FinTRAC specified that TD Bank did not commit criminal offences for money laundering or terrorist activity financing.Andrew Lahodynskyj/The Canadian Press
Canada’s financial-crimes watchdog is imposing its largest-ever monetary penalty on Toronto-Dominion Bank – nearly $9.2-million – after a compliance examination found the lender had faulty anti-money-laundering controls.
The Financial Transactions and Reports Analysis Centre of Canada, or FinTRAC, announced the financial penalty on Thursday, stating it completed a compliance examination of TD Bank TD-T in 2023.
Totalling more than $9.18-million, the administrative monetary penalty was imposed last month for five violations of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and its associated regulations, FinTRAC said in a news release. TD has already paid the amount in full.
“As part of their regular review of Canadian financial entities, FinTRAC identified five specific administrative findings that require our attention,” TD spokeswoman Lisa Hodgins wrote in an e-mailed statement. “Improvements have been made and more are under way.”
FinTRAC’s enforcement action adds to the regulatory scrutiny of TD’s anti-money-laundering practices. Canada’s second-largest bank announced earlier this week that it is setting aside US$450-million to cover penalties that it is facing as a result of lengthy regulatory and law enforcement investigations in the United States.
Those probes are tied to a US$653-million money-laundering and drug-trafficking case, The Globe and Mail confirmed on Thursday.
The final tally of the bank’s U.S. penalties is still not known but some analysts estimate it could range as high as US$2-billion. TD also faces other potential consequences from U.S. regulators that could constrain its expansion south of the border, its main growth market, a prospect that is concerning investors. U.S. probes have already led to last year’s collapse of TD’s proposed US$13.4-billion acquisition of Tennessee-based First Horizon Corp.
The Globe and Mail first reported in January, citing confidential sources, that TD was facing a significant penalty from FinTRAC as a result of various deficiencies detected as part of last year’s examination.
At that time, the financial penalty under consideration by FinTRAC topped $10-million, the sources said. But TD had not yet exhausted its appeal process and the amount was later revised downward, according to two people familiar with the matter. (The Globe is not identifying those individuals because they were not authorized to discuss regulatory issues.)
The final amount of $9.18-million is still the largest-ever penalty levied by FinTRAC. If converted to U.S. dollars, it amounts to roughly 1.5 per cent of the initial US$450-million provision that TD took relating to coming U.S. action.
FinTRAC’s compliance examination, which was conducted in Toronto, found that TD committed five administrative violations.
The first pertained to the bank’s failure to submit suspicious transaction reports, or STRs, where there were “reasonable grounds to suspect that transactions were related to a money laundering or terrorist activity financing offence,” FinTRAC said in the news release. Specifically, the watchdog determined that TD failed to submit 20 STRs out of 178 case files reviewed for the examination.
The second violation involved TD’s failure to “assess and document money laundering/terrorist activity financing risks.” FinTRAC pinpointed weaknesses in the bank’s processes and controls to assess client risk. In doing so, it identified 96 clients who should have been entered into the bank’s high-risk client program from March 1, 2022, to March 31, 2023, but were not.
TD’s third violation also focused on high-risk clients. FinTRAC found the bank failed to apply “prescribed special measures” for 85 high-risk customers. Additionally, it found TD neglected to conduct enhanced due diligence on 11 clients, contrary to a Ministerial Directive and the bank’s own policies. Further, the watchdog identified an example of a politically exposed foreigner who was permitted to conduct unspecified banking transactions for more than two years even though TD had failed to obtain mandatory information from the client including the individual’s source of funds.
The fourth and fifth violations outlined by FinTRAC included a failure by the bank to conduct monitoring of business relationships and a lack of record-keeping when it did conduct that surveillance.
FinTRAC also specified that TD did not commit criminal offences for money laundering or terrorist activity financing.
“Canada’s Anti-Money Laundering and Anti-Terrorist Financing Regime is in place to protect the safety of Canadians and the security of Canada’s economy,” stated FinTRAC director and chief executive officer Sarah Paquet.
“FinTRAC will continue to work with businesses to help them understand and comply with their obligations under the Act. We will also be firm in ensuring that businesses continue to do their part and we will take appropriate actions when they are needed.”
The watchdog is putting increased pressure on major banks and other businesses to bolster their anti-money-laundering procedures. It levied fines on Royal Bank of Canada RY-T and Canadian Imperial Bank of Commerce CM-T in December, with assessments of other banks still to come.
As for TD, the bank is implementing a companywide action plan to strengthen its anti-money-laundering controls and risk management practices in Canada, the U.S. and other countries in response to concerns raised by regulators, The Globe has also reported.
TD brought on a new chief global AML officer and associate vice-president and head of its Canadian financial intelligence unit to oversee the shift, and hired McKinsey & Co. and other external consultants for support on regulatory and other matters in the United States.
The bank’s plans to fix weaknesses in its AML processes are dragging on its earnings. Last year, TD said it expects to post an adjusted net loss of $200-million to $250-million per quarter this year in its internal corporate segment, driven by investments in its risk and control infrastructure.
TD is scheduled to report its fiscal second-quarter earnings on May 23.
With a report from Stefanie Marotta
Rita Trichur