5 things to know about the TD Bank scandal

Toronto-Dominion Bank, commonly referred to as TD Bank, is facing unprecedented fines and penalties from U.S. officials after allegedly failing to stop hundreds of millions of dollars in drug money laundering.

The bank agreed to pay more than $3 billion to various U.S. agencies and limit its growth until officials say TD Bank has done enough to fix its internal oversight issues. The U.S. may also force TD Bank to reduce its assets if it can’t shape up along the terms of the settlement.

Here are five things to know about the TD Bank money laundering scandal.

Money laundering networks moved $670M through TD accounts

Three money laundering networks took advantage of TD Bank’s alleged failures, moving more than $670 million through TD accounts between 2019 and 2023, according to the Department of Justice.

During a six-year stretch from January 2018 through April 2024, the bank failed to monitor $18.3 trillion in customer activity — 92 percent of its total transaction volume.

“TD Bank created an environment that allowed financial crimes to flourish. By making its services convenient for criminals, it became one,” Attorney General Merrick Garland said at a press conference Thursday.

An ‘easy target’ for criminals

One scheme allegedly moved more than $470 million in illicit funds through TD Bank between January 2018 and February 2021 and bribed TD employees with more than $57,000 worth of gift cards, the government said.

The individual behind the scheme, whom TD employees knew as David, “had attempted to launder money through numerous financial institutions, but he found that TD Bank had the most permissive policies and procedures and so chose to launder most of his funds there,” Garland said.

The attorney general described David’s conduct as “obvious to say the least,” noting that he deposited more than $1 million in cash in a single day on multiple occasions that he immediately moved out of the bank using bank checks and wire transfers.

In another scheme, five TD employees helped launder $39 million to Colombia. A third money laundering network maintained accounts for at least five shell companies at TD Bank that they used to transfer nearly $120 million.

TD employees appear to have been aware of the bank’s problems, with one describing it as an “easy target” for “the bad guys” and another describing it as “convenient.”

“There is nothing wrong with a bank that tries to make its services convenient for its honest customers. But there is something terribly wrong with a bank that knowingly makes its services convenient for criminals,” Garland said.

TD Bank makes unwelcome history

TD Bank’s alleged money laundering violations made history

The bank is the largest in U.S. history to plead guilty to charges brought under the Bank Secrecy Act (BSA), which forces banks to keep records meant to prevent and detect financial crimes. TD Bank will also pay the largest fine issued for a BSA violation and is also the first bank to ever plead guilty to conspiracy to commit money laundering.

“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,” Garland said.

The crackdown on TD Bank is the most aggressive federal action taken against a major bank since the historic penalties slapped on Wells Fargo in 2018. Wells Fargo was fined $1 billion and has been forced to cap its total assets at $1.9 trillion after a series of sales scandals.

TD Bank may be forced to downsize

Like Wells Fargo, TD Bank will be subject to a cap on its assets, which will prevent the bank from growing beyond $434 billion — its asset level as of Sept. 30. But TD Bank may also be forced to shrink if it fails to make changes specified by federal bank regulators.

If TD Bank can’t achieve those changes within a timeline set by the Office of the Comptroller of the Currency (OCC) — its main federal regulator — it will be forced to reduce its total assets by up to 7 percent. The OCC could ask TD Bank to make another cut of up to 7 percent for each year it fails to comply with the new order.

“TD Bank’s persistent prioritization of growth over controls allowed its employees to break the law and facilitate the laundering of hundreds of millions of dollars. The bank’s blatant risk management failures attracted illicit actors and are egregious and unacceptable,” said Michael J. Hsu, acting comptroller of the currency.

“The OCC’s coordinated and comprehensive action, including the imposition of an asset cap, will ensure that the bank focuses on building proper controls commensurate with its risk profile.”

Bank critics say more must be done

While the TD Bank settlement may be historic, it has done little to appease critics of the financial sector and policymakers who support stricter bank rules.

Sen. Elizabeth Warren (D-Mass.), a longtime critic of big banks, said the $3 billion in fines is simply “the cost of doing business” for a firm the size of TD Bank.

“This settlement lets bank executives off the hook for allowing TD to be used as a criminal slush fund. @TheJusticeDept & @USOCC must do better in enforcing anti-money laundering laws.”

Warren and other financial regulatory hawks have long called on agencies to break up big banks that violate laws.

University of Michigan business law professor Jeremy Kress, a former Federal Reserve attorney, praised the OCC for potentially forcing TD Bank to reduce it assets, but said it should be mandatory.

“The OCC seems to have learned from the Fed’s prolonged Wells Fargo asset cap: the TD asset cap states that the OCC may require TD to *reduce* its assets by 7% for every year of noncompliance,” Kress wrote on the social platform X.

“My only quibble: shrinking should be compulsory, not up to OCC discretion.”

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