The enforcement actions last week against TD Bank’s manifold and manifest money-laundering violations bristle with righteous anger. This is understandable – the bank’s AML lapses are jaw-droppingly dangerous. But what’s missing from the recounting of TD’s sins is any accountability for why banking-agency supervisors failed to catch violations dating back to 2012 that transgress every compliance, risk-management, and governance norm. Yes, throw the book at TD, but let’s also call the banking agencies on the carpet for why TD was allowed to grow so big even though it was clearly also so bad.
The enforcement orders from the Fed and OCC are replete with new mandates making it clear that neither agency trusts TD here or back home in Canada to do anything right re AML without two guns at its respective heads. It falls to FinCEN and the Department of Justice to provide the recounting of what was actually going wrong at TD and how supervisors should have caught enough of them to stop at least some of the trillions of dollars of payments that went without AML scrutiny and enabled billions, if not more, of human and drug trafficking, organized crime, and so much else that victimized all too many people and nations.
Time, not to mention stomach, does not permit listing all of TD’s glaring AML violations starting in 2012 that went uncorrected and indeed materially worsened after a 2013 FinCEN warning. But even a few examples tell a dismal tale.
For one, TD’s AML compliance team had dotted reporting lines that at best confused responsibilities and boasted of and were compensated for ensuring total AML compliance without a dent in TD’s risk appetite even as the AML operation shrank to infinitesimal in comparison to TD’s rocket growth. Indeed, TD got AML religion only when the devil appeared in concert with the grim reaper, nearly doubling its AML resources over the six months heading into these enforcement orders.
FinCEN also recounts tremendous gaps in TD’s operations even where there were any. For example, TD did have a process for getting rid of problematic customers, but its backlogs permitted $5 billion of transactions by known high-risk customers over the course of just three years. One Ecuadorean “brokerage” operating out of a Miami “residence” accounted for $200 million of transactions that surely did no one any good beyond the dubious characters involved at the “brokerage” and the bank, where bribery and other insider dealings appeared to have been an accepted norm.
And, in 2023 alone, monitoring gaps missed “several trillion” dollars in TD transactions. TD was also found to be the go-to bank for ATM transactions in Latin America even though the bank had no presence there. In Colombia, TD came to handle over half of all ATM transactions.
Did the banking agencies ever wonder why? FinCEN does describe efforts by a few TD employees to report severe AML deficiencies. What of the supervisors? Did supervisors spot problems and fail to escalate as they failed to do in SVB, Signature, First Republic and so many other troubled banks? Did supervisors tolerate managerial backtalk or worse, accept assurances of better to come without evidence of any effort at remediation? Could no one have spotted the sometimes phenomenal acts of egregious risk-taking going on at the bank and done anything about them?
After the 1991 BCCI fiasco in which a U.S. banking outpost of Middle Eastern potentates engaged in wide-ranging AML violations with foreign-policy implications supervisors also failed to catch, Congress told the banking agencies to consider simply shutting a bank if its AML violations were egregious to the point of the damage now done to national well-being evident in FinCEN’s account of TD’s misdeeds.
What if the banking agencies had spotted TD’s problems and threatened the death sentence years ago? Could TD have grown to be the tenth largest U.S. bank the agencies doubtless now fear closing if supervisors had brought a quick end to the company’s evident belief that it could grow as large as it wanted without investing anything in compliance that cut into profits and incentive compensation? A smaller bank with TD’s obvious impunity could have been closed, making charter revocation a meaningful threat. The OCC is getting praise now for its stringent cap on TD’s asset growth, but would TD have become “too big to manage” if the OCC had demanded management from the bank’s managers? We’ll never know, but we should.