TD Bank Pleads Guilty to $1.8 Billion in Criminal Penalties, Totaling Over $3 Billion in Regulatory & Civil Penalties

TD Bank, one of the largest financial institutions in North America, has pleaded guilty to multiple felonies and agreed to pay a staggering $1.8 billion in criminal penalties, in a resolution that also involves civil enforcement actions totaling over $3 billion. This marks the largest penalty ever imposed under the Bank Secrecy Act (BSA) and signals a significant shift in how U.S. regulators are addressing persistent compliance failures in the banking industry. In an unprecedented move, the U.S. Department of Justice (DOJ) applied the Bank Secrecy Act’s daily fine provision—$500,000 per day for violations—making it the first-ever daily fine levied against a financial institution for chronic BSA compliance failures.

TD Bank’s guilty plea includes admissions to conspiring to violate the BSA and commit money laundering. This is a significant legal and regulatory milestone, as it makes TD Bank the first major U.S. bank to plead guilty to money laundering conspiracy charges in over a decade. The case underscores a profound breakdown in internal controls and risk management at TD Bank, exposing systemic deficiencies that enabled the illicit movement of billions of dollars in potentially criminal activity over several years.

A Culture of Negligence & Regulatory Warnings Ignored

The investigation, spearheaded by the DOJ, Office of Comptroller Currency (OCC), Federal Reserve Board, and the Financial Crimes Enforcement Network (FinCEN), uncovered a troubling pattern of willful negligence within TD Bank. Regulators found that, despite repeated warnings, the bank maintained inadequate controls over its U.S. operations, allowing criminal actors to exploit its services. Internal communications from TD Bank staff highlighted a corporate culture that, at times, turned a blind eye to the risks of enabling money laundering activities, with some employees acknowledging that the bank had become an “easy target” for criminals.

TD Bank’s compliance failures spanned nearly a decade, during which the bank processed trillions of dollars in transactions without proper oversight. Regulators found that the bank’s compliance department was underfunded and understaffed, with many employees lacking the proper training to detect money laundering activities. Despite this, TD Bank continued to aggressively expand its business operations in the U.S. without making the necessary investments in risk management systems to protect against financial crime.

The deficiencies in TD Bank’s anti-money laundering (AML) program were extensive. Regulators revealed that between 2014 and 2023, the bank failed to properly monitor over $18.3 trillion in financial transactions—approximately 92% of the bank’s total transaction volume. This amounted to an estimated 1.5 billion transactions that went unmonitored for suspicious activities. These failures allowed TD Bank to become a conduit for money laundering, drug trafficking, and other illicit activities.

A few examples of these failures included:

The “David” Operation: This operation revealed how a single individual, referred to in internal documents as “David,” moved more than $470 million through TD Bank’s U.S. branches over the course of six months. The individual exploited the bank’s weak controls, depositing over $1 million in cash on multiple occasions and bribing bank employees with over $57,000 in gift cards to facilitate these transactions. David was able to bypass detection by using complex shell company networks and fake identification documents.
The Colombian Cartel: One of the most alarming cases involved the facilitation of nearly $40 million in illicit funds connected to Colombian drug cartels. Employees at TD Bank provided assistance in laundering the proceeds of these operations, failing to flag suspicious transactions that involved large, untraceable cash deposits and wire transfers from high-risk jurisdictions.
The Shell Company Scheme: In another example, a sophisticated network of shell companies moved approximately $120 million in suspicious transactions over 13 months through TD Bank accounts. The bank’s failure to conduct proper due diligence allowed the use of these shell companies to conceal the origin of illicit funds, which were then funneled to international accounts, evading detection for months.
Attorney General Merrick Garland emphasized that investigations into individual conduct continue: “No one involved in TD Bank’s illegal conduct will be off limits.” The Department of Justice has already charged two dozen individuals connected to the money laundering schemes, including two bank employees.

Penalties & Resolutions

As part of the settlement, TD Bank agreed to pay $1.8 billion in criminal penalties, including a $500 million fine imposed under the Bank Secrecy Act’s daily violation clause. This fine, which spans a period of almost 5 years, was imposed as a direct consequence of the bank’s repeated failures to meet its BSA obligations, including neglecting to file Suspicious Activity Reports (SARs) for tens of thousands of questionable transactions.

Additionally, the bank faces an historic $1.3 billion civil penalty imposed by FinCEN, marking the largest financial penalty ever levied under the Bank Secrecy Act. This penalty reflects the severity of the violations, including the improper handling of transactions linked to narcotics trafficking, terrorist financing, and other illicit activities.

The U.S. Department of Justice also worked with the Office of the Comptroller of the Currency (OCC) and the Federal Reserve to secure additional penalties. The OCC imposed a cease-and-desist order and a civil money penalty of $450 million, while the Federal Reserve Board fined TD Bank $123.5 million for its failure to adhere to proper risk management and due diligence procedures in its U.S. retail banking operations.

These penalties collectively surpass $3 billion—one of the largest enforcement settlements in recent U.S. history for a financial institution. The settlement serves as a stark reminder of the critical role that robust compliance programs play in safeguarding the integrity of the financial system.

TD Bank had already set aside $450 million in anticipation of potential penalties stemming from an earlier investigation into its BSA/AML deficiencies. The bank had been in ongoing discussions with U.S. regulators and the Department of Justice for several months before this final resolution, but the initial provision has now grown into a much larger penalty package. This proactive approach by the bank in setting aside provisions is part of a broader effort to demonstrate its commitment to compliance and transparency, even as it confronts these challenges.

Despite these provisions and the bank’s assertions of financial strength, the total penalties underscore the seriousness of TD Bank’s compliance failures. TD Bank has committed to strengthening its BSA/AML programs and internal controls, but the penalties highlight that regulatory authorities were dissatisfied with the pace and depth of these improvements.

Long-Term Remediation & Oversight

As part of the settlement, TD Bank must implement a sweeping series of remedial measures to prevent further violations. These include the establishment of an independent monitor who will oversee the bank’s compliance program for the next five years. The monitor will be tasked with ensuring that the bank adheres to regulatory directives and works to restore its damaged reputation. Additionally, TD Bank will be required to make significant investments in compliance infrastructure, including expanding its AML staff, improving transaction monitoring systems, and enhancing its training programs for employees.

The settlement also requires TD Bank to cooperate with law enforcement authorities in their ongoing investigations of criminal networks and to provide regular updates on its progress toward reform. This commitment to oversight is a critical aspect of the resolution, as it signals the bank’s intention to work more closely with regulators and law enforcement in future.

Deputy Attorney General Lisa Monaco characterized the case as “a cautionary tale” of compliance failure, noting that TD Bank “starved its compliance program of the resources it needed to obey the law.” The investigation revealed that even as the bank’s profits soared, it maintained what it called internally a “flat cost paradigm,” refusing to increase compliance budgets despite expanding risks and regulatory warnings.

This sentiment was echoed by Deputy Treasury Secretary Wally Adeyemo, who delivered stern remarks at a press conference on October 10, 2024.

“TD Bank has done the exact opposite of what we expect from responsible institutions. Through deliberate actions—and inaction—TD Bank failed to meet its responsibilities. Time and again, unlike its peers, TD Bank prioritized growth and profit over complying with the law.”

Adeyemo revealed that TD Bank had facilitated over $400 million in transactions related to drug trafficking, particularly fentanyl, and pointed out the culture of bribery within the bank. Tellers were bribed with gift cards to falsify or ignore suspicious activity reports. In another incident, a bank employee accepted bribes to open accounts for shell companies used in money laundering schemes.

The Broader Impact on the Financial Sector

The TD Bank case has broader implications for the banking sector. The historic penalties and the DOJ’s use of daily fines mark a new chapter in how U.S. regulators will enforce BSA and AML compliance. This enforcement action signals a heightened focus on corporate governance and a commitment to holding financial institutions accountable for their role in enabling criminal activity.

Regulators are increasingly emphasizing that banks must prioritize compliance at every level of operation and that financial institutions can no longer ignore risks in favor of profitability. As Deputy Attorney General Monaco put it, “Compliance is not optional; it is the foundation upon which the integrity of the financial system is built.”

The TD Bank case serves as a wake-up call for other financial institutions and compliance officers across the industry. It underscores the importance of proactive, comprehensive risk management and the need for financial institutions to invest in the resources necessary to detect, report, and mitigate financial crimes.

As the banking industry grapples with growing pressures to balance growth and regulatory compliance, the resolution of TD Bank’s case will undoubtedly be a point of reference in discussions around the future of financial crime enforcement. While TD Bank has signaled its intention to improve its compliance framework, the scale of the penalties highlights that inaction and negligence will no longer be tolerated.

With significant penalties and a commitment to far-reaching compliance reforms, TD Bank is now positioned at the center of an evolving regulatory landscape that will set the tone for other financial institutions facing similar risks. The outcome of this case should serve as a reminder: for banks, the era of leniency in the face of compliance failures is over.

Article Credit: https://www.grcreport.com/post/td-banks-path-from-compliance-failure-to-criminal-conviction-a-historic-3b-penalty-and-unprecedented-daily-fines