TD Bank pleads guilty to US charges, faces business restrictions

Economy 10.10.2024
TD Bank pleads guilty to US charges, faces business restrictions

Two TD Bank units have pleaded guilty to United States criminal charges and agreed to pay $3bn in combined penalties to resolve federal government probes into money laundering, US authorities have said, making it the largest bank in US history guilty for such violations.

The plea deal includes imposition of an asset cap and other limitations to its business, authorities said on Thursday. It comes after multiple government investigations into what authorities described as pervasive issues at TD Bank. For years, the government said, TD ignored red flags from high-risk customers and created a “convenient” environment for bad actors to exploit.

The bank has pleaded guilty to conspiring to launder money and conspiring to fail to file accurate reports or maintain a compliant anti-money laundering programme, the US Department of Justice said.

“TD Bank chose profits over compliance in order to keep its costs down,” Attorney General Merrick Garland said at a news conference. He said TD was the largest bank to admit to violating the US Bank Secrecy Act.

The cap on its asset expansion in the US, imposed by the Office of the Comptroller of the Currency, is a rare step typically reserved for severe cases. It would deal a major blow to TD’s hopes to expand further in the US, which accounts for about a third of the bank’s income.

TD Bank shares fell almost 5 percent on Thursday afternoon.

“This is a difficult chapter in our Bank’s history. These failures took place on my watch as CEO and I apologize to all our stakeholders,” CEO Bharat Masrani said in a statement.

TD also agreed to pay $3bn in combined penalties to US banking regulators, the Justice Department and the Department of the Treasury’s Financial Crimes Enforcement Network.

The deal resolved investigations by the Justice Department, the Office of the Comptroller of the Currency and Treasury’s Financial Crimes Enforcement Network. It also included the imposition of independent monitoring.

‘Most convenient bank’

TD failed to monitor more than $18 trillion in customer activity for about a decade, enabling three money-laundering networks to transfer illicit funds through accounts at the bank, US authorities said, describing the issues as pervasive.

Bank employees “openly joked” about the lack of compliance on multiple occasions, Garland told reporters during a briefing on the plea deal.

TD Bank’s issues were known at every level of the bank, authorities said. In some cases, TD did not flag suspicious activity until law enforcement raised attention to it and at times, tellers accepted gift cards as bribes.

“It is no wonder, then, that the motto ‘America’s most convenient bank’ was used as a joke among employees to describe TD Bank being convenient for criminals,” said US Attorney for New Jersey Philip Sellinger.

‘Worst-case scenario’

An asset cap is “worst-case scenario” for TD, said Cormark Securities analyst Lemar Persaud, prior to the details of the plea deal being announced. The bank had already set aside $3bn for the fine.

Persaud drew a parallel with Wells Fargo, which has a $1.95 trillion asset cap in place following a fake accounts scandal, which has constrained its earnings. An asset cap would also constrain TD’s profits, but to a lesser extent than it did for Wells Fargo, he said.

The TD probe has led to “significant underperformance of the stock and, we believe, the retirement of the current CEO Bharat Masrani,” Persaud said.

TD is Canada’s second-biggest bank and the 10th-largest in the US. The lender first revealed it was responding to inquiries from regulators and law enforcement last year, just months after it terminated a $13bn acquisition of regional lender First Horizon.

Federal authorities began probing TD’s internal controls after agents discovered a Chinese criminal operation bribed employees and brought large bags of cash into branches to launder millions of dollars in fentanyl sales through TD branches in New York and New Jersey, a source confirmed.

TD has spent millions to strengthen its compliance programmes, fired dozens of staff at its US branches and named its Canadian personal banking head Ray Chun as its new CEO, distancing its new chief from the money laundering scandal.

CEO Masrani, who has been at the helm for nearly a decade and previously led its US operations, will retire next year. Masrani has said he takes full responsibility for the money laundering issues that have plagued the bank.

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