Toronto-Dominion Bank is facing a cap on its asset expansion in the United States and being fined about US$3.1 billion for failing to monitor money laundering activities through its branches, say the U.S. Department of Justice and other U.S. regulators.

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TD pleads guilty to money laundering charges in 'difficult chapter in our bank's history' Back to video

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The justice department has also charged two TD bank employees for their involvement in one of the three money laundering schemes that moved more than US$670 million in illicit funds through TD bank accounts.

“By making its services convenient for criminals, it became one,” Attorney General Merrick Garland said at a press conference on Thursday. “Our criminal investigations into individual employees at every level of TD Bank are active and ongoing … no one involved in TD Bank’s illegal conduct will be off limits.”

He said TD is the largest bank in U.S. history to plead guilty to the Bank Secrecy Act, which is used to tackle money laundering. It’s also the first bank to plead guilty to conspiracy to commit money laundering.

The Bank Secrecy Act includes a penalty provision that allows regulators to fine a financial institution up to US$500,000 for each day it lacks a functional anti-money laundering program. The Department of Justice had never used the maximum daily penalty until Thursday, Deputy Attorney General Lisa Monaco said at the press conference.

As a result, TD was fined US$1.8 billion, which is the largest penalty ever imposed under the act. The total fine rises to about US$3.09 billion with fines from the U.S. Attorney’s Office for the District of New Jersey, the Department of the Treasury’s Financial Crimes Enforcement Network and the Office of the Comptroller of the Currency. 

As part of the plea agreement, TD will need to overhaul its compliance program, retain an independent monitor, report any misconduct to the government and co-operate in ongoing criminal investigations into the individuals responsible, both “up and down” the corporate ladder, Monaco said.

“The bank has begun this work, and we will continue to hold its feet to the fire,” she said.

TD said the US$3.09-billion fine was “largely covered” by the US$3.05 billion it had kept aside in the past few quarters.

Assets at TD’s two banking subsidiaries in the United States now cannot exceed US$434 billion. The limitation does not apply to TD Securities Inc. or any of its Canadian or other global businesses.

“This is a difficult chapter in our bank’s history,” chief executive Bharat Masrani said in a statement. “These failures took place on my watch as CEO and I apologize to all our stakeholders.”

TD said it “actively co-operated in good faith” with U.S. regulators and the Department of Justice.

Garland said the bank failed to maintain an adequate anti-money laundering program between January 2014 and October 2023. During that period, the lender failed to monitor US$18.3 trillion in customer activity, which allowed three money laundering networks to transfer more than US$670 million through TD accounts and at least one of those schemes involved five TD employees, he said.

He said executives were aware of the situation, but failed to correct them.

Garland said a person named David moved more than US$470 million in illicit funds through TD’s branches in the U.S. over a three-year period.

“David separately pleaded guilty to laundering drug proceeds through the bank,” he said. “David had attempted to launder money through numerous financial institutions, but he found that TD Bank had the most permissive policy and procedures.”

The same person bribed TD employees with more than US$57,000 in gift cards. On more than one occasion, he deposited over US$1 million in cash in a single day and immediately moved the funds out of the bank.

TD Bank employees at many levels were aware of the illegality of David’s activity, Garland said. In August 2020, one TD bank manager emailed another to say, “You guys really need to shut this down LOL.” In late 2020, another TD employee implored his supervisors to act and said, “My tellers are at the point that they don’t feel comfortable handling these transactions.”

A separate money laundering scheme involved five TD employees with criminal organizations, Garland said, that were apparently allowed to open and maintain accounts that were used to launder US$39 million, which included drug proceeds, to Colombia.

“The network sometimes used the same passport to obtain multiple debit cards for a single account,” he said.

A third network used TD to move more than US$100 million in illicit funds. Even though retail employees flagged the activities, the bank did not file a report until law enforcement alerted TD’s officials.

“By that time, the account had been open for about 13 months and had been used to transfer over US$120 million,” Garland said.

On multiple occasions, TD employees openly joked about how easy it was for criminals to use the bank’s network, he said. For example, employees consistently linked the bank’s motto — America’s most convenient bank — to the ease with which money launderers used it.

In another example, a compliance employee asked a colleague, “Why all the really awful ones bank here LOL?” In response, the colleague replied, “Because we are convenient.”

Garland also said TD chose profits over compliance in order to keep costs down.

U.S. regulators, however, appreciated how TD complied with their investigations and said they are confident the bank can return to the right path.

TD said a “significant, multi-year effort is required to implement a strong, effective, and sustainable” anti-money laundering program.

The bank said it has overhauled its anti-money laundering program and added more specialists to the team. It has also strengthened its oversight structure, introduced new standards, processes and stronger bank-wide training to better prevent, detect and measure financial crime risk, and deployed new data-driven technology solutions.

Peter Routledge, head of the Office of the Superintendent of Financial Institutions, Canada’s principal banking regulator, said the disclosures about TD’s conduct in the U.S. are “serious” and that deficiencies in any institution’s anti-money laundering regime are a prudential risk.

Investors expected the multi-billion-dollar fine, but the restriction on the growth of TD’s U.S. retail business took some analysts by surprise.

“This would represent a negative surprise to our base case review, especially given TD’s high level of regulatory co-operation, significant anti-money laundering investments and recent CEO succession announcement,” Matthew Lee, an analyst at Canaccord Genuity Group Inc., said in a note on Thursday.

The market was becoming “increasingly comfortable with the thought that there would not be any growth restrictions placed on TD,” Jefferies Securities Inc. analyst John Aiken said in a note, so the latest development is a “negative surprise.”

Despite the cap on assets, Lee doesn’t view it as a “dealbreaker,” since TD has further room to grow its loan book in the U.S. without adding more assets and because the U.S. business is not the bank’s only area of growth, with retail banking representing 35 per cent of total earnings.

The analyst said much of the fear about TD’s money laundering issues is already priced into its shares, which are trading at a “meaningful discount” compared to its peers.

Aiken, however, said TD will need to find a new avenue for growth from its “traditional reliance on U.S. retail banking.”

• Email: nkarim@postmedia.com

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