Employees of TD joked openly about the bank being an easy target for launderers but failed to act on warnings
Failures to stop money laundering in Toronto-Dominion Bank’s U.S. division were egregious, pervasive and well known even at senior levels of the bank, marking TD as a place where low-level employees joked openly about the bank being an easy target for bad actors, while senior executives failed to act on warnings, according to top U.S. Justice Department officials.
Two of TD’s U.S. subsidiaries pleaded guilty to multiple felony charges on Thursday, agreed to settlements and restrictions on the bank’s American retail banking operations, and agreed to pay more than US$3-billion in penalties. The deals TD reached with U.S. law enforcement and regulators will cap the bank’s growth in the United States for years to come and will require continued monitoring of its remediation plans.
The deficiencies in TD’s defences against money laundering spanned nearly a decade, starting in 2014, and allowed hundreds of millions of dollars of illicit funds to pass through the bank. Some of the illegal activity was obvious and bore classic signs of money laundering – more than once, a criminal who has since pled guilty deposited more than US$1-million in cash in a single day, then immediately moved the funds back out of the bank.
The Justice Department found that senior executive managers, including TD’s chief anti-money-laundering officer and the officer in charge of complying with the U.S. Bank Secrecy Act, “knew there were long-term, pervasive, and systemic deficiencies in the Defendants’ U.S. AML policies, procedures and controls,” according to court documents filed in New Jersey as part of TD’s guilty plea.
The bank’s problems reveal a culture that U.S. officials say prioritized rapid growth in the U.S. and convenience and ease of banking for customers – a hallmark of TD’s approach that it wrote into its motto for its U.S. subsidiary, which it referred to daily as “America’s Most Convenient Bank” – over maintaining sound controls and meeting its legal obligations to protect the financial system.
“Our anti-money-laundering laws dictate that a bank that willfully fails to protect against criminal schemes is also a criminal. That is what TD Bank was,” U.S. Attorney-General Merrick Garland said at a Thursday news conference announcing the guilty plea in Washington.
Mr. Garland said TD’s automated system for monitoring transactions was deficient and that the bank failed to monitor US$18.3-trillion in customer activity over a six-year span that started in 2018.
TD chief executive officer Bharat Masrani, who has announced plans to retire next year, called Thursday “a sad day in our history” on a conference call.
“We’ve been very clear. We had a major failure in our U.S. AML program,” he said, citing “various reasons” for the bank’s lapses without giving specific examples. “We know what the issues are, we are fixing them.”
Some front-line TD employees were complicit in the crimes, in some cases taking bribes to open improper accounts and facilitate illicit transactions, according to the Justice Department.
One of the most prolific criminals who targeted TD, David Sze, moved more than US$470-million in illicit funds through TD Bank branches in the U.S. over a three-year span. He repeatedly deposited large amounts of cash into accounts opened by other people, asking bank employees to send wires and issue official cheques.
But TD failed to identify him as the one conducting the transactions in more than 500 currency transaction reports – even in instances in which surveillance footage shows the named account holder sat in the background, not taking part.
Yet the bank’s lapses weren’t confined to its junior ranks. Throughout 2020, TD’s U.S. BSA compliance officer received regular reports aggregating and analyzing those transaction reports, in which “the extraordinary volume and value” of transactions by Mr. Sze’s network “were repeatedly highlighted as substantial outliers.”
One report in February that year called out two companies in the network for purchasing US$8.5-million in official bank cheques – including US$8.3-million in cash – which was the highest amount at two different TD branches.
Later, the BSA officer “stated that she did not review the reporting carefully because she incorrectly assumed that other U.S. AML executives were also receiving the reports, although she was the sole recipient.”
Some TD retail employees understood the likely illegality of Mr. Sze’s activity. In August, 2020, one branch manager e-mailed another: “You guys really need to shut this down LOL.” In some cases, the employees filed unusual transaction referrals (UTRs) that “clearly communicated the gravity of the conduct.”
In one UTR filed in September, 2020, an employee bluntly reported to the bank’s U.S. anti-money-laundering program that “EVERY DAY CUSTOMER DEPOSIT A LOT OF CASH.”
The employees who received UTRs and escalated them within the bank – a team that is described as chronically understaffed and plagued by backlogs, according to court documents – were aware of Mr. Sze’s network, with one noting in July, 2020: “They have certainly been a thorn in our side for quite some time!!”
But other retail employees “repeatedly failed to report David’s suspicious transactions,” the court documents say. And one TD executive approved a policy in August, 2020, that told branches UTRs were not required on specific customers unless their activity changed or continued beyond 60 days – “which directly contravened” TD policies.
Mr. Sze tried laundering money at numerous financial institutions, “but he found that TD Bank had the most permissive policies and procedures and chose to launder most of his funds there,” Mr. Garland said.
In July, 2019, the bank opened accounts for a New York-based religious institution, even though its leader had ties to terrorist organizations and “involvement as an unindicted co-conspirator in the 1993 World Trade Center bombings” – facts that were publicly available, according to court filings.
TD allegedly failed to perform adequate due diligence or to categorize the customer as high-risk. When the bank filed a suspicious activity report on the customer, it acknowledged the “suspicious activity indicative of terrorist financing” began four years earlier, and that the bank processed more than US$3-million in suspicious transactions in the meantime, according to a consent order imposed on the bank.
In another instance, five TD Bank employees conspired with criminal groups to open accounts used to launder US$39-million, including drug proceeds, to Colombia through a scheme involving debit cards and ATM withdrawals. TD became aware of this pattern of suspicious behaviour in July, 2019, and analyses and presentations about it were shared with top executives on the bank’s global anti-money-laundering team, court filings say. Mid-level executives agreed that other banks had put in safeguards that were pushing bad actors toward TD, and recommended policy changes.
But none of those changes were enacted over the next 18 months, court documents say, “due to the potential impact on the ‘customer experience,’” and the extra hiring that would have been required.
When a criminal network that purported to be in the wholesale gold, diamond and jewelry business maintained TD accounts for five shell companies that were used to transfer US$120-million over 13 months, retail employees flagged suspicious activity in the accounts.
But TD had removed a monitoring tool that tracked large cash deposits by business customers, which would have generated about 161 alerts. The bank didn’t file a suspicious activity report until law enforcement alerted TD to the criminal activity, even though the accounts had the same signatories, showing they were linked.
TD’s guilty plea does not mark an end to potential legal jeopardy for some of its employees. Mr. Garland said the Justice Department has “active and ongoing” criminal investigations into individual employees “at every level of TD Bank.”
“We do expect to see more prosecutions,” he said. “No one involved in TD Bank’s illegal conduct will be off limits.”
This article was first reported by The Globe and Mail
