TD Bank Braces For Fines Tied to Fentanyl Trafficking Exploits

Canadian multinational banking and financial services staple TD Bank is bracing themselves for a potential regulatory storm the likes of which they have never encountered. Reports emerged last week indicating that the financial giant is currently battling claims that their domestic operations are riddled with anti-money laundering-related deficiencies, with the firm expected to face multiple high-dollar fines from U.S. regulators due to these weaknesses. The Wall Street Journal writes that TD Bank is planning to set aside upwards of $450 million to help settle these penalties, this after the firm recently consulted with multiple U.S. regulators. However, analysts believe that while staggering, the aforementioned dollar total may not reflect the grand total of both financial and non-monetary penalties that the lender could face when these respective investigations are concluded, hinting at the true scope of the shortcomings in AML/CFT defenses for Canada’s second largest bank by market capitalization.¹

Following these developments, the bank disclosed that they have been actively working to correct these shortcomings, adding that its comprehensive AML program was insufficient to effectively monitor, detect, report, and respond to suspicious activity.¹ The claims from American regulators come on the heels of an additional financial penalty levied against TD Bank by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) – Canada’s primary AML agency – last week. This fine became the largest ever penalty issued to a Canadian firm by FINTRAC for non-compliance with AML regulations, totaling nearly C$9.2 million ($6.71 million), with the penalty coming at the conclusion of a routine compliance examination performed by the regulator in 2023. In this case TD Bank had failed to submit suspicious transaction reports as well as assess and document money laundering and terrorist activity financing risks.¹ In their investigation, FINTRAC also found TD Bank negligent in their duties with respect to conducting ongoing monitoring of business relationships as well as take the prescribed special measures for high risk.¹

While these actions are expected to take a significant toll on the firm’s immediate financial performance, an ongoing U.S. Justice Department investigation could prove to be the tipping point for the firm’s long-term vitality. A DOJ probe in to TD Bank’s internal controls led to the discovery of a major issue, this being the rampant misuse of the bank’s services by Chinese-backed crime groups and drug traffickers to launder the proceeds of U.S. fentanyl sales. Federal agents monitoring TD’s New York and New Jersey operations ultimately discovered a paper trail leading from TD to the Chinese syndicates, as well as evidence that TD Bank employees were bribed to look the other way, allowing for the laundering of hundreds of millions of dollars’ worth of proceeds from the drug trade to be washed through the U.S. financial system. The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) has long warned domestic financial institutions of the increasing threats posed by networks of Chinese money-laundering organizations. Chinese gangs and Mexican drug cartels have formed an unexpected partnership over recent years to help expand the respective reach of their destabilizing activities, laundering money and moving product into the United States. In these operations, Chinese operatives supply their Mexican counterparts with precursor chemicals in order to produce the illicit fentanyl that is ultimately sold to U.S. citizens, further spurring the opioid epidemic. To date these activities have proved quite successful for both parties, with American authorities and lawmakers each having a very difficult time trying to limit these exploits.

For TD, this is the first time their alleged ties to illicit drug sales have been reported publicly. The bank’s public relations approach to the developing situation has been proactive to date, this as they have been trying to put out the fire to salvage their tumbling share prices (which have fallen almost 8% in the last week alone). Now that these issues have come to light, TD is trying to regain consumer trust through increased transparency into their operations, though the impending financial penalties have largely quashed the group’s plans for continued expansion in the United States. In 2023, the firm had agreed to take over First Horizon Corporation for $13.4 billion, a deal that would have made it the sixth-largest U.S. bank.  The deal was ultimately terminated after U.S. regulators refused to clear the Canadian lender due to concerns over how TD handled suspicious transactions.

Despite their increase in transparency on the investigations, TD Bank has not yet directly addressed the corruption aspect of the scandal. Prosecutors allege that employees based in New York City were bribed at least $57,000 worth of gift cards and other forms of payment.² Additionally, a New Jersey TD Branch employee named Oscar Marcelo Nunez-Flores was discovered last year to allegedly be corrupt and taking bribes, as well as actively using his position to facilitate the laundering of millions of dollars in drug proceeds.²

These developments again raise the question: are compliance penalties nothing more than a cost of doing business for big banks? Having large, robust compliance departments is expensive, requires massive resources, and involves time-consuming work. Banks with millions of customers have pockets deep enough to stomach fines of even the largest variety and appear to find this a more attractive vehicle than dishing out the resources necessary to maintain a competent AML compliance program. Where is the ceiling? What number or total dollar value of fines, if any, will force big banks to make anti-money laundering and regulatory compliance in general a priority? For U.S. regulators, these questions have yet to be answered.

Citations

1. “Canada’s Anti-Money Laundering Agency Imposes $6.7 Mln Fine on TD Bank | Reuters.” Reuters, 2 May 2024. 
2. Tokar, Dylan, et al. “Exclusive | TD Bank Probe Tied to Laundering of Illicit Fentanyl Profits.” TD Bank Probe Tied to Laundering of Illicit Fentanyl Profits, 2 May 2024. 
3. Vieira, Paul. “TD Bank Sets aside $450 Million for Possible U.S. Anti-Money Laundering  Penalties.” The Wall Street Journal, 30 Apr. 2024.