TD Bank pleads guilty in money laundering case, will pay $3 billion in penalties

• TD Bank pleaded guilty in a criminal money laundering case and agreed to pay a whopping $3 billion in fines and other penalties to the Department of Justice and federal financial regulators to settle a probe over its failure to monitor money laundering by drug cartels.
• TD Bank is also set to accept limits on its growth as part of the settlement.
• The restrictions on TD Bank's growth would be similar to those imposed by the Federal Reserve on Wells Fargo in 2018.

TD Bank pleaded guilty Thursday to multiple criminal charges and agreed to pay a whopping $3 billion in fines and other penalties to the Department of Justice and financial regulators for failing to monitor money laundering by drug traffickers and other criminals.

As part of the deal, TD Bank, whose U.S. unit is the 10th-largest American bank by assets, also will have limits to its growth imposed by the Office of the Comptroller of the Currency. The total assets of TD Bank's two U.S. banking subsidiaries will be barred from exceeding $434 billion under that restriction.

The restrictions are similar to those imposed by the Federal Reserve on Wells Fargo in 2018 over what the Federal Reserve called "widespread consumer abuses" at that bank.

"By making its services convenient for criminals, TD Bank became one," said Attorney General Merrick Garland on Thursday.

"Today, TD Bank also became the largest bank in U.S. history to plead guilty to Bank Secrecy Act program failures, and the first U.S. bank in history to plead guilty to conspiracy to commit money laundering," Garland said.

"TD Bank chose profits over compliance with the law — a decision that is now costing the bank billions of dollars in penalties. Let me be clear: Our investigation continues, and no individual involved in TD Bank's illegal conduct is off limits."

Garland, speaking at a press conference in Washington, D.C., said a monitor would oversee the bank's compliance with anti-money-laundering practices for three years as part of a settlement with the DOJ, which is receiving $1.8 billion in connection with the bank's guilty plea in federal court in Newark, New Jersey.

The attorney general said that over a six-year period that ended last October, TD Bank admittedly failed to monitor a stunning $18.3 trillion in customer activity, which allowed three money laundering networks to transfer more than $670 million through accounts at the bank.

At least one of those schemes involved five bank employees, Garland said.

"At various times, high-level executives, including the person who became the bank's chief anti-money-laundering officer, knew there were serious problems with the bank's anti-money-laundering program, but the bank failed to correct them," the attorney general said.

Garland read reporters details of electronic messages that showed the awareness and concerns bank employees had about suspicious transactions by one individual, known as David, who personally moved more than $470 million in illicit funds through TD Bank branches in the United States.

"In August 2021, a TD Bank store manager emailed another store manager and remarked, quote, 'You guys really need to shut this down. Lol,'" Garland noted.

"In February 2021, one TD Bank store employee saw that David's network had purchased more than $1 million in official bank checks with cash in a single day," Garland said. "The employee asked, quote, how is that not money laundering a bank off a back office?'"

Another TD Bank "employee responded, quote, 'Oh, it 100% is,'" Garland said.

Garland said the DOJ expected to file other prosecutions in the case.

When asked if that meant charging TD Bank executives, the attorney general said, "My general response to these kind of questions is, we don't comment on ongoing investigations, but I was indicating that we would expect future cases against individuals."

As part of Thursday's settlement, TD Bank, which is the second-largest bank in Canada, will pay $1.3 billion to the Treasury Department's Financial Crimes Enforcement Network, or FinCEN, the largest such penalty ever imposed by FinCEN or Treasury on a depository institution.

FinCEN also has imposed a four-year independent monitorship on TD Bank to oversee required remediation of its practices.

"The vast majority of financial institutions have partnered with FinCEN to protect the integrity of the U.S. financial system," said Deputy Treasury Secretary Wally Adeyemo. "TD Bank did the opposite."

"From fentanyl and narcotics trafficking, to terrorist financing and human trafficking, TD Bank's chronic failures provided fertile ground for a host of illicit activity to penetrate our financial system," Adeyemo said.

The Wall Street Journal reported in May that the DOJ was investigating how Chinese organized crime groups and drug traffickers used TD Bank to launder money derived from the sale of the deadly opiate fentanyl in the United States.

The Federal Reserve Board on Thursday fined TD Bank more than $124 million for violations related to anti-money-laundering laws, saying the bank failed to "conduct adequate risk management and oversight of its retail banking operations in the United States, resulting in a U.S. subsidiary being used to launder hundreds of millions of dollars in illicit proceeds."

Sen. Elizabeth Warren, D-Mass., in a statement to CNBC blasted Thursday's deal.

"Big banks treat government fines as the cost of doing business," Warren said.

"This settlement lets bad bank executives off the hook 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 need to do better in enforcing our anti-money laundering laws," Warren said.

"This is a sad day in our history," said TD Bank Group CEO Bharat Masrani.

"We have taken full responsibility for the failures of our U.S. AML program and are making the investments, changes and enhancements required to deliver on our commitments," Masrani said.

"This is a difficult chapter in our Bank's history. These failures took place on my watch as CEO and I apologize to all our stakeholders," Masrani said.

TD Bank shares were down more than 5% on Thursday afternoon.

In September, TD Bank was ordered to pay nearly $28 million by the Consumer Financial Protection Bureau for repeatedly furnishing consumer reporting agencies with information about customers that contained numerous errors, and waiting more than a year to fix those mistakes despite knowing about them.

This is developing news. Check back for updates.