TD Bank Pleads Guilty to U.S. Charges, Will Pay $3 Billion, Face Asset Cap

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 of dollars in fines to resolve the charges, government authorities announced Thursday.

The plea agreement, which includes the rare imposition of an asset cap and other limitations on its activities, stems from several government investigations into what authorities described as pervasive problems at TD Bank. For years, the government said, TD ignored warning signs from high-risk customers and created a “convenient” environment for bad actors to exploit.

Two units of the bank pleaded guilty to conspiracy to launder money and conspiracy 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 low,” Attorney General Merrick Garland said at a news 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 measure generally reserved for serious cases. This is a big blow to TD. The bank has sought to expand further in the United States, which accounts for about a third of its revenue.

“This is a difficult chapter in our bank’s history. These failures took place under my watch as CEO and I apologize to all our stakeholders,” CEO Bharat Masrani said in a press release.

“THE MOST PRACTICAL BANK”

TD failed to monitor more than $18 trillion in customer activity for about a decade, allowing three money laundering rings to move illicit funds through accounts at the bank, U.S. authorities said , calling the problems pervasive.

Bank employees “openly joked” on several occasions about the lack of compliance, Garland told reporters during a briefing on the plea deal.

TD Bank’s problems were known at all levels of the bank, authorities said. In some cases, TD did not report suspicious activity until law enforcement paid attention, and sometimes cashiers accepted gift cards as bribes.

“It is therefore no surprise that the slogan of America’s Most Convenient Bank was used as a joke by employees to describe TD Bank as convenient for criminals,” said the U.S. Attorney for New Jersey , Philip Sellinger.

TO FALL

The combined $3 billion in sanctions will go to the Justice Department, U.S. banking regulators and the Treasury Department’s Financial Crimes Enforcement Network.

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The agreement also includes the imposition of independent oversight. In addition to the asset cap, the resolution also prevents TD Bank from opening a new branch or entering a new market without OCC approval, regulators said.

An asset cap is “the worst-case scenario” for TD, Lemar Persaud, an analyst at Cormark Securities, said before details of the plea deal were announced. The bank has already set aside $3 billion for this fine.

Persaud drew a parallel with Wells Fargo, whose profits were limited by a $1.95 trillion asset cap in place following a fake accounts scandal. An asset cap would also limit TD’s profits, but to a lesser extent than for Wells Fargo, he said.

TD’s investigation led to “significant underperformance of the stock and, in our view, the retirement of current CEO Bharat Masrani,” Persaud said.

TD is the second largest bank in Canada and the tenth largest in the United States. The lender first revealed it was responding to requests from regulators and law enforcement last year, just months after terminating its $13 billion acquisition of regional lender First Horizon.

Federal authorities began investigating TD’s internal controls after agents uncovered a Chinese criminal operation that bribed employees and brought large bags of cash into branches to launder millions of dollars in fentanyl sales at TD branches in New York and New Jersey, a source confirmed.

TD spent millions to strengthen its compliance programs, laid off dozens of employees at its U.S. branches and named Ray Chun, head of personal banking in Canada, as CEO, distancing its new boss from the scandal money laundering.

CEO Masrani, who has been at the helm of the company for nearly a decade and previously led its U.S. operations, will retire next year. Masrani said he took full responsibility for the money laundering problems plaguing the bank.

TD has already taken corrective action and clawed back executive pay, officials said, noting that the bank became the first company to agree to do so prospectively.

(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)