U.S. Senator Objects to Lack of Personal Liability in TD Bank Ruling

The regulatory onslaught against Toronto-Dominion (TD) Bank continued this past week after a prominent American politician criticized regulators for failing to take even tougher action against the embattled financial institution in wake of one of the largest money laundering settlements in world history. Earlier this year, Global RADAR ?chronicled a series of major allegations brought against the international banking staple through which it was revealed that TD had significant and long-standing anti-money laundering (AML) related shortcomings that placed its own clientele, as well as the stability of the greater U.S. financial system, at significant risk.?

The allegations against TD revealed that the bank had allegedly emerged as the institution of choice to launder funds tied to the international fentanyl trade. All told, the Department of Justice (DOJ) probe into TD Bank’s internal controls led to the discovery of rampant abuse of the bank’s financial services by Chinese-backed crime groups and drug traffickers who were effectively using the firm’s domestic branches to launder the proceeds of U.S. fentanyl sales. Over recent years, Chinese crime groups have heavily subsidized fentanyl precursor materials that are ultimately supplied to Mexican cartels who would later traffic the illicit drugs across the United States – arguably the single greatest contributing factor to the fast-developing opioid epidemic seen in North America over recent years. Federal agents monitoring TD’s New York and New Jersey operations ultimately discovered a paper trail leading from TD to multiple Chinese syndicates, as well as evidence that TD Bank employees were bribed to look the other way, allowing for the proceeds from the drug trade to be washed through the U.S. financial system. The current U.S. regulatory investigations into these illegal activities have revealed that over $670 million worth of illicit funds were ultimately transferred through TD bank accounts as a result of these operations between 2016 through 2021. Unfortunately, these failures have likely allowed the relationships between these two parties, as well as the individual activities of various criminal organizations and drug cartels in both China and Mexico, to continue to grow stronger and thus further making the ability to hinder these operations more challenging for international law enforcement agencies.

“I want to be clear, these systemic failures did not just create hypothetical vulnerabilities, but they resulted in actual, material harm to American citizens and communities,” Deputy Treasury Secretary Wally Adeyemo said in a statement. “Time and again, unlike its peers, TD Bank prioritized growth and profit over complying with the law. The bank enabled drug trafficking.”4

The result of this anti-money laundering disaster equated to an eye-opening $3 billion+ in collective fines facing the bank. The fine includes a $1.3 billion penalty that will be paid to the U.S. Treasury Department’s Financial Crimes Enforcement Network, a record fine for a bank.4 TD will also pay an additional $1.8 billion to the U.S. Justice Department while pleading guilty to Bank Secrecy Act and Money Laundering Conspiracy violations which will officially close the regulator’s lengthy investigation. Furthermore, the total assets of TD's two US banking subsidiaries — TD Bank, NA and TD Bank USA, NA — will be capped at their reported September 2024 level of?$434 billion.2 These subsidiaries will also be subject to more stringent approval processes for new products, services and branches moving forward.2 In spite of the historic financial penalties levied however, Senator Elizabeth Warren (D-Mass.) claims these moves are still not enough. Warren’s argument, which came as part of an open letter to the Department of Justice, centers on the fact that TD?Bank Group executives – including CEO Bharat Masrani who will be formally retiring in April of 2025 – somehow did not face any individual charges as part of the bank's settlement over its laundry list of compliance failures.

In the United States, there is now an established standard for corporate and personal responsibility with respect to AML compliance that is expected to be followed closely at risk of fines and/or criminal prosecution for those at fault. In DOJ investigations, any evidence that compliance officers were directly complicit, aware of, or neglectful in addressing identified wrongful activity may create potential personal liability in an enforcement action. In spite of the far reach of this case across multiple branches however, no personal liability for high-ranking company officials has been announced in the settlement. Warren claims that the gross negligence and lack of care by TD’s top executives should have been addressed by the DOJ with prison sentences. Many have highlighted the Justice Department’s ruling against crypto-conglomerate Binance just over one year ago as a prime example for additional action that could and should have been taken in this case. In this ruling, Binance was levied a $4 billion fine for violating AML laws (in addition to unlicensed money transmitting and sanctions violations) and the company’s founder and CEO Changpeng Zhao ultimately served a four-month prison term for his role in these transgressions.

In her letter, Warren blasted TD’s failures in stopping three separate money laundering syndicates from perpetrating these crimes and highlighted some of the more blatant findings and statements brought forth in the DOJ’s investigation. “The magnitude of the dollar value of these illicit transactions is dwarfed only by the obviousness of the criminal activity,” she said. “According to Attorney General Garland, one drug dealer ‘on more than one occasion’ deposited more than $1 million in cash in a single day. He then immediately moved the funds out of the bank using official bank checks and wire transfers. In 2021, a TD Bank employee commented on that same drug dealer’s purchase of $1 million in official bank checks with cash, asking: ‘How is that not money laundering,’ to which another employee replied: ‘Oh, it 100% is.’ Also according to Attorney General Garland, TD Bank employees openly laughed at the bank’s slogan: ‘America’s Most Convenient Bank’—joking that TD Bank made it most convenient for criminals.”3

Senator Warren also claims that the DOJ made a mistake by allowing TD Bank’s holding company to plead guilty to money laundering conspiracy charges, allowing for legal liability to be shifted off of TD Bank as a whole. This effectively allowed TD Bank to be exempt from the Office of Comptroller of the Currency’s (OCC) death penalty provision for banks that could give regulators the power to strip a bank of its charter, effectively killing their U.S. operations.1 She also claims that TD Bank has failed to meet the standards that top DOJ officials said they would hold financial executives to. Warren cited Deputy Attorney General Monaco’s public statement in which she said “the rule of law demands that those most culpable for a company’s misconduct are the ones being charged, prosecuted, and convicted”. This year, Monaco also said the purpose of the DOJ is to “identify the most serious wrongdoers, whether individuals or companies, and…focus our full energy on holding them accountable.”3

Bank executives are paid exorbitant, guaranteed salaries and are unfortunately not directly incentivized to change their ways just because the company they work for is fined. Warren says unless executives are held accountable, big banks will continue to factor enforcement fines into the cost of doing business, rather than approaching their compliance responsibilities with the true seriousness and attention they require, and cases like these will continue to proliferate as a result. Even with these purposed liability objectives targeting compliance officials and bank executives in place, if regulators do not ultimately enforce action against those enabling wrongdoing, the legislation becomes nothing more than a moot point. Warren is now urging the DOJ to reconsider their actions and push for criminal prosecution in this this case.

Global RADAR will provide updates on any additional developments in this case as they become available.

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Citations

1.?????? Leffert, Catherine. “Exclusive: Warren Slams DOJ for Side-Stepping Tougher Action against TD.”?American Banker, American Banker, 31 Oct. 2024.

2.?????? Pianese, Barbara, and Aliya Shibli. “Explainer: TD Bank’s Future after Unprecedented Money-Laundering Charge.”?The Banker, The Banker, 15 Oct. 2024.?

3.?????? Warren, Elizabeth. “Warren Letter to DOJ Re: TD Bank.”?The United States Senate, 30 Oct. 2024.?

4.?????? Valinsky, Jordan, and Matt Egan. “TD Bank Hit with Record $3 Billion Fine over Drug Cartel Money Laundering, Source Says | CNN Business.”?CNN, Cable News Network, 10 Oct. 2024.?

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