In an extraordinary and groundbreaking case, TD Bank has become the largest lender in US history to plead guilty to failures under the Bank Secrecy Act and the first to plead guilty to conspiracy to commit money laundering. The bank’s actions allowed drug cartels and other criminals to move hundreds of millions of dollars in illicit finance.

The DOJ, FinCEN, the OCC and the Federal Reserve have each settled charges with TD Bank for failing to implement adequate anti-money-laundering (AML) protocols, which allowed Chinese-financed fentanyl gangs to establish a foothold in the US.  

The monetary penalty includes settlements with the DOJ for $1.8 billion and the Financial Crimes Enforcement Network (FinCen) for $1.3 billion (of which $543m will be credited against the DOJ and OCC fines).

The Federal Reserve and the Office of the Comptroller of the Currency (OCC) also announced fines of $123m and $450m, respectively; the DOJ will credit part of TD’s total forfeiture to cover the Fed’s fine.

Compliance monitored

TD agreed to four years of independent monitoring to ensure its future compliance with AML laws. TD had previously agreed to remediate its compliance program, including hiring a new AML leadership team.

The bank also accepted an asset cap of $434 billion imposed by the OCC. This cap will limit the growth of its US entity in a drastic penalty reminiscent of the one leveraged against Wells Fargo in 2018 for opening fake client accounts.

Earlier this year, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) imposed its largest-ever penalty of C$9.2m ($6.71m) on TD for the same conduct.

“TD Bank’s persistent prioritization of growth over controls allowed its employees to break the law and facilitate the laundering of hundreds of millions of dollars. The bank’s blatant risk management failures attracted illicit actors and are egregious and unacceptable,” said Acting Comptroller of the Currency Michael Hsu.

A crime-fueled scandal

These severe penalties are commensurate with accusations that TD failed to flag more than $470m in illicit narcotics proceeds that were laundered out of the US by a network of Chinese money-brokers working closely with Mexican drug cartels.

According to a DOJ probe undertaken in 2021, those money launderers operated across several financial institutions but generally preferred using TD. Prosecutors alleged that the criminals often bribed TD employees to facilitate the laundering of drug money, then wired the ill-gotten funds to thousands of overseas entities. Sometimes the transactions were as crude as dropping off sacks of cash at a TD branch or buying $1m of checks in a single day.

Following the probe, TD was accused of failing to put in place policies and procedures that could have identified and reported the suspicious transactions. According to Deputy Treasury Secretary Wally Adeyemo, its laxity attracted criminals who understood that TD was fertile ground for money laundering.

FinCen stated that TD failed to file Suspicious Activity Reports (SARs) for $1.5 billion of transactions that should have rung alarm bells. Often, TD only responded to suspicious activity after being informed by law enforcement agencies.

Employees even “openly joked” about the bank’s lack of AML compliance, according to AG Garland.

“We recognize the seriousness of our US AML program deficiencies and the work required to meet our obligations and responsibilities is of paramount importance to me, our senior leaders, and our boards,” said TD Chief Executive Bharat Masrani, who took “full responsibility” for the failures and has agreed to step down in April of next year.

More than 100,000 Americans die due to fentanyl exposure each year as cartels continue to mix the powerful drug into their supply of illicit opioids.  

Following announcements of its expected guilty plea on Wednesday, TD’s stock price plummeted more than 5%.