TD Bank's “Historic Fine”: Drugs, Bribes, Human Trafficking, And A Calculated Risk

Last week, TD Bank agreed to pay over $3 Billion in penalties in a plea deal with the US Government for Bank Secrecy Act (BSA) violations, making TD Bank the first US Bank in history to plead guilty to conspiracy to commit money laundering and the largest US Bank to plead guilty to violations of the Bank Secrecy Act, according to the US Department of Justice.

According to a consent order published last Thursday, the Bank’s “severe underinvestment in AML compliance” enabled the laundering of funds linked to drugs, bribes, human trafficking, some of which directly involved TD Bank employees.

The fine is the largest fine ever issued over violations of the BSA, but amounts to less than 1% of the banking group's revenue between 2013 and 2023, the time period during which the violations in question occurred.

“Today’s historic guilty plea, including the largest penalty ever imposed under the Bank Secrecy Act, offers an unmistakable lesson: crime doesn’t pay”, said Deputy Attorney General Lisa Monaco.

But TD Bank's 20-year history of banking violations suggest that crime does pay in the banking sector – and rather exceptionally at that.

Drugs, Bribes, And Human Trafficking

The consent order illustrates how one of TD Bank's largest cash customers, a New York clothing company, conducted between $8 million to $20 million in cash transactions per quarter via TD branches and ATMs despite being flagged by TD's AML employees.

The clothing company was later identified as part of a money laundering network led by Da Ying Sze, who plead guilty to orchestrating a $653 Million money laundering conspiracy funneling narcotics proceeds through the US financial system in 2022.

According to the consent order, the Sze network conducted more than $400 million in transactions through TD Bank deposited into “approximately 100 TD Bank branches”. TD Bank named Sze, who “routinely provided gift cards to employees of TD Bank when he visited branches,” in only six suspicious transaction reports (SARs), reflecting less than 10% of illicit activity conducted by Sze via TD. The consent order highlights that reports on Sze's suspicious activity were never followed up.

The consent order states that TD Bank retail employees – named as Individual A and Individual B – “exploited their position to facilitate money laundering activities in exchange for bribes,” and engaged in “suspicious activity”. TD Bank's plea agreement states that TD Bank customers, sometimes aided by five Bank insiders, laundered approximately $671 million through accounts maintained by TD and created vulnerabilities that allowed the Defendant’s employees to open and maintain accounts for money laundering networks that moved $39 million in proceeds.

“During their tenure at the Bank, Individual A opened over 2,000 accounts whose account holders conducted more than 600,000 transactions aggregating to over $200 million,” the consent order reads. “In return for their role in facilitating the funnel accounts, Individual A received thousands of dollars in bribe payments.” Accounts opened by Individual A were then used to launder narcotics proceeds linked to Colombian nationals – a high risk jurisdiction which made up over 90% of TD's flagged ATM activity, despite the fact that TD does not have a physical presence in Colombia.

FinCEN additionally identified over 300 transactions linked to human trafficking at massage parlors – named as customer group B – which TD Bank did not report “until nearly five years after it began”. But even when suspicious activity was reported, TD Bank failed to act. In 2021, a TD Bank employee manually identified transactions potentially linked to human trafficking which raised “really big red flags”, identifying a lack of automated alerts as a risk to TD Bank's operations – but TD yet failed to adjust its compliance flagging.

TD missed more transactions linked to human trafficking between 2023 and 2024, when a purported HVAC company, which processed over $3.5 Million via TD Bank, purchased hundreds of visa immigration services in Suriname, Nicaragua, Ethiopia and Singapore, yet “despite the clear human trafficking 'red flags,' TD Bank failed to proactively identify any of this suspicious activity over nearly a year due to the known gaps in its transaction monitoring system.”

TD Bank failed to adequately monitor transactions of “Customer Group C”, which transacted $1B through TD at an average of over $100M in wire transfers each month. According to the consent order, Customer Group C received over $650 Million from “an international cryptocurrency exchange platform [...]where the purpose, ultimate originators, and source of funds were unknown to TD Bank. Despite this high volume of funds from unknown sources, TD Bank continued to process transactions for Customer Group C, including the facilitation of over $420 million to a financial institution offering cryptocurrency services in the high-risk jurisdiction of Colombia.”

To add insult to injury, TD also banked an individual linked to the 1993 World Trade Center bombings, which FinCEN appears to suggest the bank might as well have just looked up on Google: “Despite this publicly available negative news, TD Bank failed to perform adequate due diligence at account opening and failed to understand its customers’ terrorism-related associations.”

According to the consent order, TD Bank“acknowledged the suspicious activity indicative of terrorist financing,” which began four years prior to TD filing its first Suspicious Activity Report on the customer. By then, TD Bank had processed over $3M of the customer's crowdfunding deposits, bulk cash and check deposits.

BSA Violations As A Calculated Risk

According to the consent order, AML investigators were aware that “bad actors target TD [Bank]”, noting that a TD AML compliance officer stated in 2020 that “[c]urrently we . . . do not monitor checks as far as I have seen, but we see a lot of ML [money laundering] in this space.”

TD Bank failed to monitor 98% of domestic Automated Clearing House (ACH) transactions – meaning transactions occurring between financial institutions –, roughly half of TD Bank’s fund transfers, P2P transactions, and nearly all monetary instruments. In 2023 alone, the coverage gaps applied to several trillion dollars of transactions that were not screened by the Bank’s transaction monitoring system.

As the order repeatedly demonstrates, TD consciously decided to cut staff and spending on its AML compliance program, which created large backlogs of transactions and reports, delaying the termination of accounts. As the order states, between 2018 and 2021, TD Bank received more than $5 Billion into accounts flagged to be demarketed by TD's AML employees.

Marketing TD's fine as a “historic guilty plea” for BSA violations is not the win the Department of Justice thinks it is – it rather demonstrates how large financial institutions are systemically let off the hook for enabling criminal activities.

Between 2013 and 2023, TD Bank made $424.88B CAD in revenue – or $306.18B USD. As the consent order demonstrates, businesses and individuals actively sought out TD Bank to engage in criminal enterprise, suggesting that much of the bank TD Bank made was in fact precisely because TD engaged in lax AML practices.

The fact that TD was even offered a deal seems an insult to the US Justice system. In the US, sentences are calculated by federal sentencing guidelines, which offer a scale determining the severity of the crime that occurred – a system which should ensure that individuals receive similar sentences for similar crimes. But the sentencing scoring is levered up according to the number of victims and the amount of money involved, as well as for repeat offenders.

Since 2003, TD Bank has raked up $732,157,035 in fines for 59 banking violations – over $155M in the year 2024 alone. This averages TD Bank at about 2.95 violations per year, but still falls short of placing TD Bank in the top 10 of violators in the financial services industry, who have accumulated a total of $286.68 billion in fines with 1,721 total violations led by Bank of America, JP Morgan Chase, UBS and Wells Fargo, who all continue to operate.

While TD Bank's plea agreements note that "the Defendant has no prior criminal history," it is pointed out that TD Bank had already been served regulatory enforcement actions by FinCEN and the OCC in 2013 for failures to implement sufficient AML controls, as well as civil resolutions with the SEC for "unrelated conduct".

Notably, TD Bank's plea agreements have been authored by former Attorney General Loretta Lynch. Lynch had prosecuted Citigroup in 2014 for the sale of "toxic" sub-prime mortgages in the run up to the 2008 financial crisis resulting in a $7B settlement which earmarked a mere $2.5B "for struggling consumers" compared to the estimated $17 Trillion in lost household wealth. Prior to her appointment, Lynch had refused to prosecute HSBC for money laundering linking the bank to narcotics trafficking and terrorist financing, instead agreeing to a $1.9B settlement.

TD Bank yet appeared to have some interesting points to make as to why the bank chose to violate the BSA, namely that it did not want to implement AML compliance procedures which would only heighten the system's flagging of false positives. For example, the bank actively chose not to monitor so-called peer-to-peer transactions by payment providers such as Zelle, “because an impact analysis showed that too many alerts would be generated.”

According to the investigation platform Blackdot Solutions, “of the estimated $800B in money laundered each year, a figure that could be closer to 2T, only about 1% is intercepted by the authorities. The unfortunate reality is that even with a 90%+ false positive rate, the false negative rate is likely higher.”

Which means that, even if TD did choose to implement adequate compliance programs – which cost banks globally $213.9 Billion in 2023 alone – it still would have been far from catching all criminal activity processed.

TD Bank appears to have taken a calculated risk which paid off for both the company and its CEO. TD Bank stock is down a mere 10% Year on Year and hasn't even begin to touch lows experienced in May – instead, the stock is again on an upward trend less than a week after its guilty plea. TD CEO Bahrat Masrani, who made $66.7M in compensation between 2017 and 2023, will retire in April 2025 – instead of facing an indictment for leading a potentially criminal enterprise.

If TD Bank's “historic fine” of $3B tells us anything, it's that that crime pays when you're a banker – and that even the largest financial institutions in the world seem to be aware that AML compliance programs are a waste of time to prevent financial crime.

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