UPDATE: This story includes new information from U.S. authorities, as well as additional context and commentary from experts.
TD Bank Group became the first bank to plead guilty to money-laundering conspiracy Thursday, marking a historic resolution to a yearslong compliance saga that is not only the most expensive case of its kind, but will also prove to be a massive hamstring to the Canadian bank's stateside operations.
The Toronto-based bank pleaded guilty to criminal charges that it blundered its anti-money-laundering controls, allowing hundreds of millions of dirty dollars to be run through its channels. Attorney General Merrick Garland said at a press conference that by helping criminals, TD "became one" itself, creating "an environment that allowed financial crime to flourish.
TD agreed to pay $3.09 billion in fines, and its U.S. assets will be limited indefinitely at about $434 billion. The monetary penalties
The various enforcement actions will be a watershed event for TD's U.S. subsidiary, which had previously been a promising growth engine for the company.
The costly bookend to TD's compliance saga comes more than a year after the bank first disclosed a U.S. Department of Justice investigation into its anti-money-laundering controls. The investigation, which also included the Office of the Comptroller of the Currency, the Treasury Department's Financial Crimes Enforcement Network and the Federal Reserve, found that the bank violated the Bank Secrecy Act and allowed the movement of money from drug sales and human trafficking, even though
Deputy Secretary of the Treasury Wally Adeyemo said Thursday that TD failed to conduct adequate due diligence or to maintain a sufficient
"The vast majority of financial institutions have partnered with Fincen to protect the integrity of the U.S. financial system. TD Bank did the opposite," Adeyemo said. "From fentanyl and narcotics trafficking, to terrorist financing and human trafficking, TD Bank's chronic failures provided fertile ground for a host of illicit activity to penetrate our financial system."
The DOJ identified at least three money-laundering schemes to move more than $670 million in illicit funds between 2019 and 2023. In connection with those crimes, the Justice Department has charged two dozen people, including two bank employees.
In one instance, Garland said, a person known as David moved more than $470 million through TD's U.S. branches, bribing employees with more than $57,000 in gift cards. His illegal conduct was "obvious, to say the least," Garland said. More than once, this person deposited more than $1 million in cash in a single day, then immediately used bank checks and wire transfers to move the money out of the bank.
The DOJ found that TD employees knew David's transactions were likely illegal, citing an email from one branch manager to another, which said, "You guys really need to shut this down LOL."
Ross Delston, an American attorney and former banking regulator with the Federal Deposit Insurance Corp., said it's unusual for money-laundering penalties to be tied to specific crimes or criminals.
"Also unusual is the fact that employees of the bank were involved, and of all things, in a very old-school money-laundering scheme of taking cash into the bank," Delston said. "That's something that would be more typical of the 1980s in Miami."
The Justice Department will fine the bank a record $1.8 billion, and Fincen will charge it a record $1.3 billion. The bank also reached agreements with the Fed and OCC, whose charges of $123.5 million and $450 million, respectively, will be credited by the two larger penalties.
"TD Bank chose profits over compliance with the law — a decision that is now costing the bank billions of dollars in penalties," Garland said. "Let me be clear: our investigation continues, and no individual involved in TD Bank's illegal conduct is off limits."
The bank will be placed under the watch of at least one independent monitor as part of the settlements with the DOJ and Fincen. The DOJ settlement requires a monitor for three years, and the Fincen agreement establishes a four-year monitoring period.
An independent consultant, operating under the auspices of Fincen's monitor, will also conduct a historical analysis of TD's suspicious activity reports, looking to fix what the bank initially missed.
In addition, the Fed is requiring TD to establish a new office in the U.S. devoted to overhauling its compliance program, and to relocate the parts of its anti-money-laundering program responsible for compliance with U.S. law to this country.
The OCC, which described the breadth of its enforcement action against TD as "historically significant," will require the bank to seek the regulator's permission before opening stateside branches or launching new products and services in the United States. The regulator also stipulated that if the bank does not comply with the agreement, it will be forced to reduce its assets by up to 7% — and an additional 7% for each successive year of noncompliance.
Bharat Masrani, president and CEO of the Canadian parent company, acknowledged in a press release Thursday that the AML failures occurred on his watch. He apologized to all of the bank's stakeholders.
"We have taken full responsibility for the failures of our U.S. AML program and are making the investments, changes and enhancements required to deliver on our commitments," Masrani said. "This is a difficult chapter in our bank's history."
Masrani announced last month he would step down in the spring and
The outgoing CEO had said repeatedly that remediation of TD's risk management was his top priority, recently attributing the pitfalls in part to a lack of proper communication across various parts of the bank.
TD's stock price fell 6.4% Thursday to $59.44.
Although the scope of the enforcement actions made history, TD doesn't appear to be subject to one of the harshest possible punishments for money-laundering-related crimes under U.S. law.
A bank's criminal conviction in connection with money laundering can, depending on the specific statutory conviction, trigger a requirement that the OCC hold a hearing on whether
TD did not plead guilty to any of the specified statutes that can trigger a charter revocation hearing. U.S. regulators have never held such a hearing in connection with a money-laundering-related conviction.
In the past, when big banks have been caught in connection with AML failures, both Democratic and Republican members of Congress have pushed regulators and enforcement agencies to be more aggressive.
Sen. Elizabeth Warren, D-Mass., has been one of the loudest voices on the issue, and she took another shot Thursday at prosecutors and regulators.
"Big banks treat government fines as the cost of doing business," Warren said in a written statement. "This settlement lets bad bank executives off the hook for allowing TD Bank to be used as a criminal slush fund. The Department of Justice and the Office of the Comptroller of the Currency need to do better in enforcing our anti-money-laundering laws."
Delston said the actions against TD should've come sooner, and they raise the question of where the regulators have been for the last decade.
"Any major regulatory enforcement action is a major regulatory failure," he said.
