UPDATE: This story includes new information from U.S. authorities and comments from TD President and CEO Bharat Masrani.
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. asset size will be limited indefinitely at about $434 billion. The monetary penalties are roughly in line with what the company had been projecting for months, but there had been greater uncertainty about how much of a hit TD's potential U.S. growth would take.
The enforcement action will be a watershed event for TD's U.S. subsidiary, which had previously been a promising growth engine.
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, despite knowing its compliance program was subpar.
Deputy Secretary of the Treasury Wally Adeyemo said Thursday that TD failed to conduct adequate due diligence or to maintain a sufficient anti-money-laundering compliance program. It also ignored "glaring red flags" through deliberate actions and inaction, he said.
"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 Justice Department has charged two dozen people, including two bank employees, for their roles in money laundering schemes tied to TD. Those operations moved more than $670 million in illicit funds between 2019 and 2023.
The Justice Department will fine the bank a record $1.8 billion, and Fincen will charge 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 enforcement against TD as "historically significant," will require the bank to seek its permission before opening U.S. branches or launching new products and services in this country.
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. This is a difficult chapter in our bank's history," Masrani said.
Masrani announced last month he would step down in the spring and pass the baton to Raymond Chun, head of Canadian personal banking.
Masrani 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.
As of mid-Thursday afternoon, the bank's stock had fallen 6.1% to $59.64.
