By Nivedita Balu, Chris Prentice and Karen Freifeld
TORONTO/NEW YORK (Reuters) -TD Bank became the largest bank in U.S. history to plead guilty to violating a federal law aimed at preventing money laundering, and agreed to pay $3 billion in penalties to resolve the charges, government authorities said on Thursday.
The plea deal, which includes a rare imposition of an asset cap and other limitations to its business, arises from multiple government investigations into what authorities described as pervasive issues at TD Bank. For years, the government said, TD ignored red flags from high-risk customers and created a “convenient” environment for bad actors to exploit.
Two units of the bank pleaded guilty to conspiring to launder money and conspiring to fail to file accurate reports or maintain a compliant anti-money laundering program, the Justice Department said.
“TD Bank chose profits over compliance in order to keep its costs down,” Attorney General Merrick Garland said at a press conference. He said TD was the largest bank to admit to violating the U.S. Bank Secrecy Act.
The asset cap, imposed by the Office of the Comptroller of the Currency, is a rare step typically reserved for severe cases. It deals a major blow to TD. The bank has sought to expand further in the U.S., which accounts for about a third of its income.
“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,” CEO Bharat Masrani said in a statement.
‘MOST CONVENIENT BANK’
TD failed to monitor over $18 trillion in customer activity for about a decade, enabling three money laundering networks to transfer illicit funds through accounts at the bank, U.S. authorities said, describing the issues as pervasive.
Bank employees “openly joked” about the lack of compliance on multiple occasions, Garland told reporters during a briefing on the plea deal.
TD Bank’s issues were known at every level of the bank, authorities said. In some cases, TD did not flag suspicious activity until law enforcement raised attention to it and at times, tellers accepted gift cards as bribes.
“It is no wonder, then, that the motto America’s most convenient bank was used as a joke among employees to describe TD Bank being convenient for criminals,” said U.S. Attorney for New Jersey Philip Sellinger.
FALLOUT
The $3 billion in combined penalties will go to the Justice Department, U.S. banking regulators, and the Treasury Department’s Financial Crimes Enforcement Network.
The deal also includes the imposition of independent monitoring. In addition to the asset cap, the resolution also prevents TD Bank from opening a new branch or entering a new market without the OCC’s approval, regulators said.
An asset cap is “worst case scenario” for TD, said Cormark Securities analyst Lemar Persaud prior to details of the plea deal being announced. The bank has already set aside $3 billion for the fine.
Persaud drew a parallel with Wells Fargo, whose earnings have been constrained by a $1.95 trillion asset cap in place following a fake accounts scandal. An asset cap would also constrain TD’s profits but to a lesser extent than it did for Wells Fargo, he said.
The TD probe has led to “significant underperformance of the stock and, we believe, the retirement of the current CEO Bharat Masrani,” Persaud said.
TD is Canada’s second biggest bank and the 10th largest in the U.S. The lender first revealed it was responding to inquiries from regulators and law enforcement last year, just months after it terminated a $13 billion acquisition of regional lender First Horizon.
Federal authorities began probing TD’s internal controls after agents discovered a Chinese criminal operation bribed employees and brought large bags of cash into branches to launder millions of dollars in fentanyl sales through TD branches in New York and New Jersey, a source confirmed.
TD has spent millions to strengthen its compliance programs, fired dozens of staff at its U.S. branches and named its Canadian personal banking head Ray Chun as its new CEO, distancing its new chief from the money laundering scandal.
CEO Masrani, who has been at the helm for nearly a decade and previously led its U.S. operations, will retire next year. Masrani has said he takes full responsibility for the money laundering issues that have plagued the bank.
TD has already begun remediation and clawed back executive compensation, authorities said, noting that the bank has become the first company to agree prospectively do so.
(Reporting by Nivedita Balu in Toronto and Chris Prentice and Karen Freifeld in New York; Additional reporting by Pete Schroeder, Andrew Goudsward and Mike Scarcella in Washington; Editing by Megan Davies, Lananh Nguyen, Mark Potter, Lisa Shumaker and David Gregorio)
