TD Bank faces record $3 billion fine over drug cartel money laundering, source says

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CNN
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TD Bank will pay $3 billion to settle allegations that it failed to properly police money laundering by drug cartels, regulators announced Thursday.

The fine includes a $1.3 billion fine to be paid to the U.S. Treasury Department’s Financial Crimes Enforcement Network, a record fine for a bank. TD also plans to pay $1.8 billion to the U.S. Department of Justice and plead guilty to resolve the U.S. government’s investigation that the bank violated the Bank Secrecy Act and committed money laundering has allowed.

The U.S. Department of Justice said in a statement that TD Bank had “longstanding, pervasive and systemic deficiencies” in its transaction monitoring procedures. The Wall Street Journal first reported the news on Wednesday.

More than 90% of transactions went unaudited between January 2018 and April 2024, allowing “three money laundering networks to collectively transfer more than $670 million through TD Bank accounts,” according to a legal filing.

“I want to be clear: These systemic failures have not only created hypothetical vulnerabilities, but they have also resulted in actual, material harm to American citizens and communities,” Deputy Treasury Secretary Wally Adeyemo said in a statement. “Time and time again, TD Bank, unlike its peers, prioritized growth and profits over compliance with the law. The bank made the drug trade possible.”

In one case, TD Bank employees collected more than $57,000 in gift cards to process more than $470 million in cash deposits from a money laundering network to “ensure employees would continue to process their transactions” and not report them on required reports, it said DoJ said.

In a related statement, the Office of the Comptroller of the Coin (OCC), a US agency that regulates banks, said TD has processed hundreds of millions of dollars in transactions, clearly indicating highly suspicious activity.

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

“We have taken full responsibility for the failures of our US anti-money laundering program and are making the investments, changes and improvements necessary to meet our commitments,” Masrani added.

TD is stepping up its anti-money laundering oversight efforts, including hiring more than 700 new specialists with “experience and qualifications in money laundering prevention, financial crime and AML remediation,” and is also deploying new processes to “better prevent, detect and measure the risk of financial crime,” the bank said.

The Canadian bank will be subject to four years of supervision by FinCEN to more closely observe the lender and ensure its compliance with the agreement.

The US Federal Reserve has also fined TD Bank and will force the company to move its anti-money laundering office to the United States.

And in a significant part of the agreement, the OCC limits TD Bank’s growth in the United States. While extraordinary, it is not unprecedented for a bank to be watched and have its growth restricted by the U.S. government. Wells Fargo was saddled with similar growth restrictions and a hefty fine in 2018 for “widespread consumer abuse” and has yet to convince regulators to eliminate that asset cap. Wells Fargo previously admitted that its employees responded to wildly unrealistic sales goals by creating as many as 3.5 million fake accounts.

The harsh penalties imposed by regulators on Thursday caught Wall Street off guard. US-listed shares of TD Bank (TD) fell 6% as investors brace for higher legal costs and weaker growth.

TD ensured that the company has sufficient liquidity to pay the fine and continue its operations.

“We believe the market has become increasingly comfortable with the idea that no growth restrictions would be imposed on TD,” John Aiken, an analyst at Jefferies, wrote in a note to clients on Thursday. “TD will need to find a new path for growth from its traditional dependence on US retail banking.”

Officials at the Justice and Treasury departments have grown increasingly concerned about Mexican cartels’ use of the U.S. banking system to launder proceeds from the sale of fentanyl and other drugs, which kill tens of thousands of Americans every year.

Couriers who launder money for the cartels “are opening accounts at banks large and small here in the US,” a senior Treasury Department official told CNN in May.

Treasury Department and IRS officials earlier this year began briefing U.S. banks and social media companies, on whose platforms the drugs are often bought and sold, to get a clearer picture of how the cartels’ financial exploit the system, CNN reports.

A focus of the meetings, the Treasury official said, is how to use intelligence provided by smaller banks that can spot money laundering fronts in their communities.

Because of the seriousness of the charges, some critics, including Democratic Massachusetts Sen. Elizabeth Warren, said the sentences did not go far enough.

“Major banks view government fines as the cost of doing business,” Warren said in a statement. “This settlement ensures that bad bank executives can go free for allowing TD Bank to be used as a criminal slush fund. The Department of Justice and the Office of the Comptroller of the Currency must do a better job enforcing our anti-money laundering laws.”

Last year, TD Bank paid $1.2 billion to settle a lawsuit alleging involvement in a notorious $7 billion Ponzi scheme orchestrated by disgraced financier Allen Stanford more than a decade ago.

The money was used to reimburse victims of the scheme, but the bank denied any wrongdoing.

This is a breaking news story. It will be updated.