A person walks past a Toronto-Dominion Bank branch in Toronto, on Aug. 14, 2023.Spencer Colby/The Canadian Press
Toronto-Dominion Bank’s TD-T lengthy regulatory and law enforcement investigation in the United States is tied to a US$653-million money-laundering and drug-trafficking operation, a revelation that finally sheds light on American regulators’ decision to block TD’s multibillion-dollar U.S. acquisition a year ago.
Uncertainty about the probe has dogged Canada’s second-largest lender, which is bracing for heavy penalties amid investor pressure to disclose more about the investigations it’s facing. The nature of the violation puts an end to one of the biggest mysteries on Bay Street but will continue to raise further questions about the bank’s future prospects in the United States and its leadership.
The lead defendant in the drug-trafficking operation, Da Ying Sze, who goes by David, laundered more than US$653-million in cash, “consisting of narcotics and other illicit proceeds, utilizing a variety of financial institutions and methods,” the U.S. Department of Justice wrote in a summary of its investigation.
The U.S. Drug Enforcement Agency (DEA) also said the operation contributed to the “high number of overdose fatalities across the country.”
To charge Mr. Sze, the DEA conducted extensive surveillance and found large sums of money being deposited in multiple financial institutions. In a criminal complaint, law enforcement agencies said they tracked Mr. Sze to multiple branches of a single financial institution, referred to as “FI-1.” That institution is TD, according to a source.
The Globe and Mail is not naming the source because they were not authorized to speak publicly about the matter.
TD said it would not comment on legal cases, but in an e-mailed statement the bank said: “Criminals constantly seek to use banks to launder money. Regrettably, our U.S. AML program did not effectively thwart these activities,” referring to its anti-money laundering program. “This is unacceptable, and we must and we will do better.”
The bank also noted that it has been co-operating with law enforcement and its regulators, and will continue to do so. “A comprehensive effort is under way to strengthen our anti-money laundering program, including investments in talent, tools and technology,” TD added.
Questions about TD’s regulatory woes in the United States have been circling for more than a year after Memphis-based First Horizon Corp. disclosed in March, 2023, that its takeover by TD was struggling to receive regulatory blessings in a timely manner. Two months later, the two banks scrapped the deal altogether. Little information was provided, but First Horizon’s chief executive Bryan Jordan said the termination “did not relate in any way to First Horizon.”
The U.S. probe has also clouded TD’s succession plans. For years, TD has had to answer questions about its growth agenda, and the U.S. takeover of First Horizon was meant to finally answer that, but then it got blocked.
The succession issue is also complicated by the fact that a leading CEO contender, Michael Rhodes, left the bank in December to lead a different U.S. financial institution, limiting TD’s choices for a successor.
In August, TD disclosed that it expected fines and non-monetary penalties related to a U.S. investigation into its anti-money laundering control systems, but little information came to light after, leaving investors and analysts wondering whether U.S. authorities were concerned about multiple limited breaches over a long period of time, or if there was a major event.
In January, for instance, there were reports that the U.S. Drug Enforcement Administration filed a criminal complaint alleging a TD employee at a New Jersey branch accepted bribes and helped to shuttle millions of dollars in drug-trafficking proceeds from the U.S. to Colombia through accounts linked to shell companies. However, it wasn’t clear if this was a one-off, or part of a systemic problem.
The uncertainty was finally lifted Thursday with the revelation of TD’s role in Mr. Sze’s operation. “The defendant in this case laundered a staggering amount of money,” Philip Sellinger, the U.S. Attorney for the District of New Jersey, said of Mr. Sze in 2022.
The Wall Street Journal first reported TD’s connection to the drug-trafficking probe on Thursday.
In its original criminal complaint filed in 2021, the U.S. Justice Department charged six people, including Mr. Sze, and alleged their criminal ring “showed a frequent pattern of large, round-dollar deposits of cash at various financial institutions and branch locations in New Jersey, New York, Pennsylvania, and elsewhere.”
The money laundering and drug trafficking took place between 2016 and 2021, and some of the daily deposits were worth more than several million dollars, according to the Justice Department.
TD’s U.S. headquarters is located in Cherry Hill, N.J., and TD is a leading bank in the U.S. Northeast.
The Justice Department found the criminal ring would travel between various financial institutions and branches to make large cash deposits throughout the day. In one instance, law enforcement found one of the ring’s members carrying multiple heavy bags up to the teller window at an unnamed financial institution, after which Mr. Sze approached and took numerous bundled stacks of U.S. currency out and placed them on the counter to be processed.
Mr. Sze admitted to using various incentives to bribe bank tellers, including gift cards. He also admitted to using cashier’s cheques to launder money.
Unlike personal cheques, which are sometimes held for a few days to verify details of the transaction, cashier’s cheques are guaranteed by the bank. That means the person who cashes them does not have to wait for the cheques to clear. The Justice Department said the criminal ring used multiple business entities for its operation and frequently moved millions of dollars out of accounts on the same day the cash was deposited.
Mr. Sze earned a fee of approximately 1 to 2 per cent of the cash laundered, according to the Justice Department.
Earlier this week, TD announced it was setting aside US$450-million to cover financial penalties in the United States, offering its first official disclosure on the size of its fines. However, the provision was only money that the bank sets aside to cover fines and TD said in a press release that the full extent of the penalties from the U.S. probe was “unknown and not reliably estimable at this time.”
Separately on Thursday, Canada’s financial-crimes watchdog, the Financial Transactions and Reports Analysis Centre of Canada, or FinTRAC, imposed its largest-ever monetary penalty on TD – nearly $9.2-million – after a compliance examination found the lender had faulty anti-money-laundering controls.
With files from Stephanie Chambers, Rita Trichur and Stefanie Marotta
Tim Kiladze