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A Justice Department investigation into TD Bank's TD 0.14%increase; green up pointing triangle internal controls focuses on how Chinese crime groups and drug traffickers used the Canadian lender to launder money from U.S. fentanyl sales.
The investigation was launched after agents uncovered an operation in New York and New Jersey that laundered hundreds of millions of dollars in proceeds from illicit narcotics through TD and other banks, according to court documents and people familiar with the matter. In that case and at least one other, prosecutors also allege the criminals bribed TD employees.
While TD disclosed a Justice Department probe into its anti-money-laundering practices last year, the focus on money laundering related to illegal drug sales hasn't been previously reported.
TD's anti-money laundering practices have been under scrutiny for years.
The bank said Tuesday that in addition to the Justice probe, it is the subject of three other anti-money laundering investigations in the U.S. TD set aside $450 million to resolve one of those inquiries and said it expects additional penalties. On Thursday, a Canadian banking regulator fined TD the equivalent of $6.7 million for failing to file suspicious activity reports and document risks related to money laundering and terrorist activity, among other things.
The issues have already stalled TD's ambitious expansion plans. TD built one of the largest U.S. regional banks over the past two decades with a flurry of acquisitions. Early last year, it was on the cusp of extending its reach into the Southeast with a $13.4 billion deal to buy Tennessee's First Horizon. But regulators' concerns over how TD tracked and flagged suspicious customer transactions helped scuttle the deal, The Wall Street Journal reported a year ago.
A TD spokeswoman said in a statement Thursday it is cooperating with law-enforcement officials and regulators and strengthening its anti-money laundering program.
"Criminals constantly seek to use banks to launder money," she said. The bank's anti-money laundering systems "did not effectively thwart these activities."
‘Financial Institution No. 1'
Illicit forms of fentanyl, a synthetic opioid that can be up to 50 times more potent than heroin, have contributed to a surging number of overdose deaths. Since 2021, more than 100,000 Americans have died annually from overdosing on drugs that are often mixed with fentanyl, according to the Centers for Disease Control and Prevention.
As law enforcement authorities mobilized to counter the threat posed by fentanyl, their attention turned to networks of Chinese money-brokers that Mexican cartels use to launder their proceeds. Officials say these networks pioneered a trade-based method of laundering cash out of the U.S. But investigations in recent years also revealed they made extensive use of the U.S. banking system.
The U.S. government relies on banks to help detect and prevent money-laundering. The Bank Secrecy Act requires financial-services companies to report suspicious activity within 30 days of discovery.
The Justice Department's investigation into TD's anti-money laundering practices is led by the U.S. Attorney's Office in New Jersey, people familiar with the matter said.
The probe stems in part from a criminal case into an operation that laundered at least $653 million in proceeds from illicit narcotics, according to court documents. Federal prosecutors in New Jersey in 2021 unsealed a complaint charging Da Ying Sze, who went by "David," with coordinating the money-laundering scheme.
Sze pleaded guilty to charges related to the money-laundering conspiracy in 2022. The U.S. Attorney's Office in New Jersey declined to comment.
In 2021, agents from the Drug Enforcement Administration and Internal Revenue Service's criminal investigations unit tailed suspected participants in the money-laundering operation through the streets of Flushing, Queens, and observed them taking large bags of cash into bank after bank. The suspects operated across multiple financial institutions, often using accounts under the name of small local businesses.
As the investigation evolved, prosecutors came to focus on the money launderers' use of one bank in particular, identified in court documents as "Financial Institution No. 1."
That institution was TD, people familiar with the matter said.
During one day of surveillance, agents followed members of Sze's organization in a box truck as they stopped at three separate TD branches. Prosecutors alleged that Sze and others provided gift cards and other bribes worth at least $57,000 to employees of the bank. He concealed the laundered funds by purchasing cashier's checks and wired funds to thousands of individuals and entities in the U.S., Hong Kong and elsewhere, prosecutors say.
In a separate 2023 case, the U.S. Attorney's Office in New Jersey charged Oscar Marcelo Nunez-Flores, an employee at a TD branch in Scotch Plains, with taking bribes and using his position to facilitate the laundering of millions of dollars in drug proceeds. A lawyer for Nunez-Flores declined to comment on the charges, which remain pending.
The Treasury Department's Financial Crimes Enforcement Network, which serves as the U.S.'s money laundering watchdog, has since 2018 warned financial institutions under its supervision of the threat posed by networks of Chinese money-laundering organizations. In a national money-laundering risk assessment released this year, FinCEN said that the groups have become increasingly prevalent and now represent one of the most significant money-laundering threats facing the U.S. financial system.
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