A House of Commons committee is considering probing failings in Toronto-Dominion Bank’s TD-T anti-money-laundering practices as U.S. regulators and law enforcement continue a lengthy investigation into Canada’s second-largest lender.
The House finance committee will hold a meeting Friday afternoon to discuss – according to its agenda – allegations that TD failed to “report money laundering related to the trafficking of the illegal hard drug fentanyl.” This would mark Ottawa’s first public conversation on the matter. The committee members will then consider whether the issue warrants a deeper review of the gaps in the bank’s anti-money-laundering practices.
In early May, reports emerged that the probes by U.S. officials – which derailed TD’s major acquisition of Tennessee-based First Horizon Corp. last year – are tied to a US$653-million money-laundering and drug-trafficking operation.
Separately, Canada’s financial-crimes watchdog imposed its largest-ever monetary penalty on TD after a compliance examination found the lender had faulty anti-money-laundering controls.
The assessment from the Financial Transactions and Reports Analysis Centre of Canada, or FinTRAC, found that TD committed five administrative violations. These included the bank failing to submit suspicious transaction reports where there were “reasonable grounds to suspect that transactions were related to a money laundering or terrorist activity financing offence,” FinTRAC said in a news release earlier this month.
U.S. regulators and law enforcement have not disclosed the nature of the anti-money-laundering weakness they found at the bank.
TD stressed that it was “important not to confuse the administrative findings from FinTRAC with our ongoing regulatory matters in the United States,” according to an e-mail statement on Tuesday from TD spokesperson Lisa Hodgins. “As the FinTRAC findings clearly stated, the administrative violations were ‘not for criminal activity for money laundering.’”
The revelations, both from FinTRAC and from the United States, provided the first glimpse into TD’s anti-money-laundering gaps since the bank disclosed in August that it expects monetary and non-monetary penalties stemming from the U.S. probes.
Analysts have estimated that monetary penalties could be as high as US$2-billion, and they have pointed to concerns around non-financial penalties that could limit the bank’s growth prospects.
The Commons finance committee will also discuss whether it should explore other money-laundering violations across the financial sector in Canada. While the group has scheduled a conversation for Friday afternoon, a pending matter from a previous meeting could delay the matter on TD.
In January, The Globe and Mail revealed that last year, TD hired Herbert Mazariegos – formerly an employee of Bank of Montreal in Chicago – to oversee the bank’s anti-money-laundering unit.
Since then, the bank has tapped other experts with regulatory experience, including former Federal Bureau of Investigation agent Dandridge Myles; former U.S. Department of the Treasury executive Andrew Jensen; former U.S. Department of Homeland Security director Marcy Forman; and former Citigroup chief compliance officer Jackie Sanjuas, according to a source.
The Globe is not identifying the source because they were not authorized to speak publicly.
TD’s chief executive officer, Bharat Masrani, has said that TD is mending its anti-money-laundering program by hiring hundreds of employees, redesigning controls, building new processes, deploying new technology and implementing improved training. The bank has also invested more than half a billion dollars in remediating its practices.
In recent weeks, Mr. Masrani and senior executives have done a tour of internal meetings with executives to discuss the steps the bank is taking to resolve the issues.
“We did not meet our expectations or our regulatory obligations to monitor, detect, report and respond to suspicious activity. As a result, criminals broke through our defences and used the bank to launder money,” Mr. Masrani said in an internal memo viewed by The Globe.
“This is absolutely unacceptable. While our systems stopped a lot of activity, I am deeply disappointed there were serious instances where we failed to stop these criminals. It goes against our values and everything we believe.”
The U.S. probes and the cost to remediate the issues are weighing heavily on the bank.
In late April, TD said it is setting aside US$450-million to cover penalties stemming from the investigation but added the provision does not reflect the final amount of the potential monetary or non-monetary penalties.
Last year, the bank said that it expects to post an adjusted net loss of $200-million to $250-million a quarter this year in its internal corporate segment, driven by investments in its risk and control infrastructure.
Stefanie Marotta