TD Bank Faces Potential $4 Billion in Fines Over U.S. AML Failures, Analysts Warn

Analysts have indicated that fines against TD Bank related to a series of anti-money laundering (AML) failures at its U.S. operations could reach as high as US $4 billion, doubling the previous estimate. The controversy surrounding Canada's second-largest bank has intensified following reports of the U.S. Justice Department's investigation into how Chinese drug traffickers allegedly laundered at least US $653 million through TD Bank between 2016 and 2021.

In April, TD disclosed that it had set aside US $450 million concerning ongoing discussions with a U.S. regulator over potential AML penalties. Additionally, the bank reported spending another US $365 million to enhance its AML systems and hire new staff.

Despite these efforts, analysts had previously suggested that the amount allocated might be insufficient, with earlier estimates predicting fines could reach $2 billion. However, revelations earlier this week about a new court case involving a TD Bank employee in Florida, accused of accepting bribes to facilitate the transfer of millions to Colombia, have further complicated the situation.

The U.S. Attorney’s Office for the District of New Jersey has already filed at least four cases alleging serious misconduct by TD Bank branch employees in New York, New Jersey, and Florida.

Jefferies analysts, led by John Aiken, have noted that the previous estimate of $2 billion in regulatory fines may understate the issue. “While our previous estimate for the regulatory fines was at US $2 billion, given that a third AML issue has been reported, we now believe that this estimate could be low,” the analysts wrote in a report quoted by Bloomberg. “Although a US $4 billion fine does seem a bit high at this juncture, we cannot deny that it is still within the realm of possibilities, potentially eroding all of TD’s current excess capital.”

Such significant fines would severely impact TD Bank, constraining its ability to expand. According to prior analysis by AML Intelligence, there are also concerns that U.S. regulators may impose restrictions on TD’s American expansion plans, which could significantly hinder the bank's ability to increase profits, given the U.S. is a crucial growth market for the lender.

Analysts at Royal Bank of Canada have previously suggested that TD could face penalties of $3 billion or more. More worryingly for the bank, these analysts also indicated that TD could be subject to an asset cap on its U.S. business for five years.

By fLEXI tEAM