Employees at TD Bank grew increasingly concerned three years ago about lax internal controls that had made the bank a hotbed for money laundering, drug trafficking and terrorist financing.
When an anti-money laundering employee asked a fellow risk manager “what do the bad guys have to say about us,” his colleague responded “lol” before adding that TD was an “easy target.” Another joked that the inability to solve money laundering problems was simply a matter of the bank living up to its tagline as “America’s Most Convenient Bank.”
But at the same time, executives at the bright green Canadian lender told investors it was poised for growth in the US.
The failures ultimately cost TD just over $3 billion in fines in a settlement with U.S. authorities on Thursday, as well as restrictions on U.S. expansion in coming years. The bank has had to scrap plans for a $13.4 billion takeover of US lender First Horizon, and TD’s CEO has announced plans to resign.
TD pleaded guilty Thursday to conspiracy to fail to maintain an anti-money laundering program, failure to file accurate currency transaction reports and conspiracy to commit money laundering. The fines are the highest ever under the US Bank Secrecy Act, which requires banks to be vigilant for suspicious money flows. The country was also hit with the largest civil penalty against a bank in the history of the US Treasury Department.
The US government alleged that TD had “longstanding, pervasive and systemic deficiencies” in its AML practices between 2014 and 2023, as it instead enforced policies to keep costs down.
Suzanne Lynch, former director of financial crime programs at Utica University, described the scale of the crimes and the size of the fines as “stunning.”
“I suspect this will reverberate for years to come,” said Lynch, who previously worked in financial crime prevention and investigations at Comerica, Mastercard and Goldman Sachs.
Prosecutors said these deficiencies allowed three money laundering networks to transfer more than $670 million through TD accounts between 2019 and 2023.
Lisa Monaco, U.S. deputy attorney general, highlighted that federal regulators began penalizing TD in 2013 for its lack of anti-money laundering controls. “But as the light continued to flash red, all TD Bank could see was green,” she said.
U.S. Attorney General Merrick Garland described TD’s automated transaction monitoring system as “intentionally deficient,” adding that “senior executives, including the person who became the bank’s chief anti-money laundering officer, knew there were serious problems. . . but the bank failed to correct them.”
The Toronto-based lender, one of the 15 largest banks in the U.S. with about $300 billion in deposits, had set aside more than $2.5 billion to cover potential fines from the U.S. investigation. But the size of the fine still surprised investors as the bank’s shares fell 5 percent on Thursday.
In a call with analysts on Thursday, TD expressed its contrition.
“We have taken full responsibility for these significant failures, and I have taken responsibility because this happened under my watch as CEO,” TD CEO Bharat Masrani said on the call.
TD had said last month that Masrani would step down as CEO in April next year and be replaced by the head of its Canadian personal banking unit, Raymond Chun.
Court documents filed by the US government paint a damning picture for the bank, involving bribes to employees and cutting spending on new compliance infrastructure.
The largest money laundering scheme involved Da Ying Sze, who moved more than $470 million through TD bank branches in New Jersey, New York, Pennsylvania, Maine and Florida between 2018 and 2021.
The money came from proceeds from the sale of drugs including fentanyl, which has become the leading cause of overdoses in the US and remains a hot topic ahead of next month’s presidential election. The DoJ has been cracking down on cartels and chemical companies involved in the illicit fentanyl supply chain, which stretches from China to Latin America.
TD employees, who received more than $57,000 in gift cards from Sze, suspected illegal behavior, prosecutors said.
According to court records, after Sze and co-conspirators purchased more than $1 million in official bank checks with cash in one day, a TD branch employee asked, “How is that not money laundering?” A colleague replied: “oh that is 100% true”.
Sze pleaded guilty in 2022 to money laundering and illegally transferring money through TD.
In a separate money laundering operation, a company purportedly involved in the wholesale distribution of diamonds, gold and jewelry used TD accounts of at least five shell companies to wire approximately $123 million.
TD took no action after store employees flagged these as unusual transactions, arguing the deposits were “excessive for their type of industry” – until law enforcement alerted the lender.
In a third illegal scheme, approximately thirty TD accounts were used to withdraw drug proceeds from ATMs in Colombia using debit cards, resulting in the illegal transfer of more than $39 million. The same Venezuelan passports were used multiple times to open TD accounts. In some cases, more than 50 debit cards have been issued for one account.
The criminal organization paid bank employees bribes ranging from $50 to $2,500 per bank account, which were deposited into the employees’ personal TD accounts or through some of the illegal debit cards.
TD’s AML team analyzed the Colombian plan and made recommendations, including investigating “inside jobs” and training branch staff, but the bank did not implement any of them in the 18 months that followed, prosecutors said.
Under the settlement, TD must restore its compliance program, install independent monitors for three to four years and report misconduct to the government. Garland warned “we would expect to see future cases against individuals” as the investigation continues.
The DoJ pointed to TD’s lack of investment in compliance checks in an effort to rein in spending, a move Monaco criticized as short-sighted.
“When it comes to compliance, there are really only two options: invest now or face dire consequences later,” she said. “As I have said before, a business strategy that pursues profit at the expense of compliance is not a path to riches, but a path to federal prosecution.”
Additional reporting by Stephen Gandel