Allegations of systemic deficiencies in TD Bank's anti-money-laundering controls lead to new investigations
Toronto-Dominion (TD) Bank may face fines of up to US$4bn following new allegations tied to US money-laundering investigations, according to Jefferies Financial Group Inc. analysts.
According to BNN Bloomberg, this estimate doubles previous assessments of the impact on Canada’s second-largest lender.
A former TD Bank branch employee in Florida allegedly accepted $200 bribes to help clients transfer millions to Colombia, bypassing anti-money-laundering protocols. This case, first reported by Bloomberg News, is one of several involving TD Bank.
Another recent case involved a former New York branch employee who admitted to evading the bank’s compliance measures to defraud a customer.
The US Department of Justice, bank regulators, and the US Treasury Department are investigating TD over allegations of money laundering and other financial crimes at several of the bank’s US branches.
“While our previous estimate for the regulatory fines was at $2bn, given that a third AML issue has been reported, we now believe that this estimate could be low,” Jefferies analysts led by John Aiken wrote.
“Although a $4bn fine does seem a bit high at this juncture, we cannot deny that it is still within the realm of possibilities, potentially eroding all of TD’s current excess capital.”
The US Attorney’s Office for the District of New Jersey has filed at least four cases alleging serious misconduct by branch employees in New York, New Jersey, and Florida.
One case, reported by the Wall Street Journal in early May, involved TD Bank branches being used to launder drug money as part of a $653m conspiracy.
TD Bank set aside an initial provision of $450m for potential regulatory fines on April 30. Bloomberg Intelligence analysts Elliott Stein and Paul Gulberg believe TD Bank likely knew of the additional cases when it made this provision. They estimate total fines between $600m and $1.1bn.
Analysts at firms including Bank of Nova Scotia and National Bank of Canada have previously estimated penalties in the range of $2bn for TD Bank. Royal Bank of Canada’s Darko Mihelic wrote on May 8 that he believes the fine “may be larger than $1bn” and that, in a “bad scenario,” TD Bank could pay $3bn or more in penalties and face an asset cap on its US business for five years.
TD Bank also faces a proposed shareholder class-action lawsuit filed Tuesday in the Ontario Superior Court of Justice in Toronto.
The suit, filed by law firm Sotos LLP on behalf of retail investor Gerald Gazarek, alleges that TD Bank misrepresented systemic deficiencies in its anti-money-laundering controls and the impact on its US operations.
“Following the disclosure of these deficiencies on April 30, 2024, TD Bank’s stock price dropped considerably, giving rise to remedies under Canadian securities legislation,” the firm stated. The claim cited disclosures in the Wall Street Journal and Bloomberg stories.
Glancy Prongay & Murray LLP and the Law Offices of Frank R. Cruz have also announced possible suits.
“TD’s disclosures and public statements are and have been accurate and consistent with our obligations under the securities laws and responsibilities to our shareholders,” spokesperson Lisa Hodgins said. “We will contest the assertions of these proposed class actions, which are without merit.”
