TD Bank fined $3 billion for role in drug cartel money laundering scheme

NEW YORK, USA – US regulators announced on Thursday, October 10, 2024, that TD Bank has agreed to pay as much as $3 billion to settle charges of failing to adequately monitor money laundering by drug cartels.

The settlement includes a record $1.3 billion fine paid to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), along with $1.8 billion to the U.S. Department of Justice (DoJ) as part of a guilty plea for the violating the Bank Secrecy Act.

The charges against the Canadian bank, which has significant operations in the United States, stem from what regulators called “longstanding, pervasive and systemic deficiencies” in the bank’s anti-money laundering (AML) procedures.

These failures allowed drug cartels to launder more than $670 million through TD Bank accounts between January 2018 and April 2024, according to legal documents.

“By making its services easy for criminals, it became one,” Attorney General Merrick Garland said during a news conference Thursday.

Huge regulatory shortcomings

More than 90 percent of transactions at TD Bank went unaudited during the six-year period examined, a lapse that allowed three major money laundering networks to take advantage of the bank’s weak supervision.

In one case, bank employees accepted more than $57,000 in gift cards to process suspicious transactions, totaling more than $470 million in cash deposits, the DoJ said.

“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.”

TD Bank said it has taken steps to address the failures, including hiring more than 700 money laundering and financial crime prevention specialists and implementing new processes to prevent future abuse.

However, the bank will face government supervision for four years to ensure compliance with AML regulations.

Government response and criticism

The unprecedented fine highlights the U.S. government’s increasing focus on cracking down on money laundering linked to drug cartels, especially those involved in the trafficking of fentanyl, a deadly opioid responsible for tens of thousands of U.S. deaths annually.

Treasury officials have grown concerned about cartels’ increasing use of the U.S. financial system to launder proceeds from illegal drug sales.

“Time and again, unlike its peers, TD Bank has prioritized growth and profits over compliance with the law,” said Deputy Finance Minister Wally Adeyemo.

“The bank enabled the drug trade, and these systemic failures caused real harm to American citizens.”

Despite the harsh penalties, some critics believe the punishment does not go far enough. Senator Elizabeth Warren (D-MA), an advocate for stricter financial regulations, condemned the settlement.

“Big banks view government fines as the cost of doing business,” Warren said. “This settlement ensures that bad bank executives can go free for allowing TD Bank to be used as a criminal slush fund.”

Impact on TD Bank

The fines dealt a major blow to TD Bank’s U.S. operations, sending its shares down 6 percent on Thursday as investors brace for weaker growth and higher legal costs.

TD will charge a one-time after-tax charge of $1.5 billion to cover the fines and plans to cut 10 percent of its assets.

The Office of the Comptroller of the Coin (OCC) has also imposed growth restrictions on TD Bank in the United States.

The bank will now be forced to move its anti-money laundering compliance office to the US, marking another major operational shift.

The growth restriction imposed by the OCC mirrors similar fines imposed on Wells Fargo in 2018, following widespread consumer abuse at that bank.

Wells Fargo’s asset cap has yet to be lifted, which is a stark reminder of the long-term consequences that could result from such sanctions.

TD Bank, which previously settled a $1.2 billion lawsuit over its involvement in disgraced financier Allen Stanford’s Ponzi scheme, has now suffered two high-profile financial scandals in recent years.

In both cases, the bank denied wrongdoing but faced significant fines.

As TD works to rebuild its reputation, it remains to be seen how long-term growth in the US will be affected by this settlement and ongoing regulatory challenges.