TD Bank To Face $3B Penalty, Growth Limits In US Settlement Over 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, the Wall Street Journal said in an exclusive report.

The Canadian bank is expected to pay approximately $3 billion in penalties and face restrictions on its U.S. growth.

Under the expected agreement, TD Bank’s U.S. entity will likely plead guilty to criminal charges stemming from a DOJ investigation.

This settlement could be announced as early as today and involves multiple agencies, including the U.S. Department of Justice (DOJ), the Office of the Comptroller of the Currency (OCC), the Financial Crimes Enforcement Network (FinCEN), and the Federal Reserve.

According to the WSJ report, the DOJ and FinCEN are set to impose independent monitors to oversee the bank’s compliance with anti-money-laundering regulations. The FinCEN monitor will reportedly remain in place for four years.

The penalties will be divided between the DOJ and FinCEN, with the DOJ receiving $1.8 billion and FinCEN receiving $1.3 billion.

The 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.

TD Bank is due to host a conference call today.

The case has had significant consequences for TD, including halting its $13.4 billion acquisition of First Horizon Corporation FHN due to U.S. regulators’ concerns over the bank’s anti-money-laundering capabilities.

The companies terminated the merger agreement in May 2023, which was announced initially in February 2022. TD paid First Horizon a $200 million cash payment and the $25 million fee reimbursement due to First Horizon under the merger agreement. 

The OCC will impose an asset cap on TD’s U.S. business, similar to the restrictions imposed on Wells Fargo Co WFC in 2018 after its fake account scandal, the report highlighted.

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, among others, has forced TD to overhaul its internal controls and strengthen its AML and investigations teams with new hires.

Price Action: At last check on Thursday, TD stock was down 4.74% at $60.50 during the premarket session.

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