The penalties imposed on TD Bank include a cap on its ability to take on new deposits in the United States, a move that will curtail its ability to grow in a critical market.
Credit...Owen Davies for The New York Times

TD Bank Pleads Guilty and Pays $3 Billion to Settle Money-Laundering Case

Authorities cited joking by bank employees about crimes: “‘You guys really need to shut this down LOL.’”

by · NY Times

TD Bank agreed to pay about $3 billion in fines to U.S. authorities and pleaded guilty on Thursday to money-laundering-related charges in a case brought by federal prosecutors, who said the Canadian bank made it “convenient” for criminals to open accounts, transfer funds and even deposit seven-figure sums of cash at its branches.

The combined penalties are the largest ever imposed by U.S. authorities on a bank for violating anti-money-laundering laws, and include an “asset cap” that prevents TD Bank from growing any bigger than its current size.

A pair of federal charging documents lay out how, for more than a decade, TD Bank employees took bribes and overlooked flagrant activity by criminal customers from Colombia and elsewhere.

In one example cited by the authorities, a Queens man who had earlier pleaded guilty to several crimes provided bank workers with more than $57,000 in gift cards in return for permitting the laundering of more than $470 million.

Such behavior was somewhat of an open secret inside the bank, prosecutors said. “How is that not money laundering?” one branch employee asked another after a customer was permitted to buy more than $1 million in bank checks with cash.

“Oh, it 100 percent is,” the second employee responded, according to the charging documents.

In another instance, a branch manager emailed a colleague, “You guys really need to shut this down LOL.” They didn’t.

The asset cap, imposed by the Office of the Comptroller of the Currency, is considered the industry’s most drastic punishment because it prevents a bank from growing. TD Bank, with about $370 billion in assets, is the first big bank to face that rare move since Wells Fargo, which has been constrained since 2018 for a litany of misdeeds including opening sham bank accounts for its customers without their consent.

TD Bank pleaded guilty to charges of conspiring to fail to maintain an adequate anti-money-laundering program and failing to file accurate transaction reports. Cynthia Adams, TD Bank’s chief legal officer in the United States, entered the plea on behalf of the bank’s U.S. subsidiary in Federal District Court in Newark, before Judge Esther Salas.

Federal prosecutors, in documents filed in court, said that some of the bank’s employees had enabled money laundering by criminal gangs and that the bank was slow to detect and address it. The bank’s monitoring of transactions was so porous, prosecutors said, that from 2018 through April this year it did not adequately monitor about $18.3 trillion in activity.

Prosecutors said they had also charged over two dozen individuals, including two bank insiders.

“TD Bank’s persistent prioritization of growth over controls allowed its employees to break the law and facilitate the laundering of hundreds of millions of dollars,” Michael J. Hsu, the acting comptroller of the currency, said in a statement. “The imposition of an asset cap will ensure that the bank focuses on building proper controls commensurate with its risk profile.”

The joint action included federal prosecutors in New Jersey and Washington, the Federal Reserve, the Office of the Comptroller of the Currency and other Treasury authorities.

“This is a sad day in our history, for which we are very regretful,” TD Bank’s chief executive, Bharat Masrani, said. The bank announced last month that Mr. Masrani would retire in April.

The chairman of the bank’s board, Alan MacGibbon, said in a statement that it would continue to “take action to address these failures and hold those responsible accountable.”

TD Bank Group — Canada’s second-largest bank, with about 1,100 branches in the United States — disclosed last year that it was the subject of a U.S. Justice Department investigation into its anti-money-laundering compliance. In April, the bank reported that it was also in discussions with three American banking regulators about penalties for failing to follow anti-money-laundering laws.

At that time, the bank set aside $450 million in reserve for the fines it anticipated, but it warned investors that the final cost could be higher. In August, the bank put an additional $2.6 billion in reserve for the penalties it anticipated. To raise that cash, TD Bank sold 40.5 million shares of Charles Schwab stock, reducing its ownership stake in the banking and brokerage company to just over 10 percent from 12 percent.

Last year, TD Bank agreed to pay $1.2 billion to settle claims arising from a $7 billion Ponzi scheme involving Stanford Financial, a bank that collapsed in 2009. TD Bank was accused of continuing to do business with Stanford despite obvious red flags about its operations and the fraudulent certificates of deposit that Stanford sold to more than 20,000 customers.

The swirling investigations scuttled TD Bank’s planned acquisition of Memphis-based First Horizon Bank, a $13.4 billion takeover that was announced in early 2022 before being abandoned last year because of problems obtaining regulatory approvals. TD Bank paid First Horizon a $200 million breakup fee.

TD Bank has spent 500 million Canadian dollars (about $365 million) on improvements to its money-laundering controls, Mr. Masrani said in May. Late last year, the bank hired Herb Mazariegos, formerly of the Bank of Montreal, to run its global anti-money-laundering program.

TD Bank’s U.S. branches stretch along the East Coast from Maine to Florida. It has nearly as many branches spread across Canada, where the bank is also known as Toronto-Dominion. It is the 10th-largest bank in the United States, according to Federal Reserve data.

In settling, TD Bank agreed to retain an independent monitor to oversee its anti-money-laundering efforts, and to invest more in the program overall.

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