TD Bank Hit With Record $3 Billion Fine Over Drug Cartel Money Laundering

TD Bank will pay $3 billion to settle allegations that it failed to adequately supervise money laundering by drug gangs, officials stated Thursday.

The fine includes a $1.3 billion penalty to the US Treasury Department’s Financial Crimes Enforcement Network, which is a bank-record fine. TD also expects to pay $1.8 billion to the US Justice Department and plead guilty to end the US government’s investigation into the bank’s violations of the Bank Secrecy Act and money laundering.

The US Department of Justice claimed in a statement that TD Bank has “long-term, pervasive, and systemic deficiencies” in its transaction monitoring methods. The Wall Street Journal first broke the news late Wednesday.

TD Bank Hit With Record $3 Billion Fine Over Drug Cartel Money Laundering

“By making its services convenient for criminals, it became one,” Attorney General Merrick Garland stated at a press conference on Thursday.

More than 90% of transactions went unmonitored 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 judicial complaint.

“I want to be clear, these systemic failures did not just create hypothetical vulnerabilities, but they resulted in actual, material harm to American citizens and communities,” said Deputy Treasury Secretary Wally Adeyemo. “TD Bank, unlike its counterparts, has repeatedly put growth and profit over legal compliance. “The bank facilitated drug trafficking.”

In one case, TD Bank workers collected over $57,000 in gift cards to process more than $470 million in cash deposits from a money laundering network in order to “ensure employees would continue to process their transactions” and not reveal them in necessary reports, according to the DOJ.

In a separate statement, the Office of the Comptroller of the Currency (OCC), a US banking regulator, stated that TD handled hundreds of millions of dollars in transactions that clearly suggested extremely suspicious conduct.

“This is a difficult chapter in our bank’s history,” Bharat Masrani, CEO of TD Bank, stated. “These failures took place on 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 enhancements required to deliver on our commitments,” Masrani told reporters.

TD is stepping up its anti-money laundering surveillance efforts, including the hiring of over 700 new specialists with “experience and qualifications in money laundering prevention, financial crimes, and AML remediation,” as well as the implementation of new processes to “better prevent, detect, and measure financial crime risk,” the bank stated.

FinCEN will monitor the Canadian bank for four years to guarantee compliance with the arrangement.

The US Federal Reserve also penalized TD Bank and ordered that its anti-money laundering compliance division be relocated to the United States.

And, as part of the agreement, the OCC limits TD Bank’s growth in the United States. Although remarkable, the US government’s monitoring and restriction of a bank’s expansion is not uncommon. Wells Fargo was hit with similar growth limits and large penalties for “widespread consumer abuses” in 2018, but has yet to persuade regulators to lift the asset cap. Wells Fargo already revealed that its employees responded to drastically unrealistic sales targets by creating up to 3.5 million bogus accounts.

The severe penalties imposed by regulators on Thursday caught Wall Street off guard. TD Bank’s (TD) US-listed shares fell 6% as investors expect more litigation costs and slower growth.

TD assured that it had sufficient liquidity to pay the penalties and continue operations. In a call with analysts, the bank stated that it expects a one-time charge of $1.5 billion after taxes and will cut 10% of its assets to cover the huge penalties.

TD Bank Hit With Record $3 Billion Fine Over Drug Cartel Money Laundering

“We believe that the market was becoming increasingly comfortable with the idea that there would be no growth restrictions imposed on TD,” wrote John Aiken, analyst at Jefferies, in a note to investors on Thursday. “TD will need to find a new avenue for growth from its traditional reliance on US retail banking.”

Cartel fears
Officials at the Justice and Treasury departments have grown more concerned about Mexican cartels’ use of the US banking system to launder earnings from the sale of fentanyl and other drugs, which kill tens of thousands of Americans each year.

Couriers laundering money for the cartels “are opening accounts in banks big and small here in the US,” a senior Treasury official told CNN in May.

Treasury and IRS authorities began briefing US banks and social media companies earlier this year in an effort to gain a better understanding of how the cartels are exploiting the financial system, CNN reports.

According to the Treasury source, one of the talks’ main topics will be how to leverage intelligence offered by smaller banks that can detect laundering fronts in their communities.

Some critics, including Democratic Massachusetts Senator Elizabeth Warren, said that the punishments were insufficient given the gravity of the allegations.

“Big banks treat government fines as the cost of doing business,” Warren stated in a statement. “This deal absolves irresponsible bank management of the responsibility 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 better in implementing our anti-money laundering legislation.”

Last year, TD Bank paid $1.2 billion to settle a lawsuit alleging its role in an infamous $7 billion Ponzi scheme conducted by convicted financier Allen Stanford over a decade ago.

The funds were used to repay victims of the scheme, but the bank denied any wrongdoing.

SOURCE | CNN