TD Bank Hit with $3.1 Billion in Fines Over Widespread AML Failures Linked to Drug Cartel Investigation

Law enforcement officials have uncovered TD Bank’s extensive role in enabling money laundering schemes connected to a Mexican drug cartel, revealing a corporate culture that consistently devalued compliance with the Bank Secrecy Act (BSA) and anti-money laundering (AML) requirements. As investigators probed deeper, they discovered that multiple money laundering operations had infiltrated the bank’s network, which seemed to prioritize growth and profits over regulatory obligations.

In announcing fines totaling a record-breaking $3.1 billion, regulators condemned TD Bank’s leadership for allowing its AML compliance program to lag dangerously behind the risks posed by its business expansion. Investigators concluded that the bank’s leadership, including its board, intentionally underfunded compliance in favor of maximizing profits. “TD Bank prioritized growth and convenience over following its legal obligations,” said U.S. Attorney Philip Sellinger for the District of New Jersey in a Department of Justice (DOJ) press release detailing the case against the Toronto-based bank.

The choice to underfund compliance led to severe deficiencies in TD Bank’s AML program, which resulted in substantial backlogs in transaction monitoring and delayed filing of suspicious activity reports (SARs). Numerous red flags arose within the bank’s operations, including a particularly alarming incident in 2021 when over $1 million in official bank checks were purchased in cash in a single day at a TD Bank branch—an indication of money laundering.

U.S. Attorney General Merrick Garland emphasized that TD Bank’s leadership, including high-ranking executives, knew about these compliance issues but took no corrective action. “As the bank admitted in the statement of facts, which it filed today, at various times high-level executives, including the person who became the bank’s chief anti-money laundering officer, knew there were serious problems with the bank’s anti-money laundering program,” Garland said in his October 10 speech announcing the penalties. “But the bank failed to correct them.”

Investigators found that the bank’s corporate culture, as shaped by top leadership, minimized the importance of AML compliance, leaving many employees inadequately trained and hesitant to report potential violations. The DOJ compiled multiple accounts from TD Bank employees who indicated they were unclear on where or how to report suspicious behavior or who felt reporting violations would be pointless.

Systemic weaknesses in TD Bank’s transaction monitoring practices were also highlighted in the DOJ investigation. Although TD Bank applied varying thresholds to individual and business accounts to flag suspicious activity, the same thresholds were applied across all business accounts. This meant that a Fortune 500 company faced the same criteria as a sole proprietorship, which did not account for differences in transaction volume and activity. Additionally, in 2019, TD Bank’s business intelligence team flagged suspicious activity in a scheme funneling funds to Colombia—a country where the bank had no presence. Investigators had identified accounts with signs of money laundering, including multiple accounts opened on the same day at the same address, but TD Bank failed to act on their recommendations.

From 2019 to 2023, these failings allowed three separate money laundering schemes to process $670 million through TD Bank’s system. In response to these regulatory findings, TD Bank pledged a massive overhaul of its compliance program, including appointing a new U.S. head of financial crime risk management, hiring 40 additional compliance leaders, and bringing on over 700 AML specialists to revamp its BSA/AML program. Scott Greytak, director of advocacy at Transparency International U.S., said TD Bank’s efforts could potentially set a new standard for AML compliance. “It could represent a pendulum swinging to create a best-case model AML program,” he said. “Ideally, its response could have a positive ripple effect.”

Regulators, however, have imposed rigorous demands to ensure TD Bank addresses its AML deficiencies. The Treasury Department’s Office of the Comptroller of the Currency (OCC) has restricted growth in the bank’s U.S. subsidiaries, capping assets at $434 billion and requiring additional scrutiny of all new initiatives to ensure AML compliance. Similar to the actions taken with Wells Fargo after its fake accounts scandal, the growth restrictions are a stern signal to financial institutions about the risks of neglecting AML obligations.

TD Bank is also required to engage multiple independent monitors to assess its progress, with the DOJ and FinCEN each appointing compliance monitors for three and four years, respectively. FinCEN has also mandated that TD Bank retain an independent consultant to review SARs dating back to 2018 and that another consultant evaluate the bank’s AML program as it is implemented.

The Federal Reserve Board ordered the bank to relocate its U.S. AML oversight from Canada to the United States to enhance regulatory oversight, and required TD Bank to set up a remediation office in the U.S. directly accountable to the board of directors.

With these substantial regulatory demands in place, TD Bank faces an immense challenge in restoring regulatory confidence in its compliance practices. Only time will tell if the bank can achieve the transformation necessary to satisfy regulatory expectations and re-establish its standing.

By fLEXI tEAM