The U.S. Department of Justice (DOJ), alongside other regulators and agencies including the Office of the Comptroller of the Currency (OCC), revealed details of an investigation into TD Bank – America’s tenth largest by assets – resulting in a historic fine for failures in its anti-money laundering (AML) and compliance obligations.
Of the $3 billion settlement, $1.3 billion will go to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN), marking it as the largest fine ever imposed by the agency, which focuses on anti-money laundering. On top of this, TD Bank has made history as the largest U.S. bank to plead guilty to violating the Bank Secrecy Act (BSA) and the first to admit to conspiracy in money laundering.
As Lisa Monaco, Deputy Attorney General, DOJ emphasized, this record-breaking penalty under the BSA sends a clear message:
“Today’s historic guilty plea, including the largest penalty ever imposed under the Bank Secrecy Act, offers an unmistakable lesson: crime doesn’t pay — and neither does flouting compliance”
The DOJ’s investigation found multiple areas of failure by TD bank:
- Due to its’ lack of inadequate AML controls and oversight, TD Bank allowed separate criminal entities to launder over $670 million through TD Bank accounts
- Five TD Bank insiders opened and maintained accounts for money laundering networks, laundering $39 million
- Bank employees were given bribes of $57,000 worth of gift cards to prevent reporting on illegal dealings
- This included lack of oversight and ability to identify illegal activities carried out by its’ employees, such as peer-to-peer transactions that demonstrated links to human trafficking
If it is broke, do fix it
In their investigation, court documents revealed that TD Bank had “long-term, pervasive and systemic deficiencies” within its AML infrastructure, but did not act to reverse and rectify this. FinCEN found that TD Bank was also aware of its’ failings in this department and, therefore, illegal activity of this scale and magnitude should perhaps not come to them as much of a surprise.
The bank stated that there were various instances where senior executives, including the bank’s AML Officer, knew of the serious problems with the AML program but did not seek to resolve them. Here, crucial tone from the top was lacking, resulting in a failure to ensure a culture of compliance. Thus, due to the lack of effective AML processes, TD Bank could not and did not identify and report suspicious transactions, allowing for more nefarious activity to persist.
The sheer size of the historic fine is proportionate to the scale of compliance and misconduct failings, especially considering the expectations that large banks safeguard market integrity. Nicole Argenteri, Head of the Criminal Division, DOJ, made the proposed deterrent effect of this clear in her remarks:
“This resolution, in addition to the historic daily BSA fine we have imposed, sends a clear message to U.S. banks — you are the first line of defense. When you criminally fail to protect your own bank from money laundering you put our financial system at risk, and we will hold you accountable.”
Argenteri also stated that TD Bank “placed profits over compliance”, prioritizing a ‘flat-cost paradigm’, limiting spending on the bank’s AML program, despite growing risks.
TD Bank failed to invest in the necessary aspects of its’ compliance function and AML policies, leading to its’ current situation. The weaknesses of TD’s AML program were widely known and spoken about across the company, including via internal electronic communications. Garland outlined that employees poked fun at the deficiencies, labelling TD as ‘America’s Most Convenient Bank’, for money laundering. Financial services must apply appropriate spending to prevent financial misconduct and contribution to potential illegal activity – knowing or otherwise – and are legally obligated to ensure that appropriate policies and frameworks are in place.
All of this raises the question – if this was an open secret at multiple levels within the bank and widely discussed via various channels of communications, would robust supervisory and surveillance have helped flag this misconduct earlier?
What’s TD T-Do?
We have seen repeated evidence of banks receiving reduced penalties for early, proactive cooperation with regulators. TD Bank did cooperate with the investigation, receiving a partial credit and 20% reduction in penalty, but this only took place after the bank learned of the DOJ investigation.
As part of remediations, TD Bank has agreed to a four-year monitor to oversee remedial measures, including end-to-end review of its AML program and provide missing suspicious activity reports. Alongside this, for the first time in its history, FinCEN will require additional accountability and data governance reviews to outline recommendations for a culture of compliance within the bank going forward.
Additionally, Bharat Masrani, Chief Executive Officer, TD Bank, is set to retire April 10, 2025, stating:
“The anti-money laundering challenges we face took place on my watch as CEO and I take full responsibility”
This punitive fine, and the reputational impacts of the enforcement, act as a cautionary tale for the rest of the industry, as Lisa Monaco, Deputy Attorney General, DOJ, explained:
“Every bank compliance official in America should be reviewing today’s charges as a case study of what not to do. And every bank CEO and board member should be doing the same. Because if the business case for compliance wasn’t clear before — it should be now.”
Compliance is not a choice but a necessity for the survival of financial institutions vulnerable to risk, and attractive for those looking to funnel money illegally. They should look to update and modernize their systems and not let tech go stale, making an active choice to future proof their compliance solutions to keep pace with regulatory demands. Not only this, it will create a knock-on effect by building a ‘culture of compliance’, from the top down, and prevent employees colluding with criminals. Crime might not pay, but firms that allow it to flourish due to insufficient investment in compliance certainly will.
