Rita Trichur Globe and Mail
Published October 11, 2024
U.S. Attorney General Merrick B. Garland speaks at a press conference announcing that TD Bank will plead guilty to money laundering charges and pay a $3-billion settlement at the Justice Department in Washington D.C. on Oct. 10.
Carol Guzy/The Globe and Mail
Even after a public dressing-down by U.S. Attorney-General Merrick Garland and copping to criminal culpability for conspiracy to commit money laundering, Canada’s second-largest bank won’t provide the public with a straight answer about what went wrong.
Chief executive officer Bharat Masrani wants people to believe that TD has taken “full responsibility” for the “serious failures” of its U.S. anti-money-laundering program. But he and other senior leaders spent years playing down these lapses and they still fail to grasp that transparency is integral to accountability.
Sure, Mr. Masrani and other senior leaders expressed contrition. But their message rang hollow because they stuck to the same old script even after U.S. officials disclosed that TD’s problems are systemic and the criminal investigation continues to scrutinize individuals “up and down the corporate ladder.”
“TD Bank created an environment that allowed financial crime to flourish. By making its services convenient for criminals, it became one,” Mr. Garland said.
That stunning revelation should have prompted executives to finally come clean with investors. Instead, they offered recycled talking points this week.
“Why did this happen with TD and not with the other banks, the Canadian banks, that operate in the U.S.?” Ebrahim Poonawala, an analyst with Bank of America Securities, asked during a conference call on Thursday, according to a transcript provided by S&P Global Market Intelligence.
“Listen, we’ve been very clear. We had a major failure in our U.S. AML program. There are various reasons for it. We’ve talked about it. This is on us. We own it. We should have done better. We know what the issues are. We are fixing them,” Mr. Masrani replied.
Only the bank’s spin doctors – who have spent months haranguing journalists and questioning the newsworthiness of some developments in this story – would consider that clarity.
TD’s executives and board members don’t seem to realize how badly they’ve broken trust with investors. The U.S. Department of Justice’s revelations were shocking because the bank spent years glossing over the scope of its money-laundering failures.
“If I go right to the root cause of what happened, there were some procedural weaknesses in the U.S.,” chief risk officer Ajai Bambawale said in May.
He also seemed to chalk it up to a few bad apples at the bank: “We were also disappointed that some of our colleagues didn’t follow our code of ethics.”
Mr. Masrani, meanwhile, painted TD as a victim as recently as last month: “We had a situation here where, some threat actors, bad actors were able to exploit the bank.”
Investors deserve proper answers after learning that TD is guilty of criminality. The consent order, while lengthy, leaves many questions unanswered.
Executives can start by explaining why TD announced its bid to purchase First Horizon Corp. just days after Da Ying Sze, who is part of a criminal network that moved illicit cash through its branches, pleaded guilty to his crimes. Mr. Sze, also known as David, moved more than US$470-million in illicit funds through TD branches in the U.S. over a three-year period.
They also need to justify why they announced plans last year to open 150 U.S. retail branches by 2027 even after the U.S. regulatory investigation derailed that US$13.4-billion deal.
In recent months, executives have repeatedly said there is no problem at the enterprise level. But how does that square with the Federal Reserve Board’s demand that TD conduct “a thorough and independent review” of its board of directors and management to ensure adequate oversight of the U.S. operations?
A separate requirement that TD relocate to the United States parts of its anti-money-laundering compliance program that are responsible for complying with U.S. law leaves the impression that it will result in a loss of Canadian jobs. Worse still, it is a black eye for Canadian regulators, including the Office of the Superintendent of Financial Institutions (OSFI) and the Financial Transactions and Reports Analysis Centre of Canada (FinTRAC).
“This program will be subject to oversight by U.S. regulators,” the Federal Reserve Board stated in its release.
That speaks volumes about the loss of confidence in Canada’s regulatory regime. The Globe and Mail reported in May that U.S. regulators have questioned why their Canadian counterparts previously failed to spot and remedy problems with TD’s anti-money-laundering risk controls.
It remains a valid question.
Although FinTRAC levelled an administrative monetary penalty of $9.18-million on TD earlier this year, it remains a fraction of the more than US$3-billion in fines imposed by U.S. regulators.
OSFI’s statement, meanwhile, pointing out that it is barred by two federal laws from disclosing any information about TD was a national embarrassment.
Where is the commitment from Prime Minister Justin Trudeau and Finance Minister Chrystia Freeland to unshackle federal regulators and hold TD to account?
Unlike our asleep-at-the-wheel legislators and regulators, you can bet that U.S. securities lawyers will be parsing every word of TD’s consent order to find inconsistencies with the bank’s previous public statements about its anti-money-laundering failings.
Canadians shouldn’t have to count on the U.S. justice system to provide transparency about domestic banks. It’s time for TD’s executives to drop the PR-speak and make this right.
