laundering rules, noting they process billions of transactions every year.

On the rare occasion when a problem arises, "a bank will take immediate steps to resolve the issue and ensure that it is in compliance going forward," the association added.​