TD must pay $3.1 billion in money laundering case, with an asset limit

Two U.S. units of the Canadian lender entered their pleas against the charges Thursday before a federal judge in Newark, New Jersey. The U.S. Department of Justice, the Federal Reserve and the Office of the Comptroller of the Monet later released statements detailing a “coordinated resolution” reached with the bank in exchange for the pleas.

“By making its services easy for criminals, TD Bank became one,” said Attorney General Merrick Garland. “TD Bank chose profit over compliance – a decision that is now costing the bank billions of dollars in fines.” TD’s slogan is ‘America’s most convenient bank’.

The lender’s shares closed 6.1% lower in Toronto, the highest level since March 2020.

Colombian ATMs

More than 20 people, including two bank insiders, had previously been charged in three money laundering schemes, including one involving money deposited in the US and quickly withdrawn through ATMs in Colombia. With Thursday’s resolution, the bank agreed to resolve “longstanding, pervasive and systemic deficiencies” in its U.S. anti-money laundering program, authorities said.

Prosecutors say the bank has failed for a decade to root out suspicious activity as required by the Bank Secrecy Act, the main anti-money laundering law. It became the largest bank in U.S. history to plead guilty to violating that law, and the first bank to plead guilty in the U.S. to conspiracy to commit money laundering, Garland said.

In a massive money laundering scheme that authorities say helped accelerate the flow of the deadly opioid fentanyl into the US, one TD executive emailed another to say, “Y’all really need to stop this LOL.”

The combined $3.1 billion fines include $1.89 billion to the Justice Department, which is the largest penalty ever imposed under the law, Deputy Attorney General Lisa Monaco said at a briefing.

“This is a sad day in our history,” Toronto-Dominion CEO Bharat Masrani said on a conference call with analysts. Although the bank’s U.S. anti-money laundering controls failed, he said, “we are solving it and I am 100% confident that we will reach the other side and come out even stronger.”

Stop growth

The bank had set aside more than $3 billion in recent months to prepare for the settlement, partly by selling off some of its stake in Charles Schwab Corp. to sell. But the asset ceiling will hamper a growth-by-acquisition strategy it has pursued in U.S. retail. banking for much of the past twenty years.

The cap will limit TD’s two U.S. subsidiaries, TD Bank NA and TD Bank USA, to $434 billion in assets, the total as of September 30, the bank said in a statement. The limit will not impact U.S. capital markets, Canadian or other global operations. The lender will also need approval from the OCC to open new branches or offer new products and must establish a U.S. office dedicated to addressing its shortcomings.

The investigations have already hit Toronto-Dominion hard, tarnishing the end of Masrani’s decade-long tenure and forcing the lender to cut a $13.4 billion deal last year to buy U.S. regional bank First Horizon Corp. to adopt, to delete.

TD Bank’s anti-money laundering program has failed at many levels to detect suspicious activity and report it to financial authorities, the US said. From January 2018 to April 2024, it failed to monitor $18.3 trillion in transactions, including all transactions through its domestic automated clearinghouse and most involving checks, authorities said.

‘Shut this down’

In a statement of facts, the bank admitted its role in three money laundering schemes. One involved Da Ying Sze, a New Yorker who pleaded guilty in 2022 to coordinating a $653 million money laundering plot involving hundreds of millions of dollars in narcotics distribution, authorities said at the time. He chose to launder most of those funds through TD Bank because it had “by far the most permissive policies and procedures,” according to the statement.

To clear the way, he gave more than $57,000 in gift cards to employees, the bank admitted. Bank employees at “multiple levels understood and acknowledged the likely illegality” of the huge deposits, with the manager making the “LOL” joke. The failure to file adequate currency transaction reports on the deposits “affected numerous stores and dozens of employees,” the statement said.

In the Colombian ATM program, the bank failed to enforce a limit of 15 debit cards for business accounts, allowing “insiders to provide dozens of ATMs to money laundering networks,” the statement said.

The resolution will see the Justice Department appoint a corporate monitor to oversee the bank’s anti-money laundering program for three years. Most companies try to avoid pushy regulators when resolving criminal cases.

Toronto-Dominion has more than 10 million U.S. customers and nearly 1,200 locations concentrated along the East Coast, and its U.S. retail operations account for about a quarter of its revenue.

‘Strategic turn’

Analysts and investors feared that TD’s growth in the U.S. could be limited by a cap similar to the one imposed on Wells Fargo & Co. in 2017. was imposed, limiting that bank’s assets to about $1.95 trillion. Nearly seven years later, Wells has still not been freed from the sanction, which has put major pressure on its share price.

Toronto-Dominion plans to restructure its balance sheet and will reduce its U.S. assets by about 10% so it can continue providing loans and other services to customers under the new restrictions, executives said on an analyst call. It plans to spend $500 million a year through 2025 and 2026 to improve U.S. money laundering controls.

Leo Salom, head of the company’s U.S. retail division, said he expects “stability” in U.S. profits after 2025. Executives on the analyst call also noted that the Canadian parent company will not face any restrictions on paying shareholder dividends or buying back shares.

“The growth of the U.S. retail banking business has now essentially come to a standstill,” Jefferies analyst John Aiken said in a report. “We expect a strategic pivot from TD, even if the company does not completely walk away from US retail.”