TD Bank Prioritizes AML Overhaul as Federal Regulators Appoint Compliance Monitor

TD Bank leadership has emphasized that addressing lapses in its anti-money laundering (AML) program is its “top priority,” following the appointment of an independent compliance monitor by federal regulators to oversee a complete rebuild of its AML framework.

On February 27, TD Bank disclosed in its first-quarter financial results that the U.S. Department of Justice (DOJ) and the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) had selected Guidepost Solutions as the independent monitor responsible for overseeing the bank’s remediation efforts. The Toronto-based bank, which ranks as the tenth largest in the U.S., has been under scrutiny for serious AML compliance failures.

In October, four U.S. regulators fined TD Bank nearly $3.1 billion after an investigation uncovered three money laundering operations that funneled $670 million in fentanyl-related illicit profits through the bank’s U.S. network. According to regulators, the deficiencies in TD Bank’s AML program violated provisions of the Bank Secrecy Act (BSA).

“U.S. AML remediation remains our top priority, and we continue to make consistent progress to strengthen the bank,” said Raymond Chun, group president and CEO of TD Bank Group, the parent company of TD Bank U.S.

As part of the regulatory enforcement action, TD Bank was ordered to reduce its total U.S.-based assets, which had peaked at $434 billion in September. In response, the bank reported that it had brought its total U.S. assets down to $402 billion as of January by selling securities and divesting its ownership stake in the Charles Schwab Corp.

The cost of investigating and addressing the bank’s AML deficiencies has already surpassed $138 million. TD Bank’s U.S. retail division revealed that this amount includes $86 million allocated for remediation efforts and an additional $52 million spent on global remediation.

A visual presentation included in the bank’s quarterly report outlined its progress, noting that all investigative cases have now been centralized into a single case management system. The bank also announced plans to enhance its transaction monitoring capabilities in the second quarter.

Leo Salom, group head of U.S. Retail, stated in a recorded presentation of the quarterly results that the bank expects to introduce machine learning tools in the third quarter to improve its ability to analyze customer data efficiently. “Implement machine learning tools that help analyze customer data more effectively to detect activity of interest, with speed,” Salom said.

Federal regulators have accused TD Bank of severely underfunding its AML program, failing to scale it in accordance with the rapid growth of its U.S. retail division. The decision to neglect the AML program led to massive backlogs in transaction monitoring and the filing of suspicious activity reports (SARs). Warning signs had been evident for years, with multiple red flags surfacing throughout TD Bank’s operations. One such instance occurred in 2021 when money launderers managed to purchase more than $1 million in official bank checks with cash at a single TD Bank branch in a single day.

The bank’s proposed plan to overhaul its AML program must be reviewed and approved by the independent compliance monitor before receiving final regulatory approval.

“There’s still much to do. This is a multi-year process,” Salom acknowledged during the earnings call, “but we remain unwavering in our commitment to build the AML program we need.”

By fLEXI tEAM