Bank is facing mounting legal problems
Toronto-Dominion Bank is facing escalating legal problems in the United States as federal prosecutors unveil new allegations that branch employees helped clients illegally move millions of dollars across borders while skirting anti-money-laundering rules.
In one of the latest cases, Bloomberg reported that a longtime TD Bank branch worker in Hollywood, Fla., took a series of US$200 bribes to open fraudulent accounts and provide "concierge-like services" to help a Colombian client transfer cash out of the country.
Prosecutors claimed Gerry Aquino Vargas, the now-former retail banker, falsified documents to open dozens of accounts and enabled clients from Colombia, Venezuela, Israel, Bolivia and Peru to bypass TD's anti-money laundering defenses.
"That $200 I'm giving you guys, I'm not doing anymore," Aquino Vargas allegedly wrote in a WhatsApp message to his Colombian client, according to a translation by prosecutors. "With other people it's $500-$800 per account man."
After receiving a US$5,600 payment for his services through Zelle, Aquino Vargas allegedly sent the client another WhatsApp message saying "Gracias" along with a meme of actor Jean-Claude Van Damme giving a thumbs up.
Money laundering probe
The allegations against Aquino Vargas are just the latest in a series of cases brought by prosecutors. In another recent case, a former TD branch employee in New York admitted to bypassing the bank's compliance measures to defraud an elderly customer of over $200,000.
The cases are part of a sweeping probe by officials at the US Justice Department, bank regulators and Treasury Department into allegations of money laundering and other financial crimes at the bank. So far, prosecutors have filed at least four cases alleging serious misconduct by branch employees in New York, New Jersey and Florida, including one involving TD branches being used to launder US$653 million in drug money.
The mounting legal issues have put a major dent in TD's US expansion plans. Last year, the bank scrapped a US$13.4 billion deal to acquire First Horizon Corp., saying it saw no path for regulatory approval. It also had to spend over US$350 million shoring up anti-money-laundering defenses.
Canada leadership scrutiny
The bank's leadership in Toronto has been under scrutiny. TD Bank CEO Bharat Masrani, who took a CA$1 million (US$730,000) pay cut after the First Horizon deal failed, has no current plans to leave, according to a bank spokesperson.
TD spokesperson Lisa Hodgins said the CEO and other leaders have made "substantial progress" in boosting compliance while delivering strong financial results. Executives are "focused on the work needed to overhaul" the bank's anti-money laundering procedures.
However, one person who was aware of the bank's internal response said there is still no clarity on whether TD will eventually face restrictions from regulators on growing its US operations amid the probe.
When pressed recently by analysts, Leo Salom, who runs TD's US operations, said the lender is "deliberately pacing" how many new branches it opens. The bank continues to talk with regulators and invest in compliance, he said, while declining to comment directly on whether regulators had blocked expansion.
Masrani recently acknowledged to analysts that TD's compliance issues were "unacceptable" and said he hoped the bank would reach a resolution with authorities "as soon as possible." He was even more pointed in remarks to employees in May.
Read more: TD Bank CEO admits to 'unacceptable' money laundering failures
Ongoing investigation
The Justice Department declined to comment on the investigations. TD Bank shares fell as much as 1.7% on Monday following reports of the latest allegations.
More than a dozen people who worked with retail clients have been fired for code-of-conduct violations, said the person familiar with the matter. The lender has also replaced close to 10 senior leaders in compliance and legal roles, including hiring a new chief global anti-money laundering officer from Bank of Montreal, as it overhauls procedures.
While the US hasn't charged TD Bank itself with any crimes stemming from the cases, the allegations have trained an uncomfortable spotlight on the bank's leadership back in Toronto. For Masrani, regaining momentum in the US may be key to his legacy after nearly a decade atop TD.
Analysts now estimate that TD Bank's potential settlement with authorities would be around US$2 billion. The legal troubles also risk setting back the bank's US ambitions for years.
Masrani has continued the bank's aggressive push across the border during his tenure, with profit from the US retail banking arm almost tripling. But he's also had to weather previous scandals, including paying over US$50 million to settle claims TD failed to file suspicious activity reports tied to a Ponzi scheme and a US$1.2 billion settlement last year related to Allen Stanford's US$7 billion Ponzi scheme.
"This is going to get tougher before it gets better. More information will drip out over the next little while," Masrani said. "We have the means to fix this, and we will."
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