TD likely to face U.S. growth limits, $3 billion penalty for AML failures

Gabby Jones/Bloomberg

UPDATE: This includes the bank's expected guilty plea in a New Jersey court.

Toronto-Dominion Bank will pay about $3 billion in penalties and face restrictions on its U.S. growth in a settlement with regulators over its failure to catch money laundering, the Wall Street Journal reported. 

Regulators are likely to announce a settlement with the Canadian bank on Thursday, although that timing may change, a person familiar with the matter told Bloomberg, asking not to be named discussing confidential information. The bank said it plans to hold a conference call and will confirm the time later. 

A Department of Justice prosecutor said in court Thursday that TD Bank would plead guilty to money-laundering charges.

Two of the bank's U.S. subsidiary units intend to enter guilty pleas, the prosecutor said in a Newark, New Jersey, hearing before a U.S. District judge. The charges include failing to maintain an adequate anti-money-laundering program, failing to file accurate currency transaction reports and laundering monetary instruments.   

The Office of the Comptroller of the Currency is expected to impose a cap on TD Bank's U.S. retail banking assets as part of the agreement, the Journal said, citing people familiar with the matter. 

The size of the financial penalty would not be a surprise because TD Bank has set aside $3 billion in provisions for the settlement. But an asset cap seems certain to prevent the bank from carrying on the growth-by-acquisition strategy it has followed in U.S. retail banking for much of the past two decades. Wells Fargo has been under similar regulatory limits on the size of its balance sheet for several years.  

Canada's second-largest bank has faced an array of legal challenges south of the border, including probes by the OCC, the Department of Justice and the Federal Reserve into alleged failures to catch money laundering and other financial crimes at several branches in New York, New Jersey and Florida.  

The investigations have had a wide-ranging impact on the bank, including marring the end of Chief Executive Bharat Masrani's decade-long tenure. He took responsibility for the anti-money-laundering challenges when TD Bank announced his retirement last month. Raymond Chun, who currently leads its Canadian division, will take the top job on April 10.    

TD Bank was also forced to scrap its $13.4 billion deal to acquire U.S. regional bank First Horizon Corp. last year after saying it couldn't get timely regulatory approvals. 

Spokespeople for the bank and the OCC weren't immediately available for comment Wednesday, while a representative for the Federal Reserve declined to comment.  

The Canadian bank has more than 10 million U.S. customers and almost 1,200 branches concentrated along the East Coast, and its American retail operations account for about a quarter of its revenue. But there have been persistent questions about whether it will be able to continue to expand that business. 

TD Bank recently reached a deal with U.S. prosecutors and regulators to pay more than $20 million to resolve a Treasuries spoofing case and, separately, agreed to pay almost $28 million in fines and restitution for sharing inaccurate U.S. customer data with consumer-reporting companies.