TD Bank pleads guilty and pays $3 billion to settle money-laundering case

TD Bank agreed to pay about $3 billion in fines to U.S. authorities and pleaded guilty Thursday to money laundering-related charge in a case brought by federal prosecutors, who said the Canadian bank made it “convenient” for criminals to open accounts and transfer funds for nearly a decade.

In settling the case, federal bank regulators also imposed a cap on TD’s ability to take on new deposits in the United States, a rare move that will limit the ability of the lender to grow its business in a key market.

The combined penalties are the largest ever imposed by American authorities on a bank for violating anti-money laundering laws, exceeding the $1.92 billion British bank HSBC paid in 2012 for transferring billions for Mexican drug cartels and sanctioned nations like Iran.

The Office of the Comptroller of the Currency hit TD Bank with what is considered the industry’s most drastic punishment: an “asset cap” that prevents the bank from growing any larger than its current size. TD Bank, with about $370 billion in assets, is the first big bank to face an asset cap since Wells Fargo, which has been constrained since 2018 for a litany of misdeeds including opening sham bank accounts for its customers without their consent.

The bank pleaded guilty to a charge of conspiring to fail to maintain an adequate anti-money laundering program and failing to file accurate transaction reports. Cynthia Adams, TD Bank’s chief legal officer in the United States, entered the guilty plea on behalf of the bank’s U.S. subsidiary in U.S. District Court in Newark, New Jersey, before U.S. Judge Esther Salas.

Federal prosecutors, in documents filed in court, said some of the bank’s employees had enabled money laundering by criminal gangs, which the bank was slow to detect and address. Prosecutors said they had also charged over two dozen individuals, including two bank insiders.

“TD Bank’s persistent prioritization of growth over controls allowed its employees to break the law and facilitate the laundering of hundreds of millions of dollars,” Michael J. Hsu, the acting comptroller of the currency, said in a statement. “The imposition of an asset cap will ensure that the bank focuses on building proper controls commensurate with its risk profile.”

The joint action included federal prosecutors in New Jersey and Washington, D.C.; the Federal Reserve, the Office of the Comptroller of the Currency and other Treasury authorities.

TD Bank Group — Canada’s second-largest bank, with about 1,100 branches in the United States — disclosed last year that it was the subject of a U.S. Justice Department investigation into its anti-money laundering compliance. In April, the bank reported that it was also in discussions with three American banking regulators about penalties for failing to follow anti-money laundering laws.

At that time, the bank set aside $450 million in reserve for the fines it anticipated, but it warned investors that the final cost could be higher. In August, the bank put an additional $2.6 billion in reserve for the penalties it anticipated. To raise that cash, TD Bank sold 40.5 million shares of Charles Schwab stock, reducing its ownership stake in the banking and brokerage company to just over 10%, down from 12%.

“The failures were serious,” Bharat Masrani, who has been TD Bank’s chief executive since 2014, told analysts in August. “We own it. We know what the issues are, and we are fixing them.”

The bank announced last month that Masrani would retire in April and named his successor, Raymond Chun, currently head of personal banking at the lender.

Last year, TD Bank agreed to pay $1.2 billion to settle claims arising from a $7 billion Ponzi scheme involving Stanford Financial, a bank that collapsed in 2009. TD was accused of continuing to do business with Stanford despite obvious red flags about its operations and the fraudulent certificates of deposit Stanford sold to more than 20,000 customers.

The swirling investigations scuttled TD Bank’s planned acquisition of Memphis, Tennessee-based First Horizon bank, a $13.4 billion takeover that was announced in early 2022 before being abandoned last year because of problems obtaining regulatory approvals. TD Bank paid First Horizon a $200 million breakup fee for failing to complete the deal.

TD Bank has spent 500 million Canadian dollars (about $365 million) on improvements to its money-laundering controls, Masrani said in May. Late last year, the bank hired Herb Mazariegos, formerly of the Bank of Montreal, to run its global anti-money laundering program.

TD Bank’s U.S. branches stretch along the East Coast from Maine to Florida. It has nearly as many branches spread across Canada, where the bank is also known as Toronto-Dominion. It is the 10th-largest bank in the United States, according to Federal Reserve data.

In settling, TD agreed to retain an independent monitor to oversee its anti-money laundering program.