TD Bank Faces Hefty Penalties for Anti-Money Laundering Failures

Toronto Dominion Bank (TD) is reportedly preparing to settle charges related to its alleged failure to monitor money laundering by drug cartels, according to an exclusive report by the Wall Street Journal. The Canadian bank is expected to pay approximately $3 billion in penalties and face restrictions on its U.S. growth as part of the expected agreement.

Uncovering the Depths of TD Bank's Anti-Money Laundering Lapses

Facing Criminal Charges and Regulatory Scrutiny

Under the expected settlement, TD Bank's U.S. entity will likely plead guilty to criminal charges stemming from a Department of Justice (DOJ) investigation. The penalties will be divided between the DOJ and the Financial Crimes Enforcement Network (FinCEN), with the DOJ receiving $1.8 billion and FinCEN receiving $1.3 billion. The settlement will also involve the Office of the Comptroller of the Currency (OCC) and the Federal Reserve, who are expected to impose independent monitors to oversee the bank's compliance with anti-money-laundering (AML) regulations. The FinCEN monitor will reportedly remain in place for four years, underscoring the severity of the bank's AML deficiencies.

Halting Expansion Plans and Facing Asset Caps

The case has had significant consequences for TD Bank, including the termination of its $13.4 billion acquisition of First Horizon Corporation due to U.S. regulators' concerns over the bank's AML capabilities. The companies mutually agreed to terminate the merger agreement in May 2023, with TD paying First Horizon a $200 million cash payment and a $25 million fee reimbursement. Additionally, the OCC will impose an asset cap on TD's U.S. business, similar to the restrictions imposed on Wells Fargo after its fake account scandal.

Uncovering a Fentanyl Money Laundering Scheme

The investigation into TD Bank intensified when federal authorities discovered that a Chinese criminal group had laundered millions of dollars from fentanyl sales through TD's branches in New York and New Jersey, bribing bank employees in the process. This incident, along with others, has forced TD to overhaul its internal controls and strengthen its AML and investigations teams with new hires.

Acknowledging the Severity of the Situation

TD Bank has acknowledged the severity of its AML deficiencies, with outgoing CEO Bharat Masrani stating that resolving these issues is a top priority. Masrani, who announced his decision to step down as CEO later this year, has been at the forefront of TD's efforts to address regulatory concerns. In August, the bank set aside an additional $2.6 billion in anticipation of the settlement costs.

Preparing for the Announcement and Potential Fallout

The settlement with the various agencies could be announced as early as today, and TD Bank is due to host a conference call to address the matter. The case has had a significant impact on the bank's operations and reputation, and the market has already reacted, with TD stock down 4.74% in premarket trading on Thursday.