TD Bank fined US$3B, faces U.S. asset cap in money laundering plea deal

Two units of TD Bank have entered guilty pleas to U.S. criminal charges and agreed to pay a total of $3 billion in penalties to settle federal investigations into money laundering, according to U.S. authorities on Thursday.

The plea agreement entails an asset cap and other restrictions on the bank's operations. The charges include conspiring to launder money and failing to file accurate reports or maintain an effective anti-money laundering program, as stated by the Justice Department.

The asset cap, imposed by the Office of the Comptroller of the Currency, is an unusual measure typically applied in serious cases. This could significantly impact TD Bank, which has been looking to expand its presence in the U.S., a market that generates roughly one-third of its income.

In addition, TD has consented to pay $3 billion in penalties to various U.S. banking regulators, the Justice Department, and the Financial Crimes Enforcement Network of the Treasury Department.

The agreement resolves investigations led by the Justice Department, the Office of the Comptroller of the Currency, and the Treasury’s Financial Crimes Enforcement Network. It also includes provisions for independent monitoring.

An asset cap is considered the “worst-case scenario” for TD, according to Cormark Securities analyst Lemar Persaud, who commented before the plea deal details were disclosed. The bank has already allocated $3 billion for the fine.

Persaud compared the situation to Wells Fargo, which has a $1.95 trillion asset cap following a fake accounts scandal that has limited its earnings. He noted that while an asset cap would also restrict TD’s profits, the impact would likely be less severe than it has been for Wells Fargo.

The ongoing TD investigation has resulted in “significant underperformance of the stock and, we believe, the retirement of the current CEO Bharat Masrani,” Persaud added.

TD Bank is the second largest in Canada and the tenth largest in the U.S. The bank first disclosed it was addressing inquiries from regulators and law enforcement last year, shortly after abandoning a $13 billion acquisition of regional lender First Horizon.

Federal authorities initiated an investigation into TD’s internal controls after discovering that a Chinese criminal group had bribed employees and funneled large amounts of cash into branches to launder millions of dollars from fentanyl sales through TD locations in New York and New Jersey, a source confirmed.

TD has invested millions to enhance its compliance programs, dismissed dozens of employees at its U.S. branches, and appointed Ray Chun, the head of Canadian personal banking, as its new CEO, distancing its leadership from the money laundering scandal.

CEO Masrani, who has led the bank for nearly a decade and previously managed its U.S. operations, is set to retire next year. He has stated that he takes full responsibility for the money laundering problems that have affected the bank.