When Raymond Chun was tapped as
Much of the news coverage and commentary about TD Bank following the DOJ's announcement has rightly focused on the money laundering sins of its U.S. retail bank between 2012 and 2023. Yet the details of the DOJ's resolution with TD Bank, and specifically the consent order issued by the U.S. Financial Crimes Enforcement Network, point to a future that will take the bank down a road littered with regulatory compliance landmines.
The list of corrective initiatives is long. The consent order points to "Ineffective oversight, inadequate internal controls, failure to properly train staff, deficient risk-based customer due diligence, and insufficient independent testing." For a decade TD has proven incapable of delivering on these basic tenets of U.S. anti-money-laundering compliance. Mr. Chun will have to instill and sustain a culture of compliance and competence that has proven a bar too high in the past.
Failure to do so will trigger, at the very least, more fines and a continuous shrinking of the bank's presence in the U.S.
The asset cap imposed by the U.S. Office of the Comptroller of the Currency on TD's U.S. banking operation during TD's five-year probationary period is dynamic. Each year is a test, and if TD fails the test the OCC can force the bank to reduce its U.S. assets by as much as 7%.
U.S. regulators will be watching TD closely. They too face criticism for not catching TD bank earlier. Karen Petrou, managing partner of Federal Financial Analytics, told American Banker, "Because the banking agencies didn't catch it early, when they could have remonstrated effectively or shut the bank down, they ended up with the 10th largest bank in the country that they were undoubtedly afraid to shut down for potential systemic risks."
And shutting TD down in the U.S. isn't impossible if Mr. Chun allows the bank to relapse on money laundering failures. In 1992, Congress passed the Annunzio-Wylie Anti-Money Laundering Act. According to
With Sen. Mark Warner, D-Va., occupied on the Senate Intelligence Committee, Sen. Elizabeth Warren, D-Mass., is one step closer to leading Democrats on the Senate Banking Committee.
What TD Bank signed with the DOJ and other U.S. regulatory agencies was an agreement to resolve the charges leveled against it. Although the bank admitted to the violations, this approach avoided pleading guilty or being convicted of guilt in a court of law, a process that would trigger hearings where U.S. officials would decide whether or not to revoke TD's U.S. bank charter and force the sale of all its U.S. bank assets.
Some in the U.S. wanted the DOJ to make an example of TD Bank. They will be even more motivated if Mr. Chun does not deliver on demands for reform.
This includes influential Democratic Senator Elizabeth Warren who was recently quoted saying that "Banks without strong anti-money laundering compliance act as criminal slush funds" and that "this isn't the first time that TD Bank has broken the law, and these executives need to be fully prosecuted. Regulators and law enforcement must hold TD Bank accountable for its long history of financial crime."
Accountability for money laundering is a politicized issue in the U.S. that pits the justice system against maintaining stability and employment in the financial sector. This explains why U.S. bank regulators have yet to sentence any bank to death by revoking charters for AML lapses and why banks are loath to plead guilty.
TD is in danger of being the first, given that Fincen has already concluded that over the last decade, "systematic failures of TD Bank's AML program caused actual and material harm to the U.S. financial system." To do the same again would be a lapse too far.
In addition to this monumental challenge, Mr. Chun will also have to appease markets. Success on this front may be difficult. He must reckon with the reality that TD Bank's industry-leading operating efficiency was in part padded for years by flatlining funding for its U.S. anti-money-laundering program while peer banks were spending more. Mr. Chun will have no choice but to increase operating costs more than peer banks going forward as TD plays catch-up.
Every other TD bank CEO has taken the helm with an eye to organic growth — growing at home in Canada — or growing its U.S. banking footprint. Mr. Chun will be the first whose primary job is to keep TD from shrinking.
