The Journal. - The Money Laundering Behind TD Bank’s $3 Billion Fine

Episode Date: October 11, 2024

TD Bank’s U.S. entity pleaded guilty and agreed to pay more than $3 billion in penalties, acknowledging it failed to properly monitor money laundering by drug cartels and other criminal groups. WSJ���s Dylan Tokar unpacks the investigation that led to such a historic deal. Further Listening: -The Suitcases Full of Cash Flowing Through Airports  Further Reading: -TD Bank Agrees to $3 Billion in Penalties and Growth Restrictions in U.S. Settlement  -TD Pays Hefty Penalties as Prosecutors Detail Nearly a Decade of Lax Controls  Learn more about your ad choices. Visit megaphone.fm/adchoices

Law enforcement officials were investigating a Mexican drug cartel. And a few years ago, they hit the streets in Queens, New York, and tailed some of the alleged criminals. Law enforcement were following the money. They were following couriers as they were delivering cash to this Chinese money laundering ring in Flushing. That's our colleague Dylan Tokar. So they were following these cars, a Lexus, a box truck, through the streets of Queens as it went from bank branch to bank branch. And the members of this money laundering group were carrying bags of cash into these different bank locations and basically depositing at the bank with the help of tellers and you

know as law enforcement was tracking this activity they came to see that you know these money launderers were using multiple financial institutions but there was one that the money launderers were using in particular and that was TD Bank. TD Bank, one of the largest banks in Canada and the U.S. And yesterday, this investigation came to a dramatic conclusion. TD Bank created an environment that allowed financial crime to flourish. By making its services convenient for criminals, it became one. What we saw yesterday was really a historic settlement. TD Bank has just become the largest bank in U.S. history to plead guilty to what's called Bank Secrecy Act violations. That's

the law that requires them to prevent money laundering from happening. They've just been handed the largest penalty ever imposed under that act. The bank pleaded guilty to money laundering charges and agreed to pay a $3 billion fine. Welcome to The Journal, our show about money, business, and power. I'm Ryan Knudson.

It's Friday, October 11th. Coming up on the show, how criminal groups laundered more than $670 million through TD Bank. How do airplanes fly? What's in this box? What does this thing do? Kids are curious about everything, including guns. Learn how to store your guns securely and make your home safer at nfamilyfire.org. Brought to you by N Family Fire, Brady and the Ad Council. One of the key figures in the money laundering operation that brought TD Bank onto regulators radar is a man named Da Ying She.

Da Ying was not someone I understand with extensive criminal background. Apart from this enormous money laundering ring that he came to operate, they were essentially going around and with extensive criminal background, successful in laundering, $653 million. Sorry, $653 million he was laundering? Yes. That must be a giant washing machine. Yeah, it was a massive operation and, you know, prosecutors say that more than 470 million of that went through TD Bank. In the dark underworld of cartels and drug traffickers, She played a particular role.

His job was to get the money generated from the illegal drug business cleaned up and back into the legitimate financial system. Dai Ying represents a type of money laundering group that we've been seeing more of popping up throughout the United States. Da Ying represents a type of money laundering group that we've been seeing more of popping up throughout the United States. They are fulfilling a service that other criminal groups need. Criminal activity often generates do with that cash.

And to really utilize it fully, I mean, you need to get it into the banking system, right? You can't just walk around paying with everything, with large stacks of dollars. You also need to move to the extent that this money laundering group is doing business with the cartels. They need to find some way of transferring that value from the United States back to places like Mexico and China. And so Da Ying in Flushing was offering a way to do that. But to the extent that they have the ability to just put it into a bank, I mean what we saw here is that they were putting it into a bank and then they were just moving it elsewhere, right? They would transfer it, they might be transferring it to a bank account

in China or in Mexico. In one case here we saw moving it elsewhere, right? to use however you want to use it. To carry out this laundering operation, Zhai and his network opened bank accounts. His group set up shell companies and they were essentially laundering money through the accounts for those shell companies, which could be a business, often something that might look like a business that would be cash intensive, like a small business and flushing, or just, you know, individuals. And they would put money into this account and then withdraw it either via wire transfers

or cashier's checks. And then they'd often just walk into TD bank branches with giant bags full of cash. The prosecutors noted that this money laundering activity was obvious, you know, even to the casual observer. They recounted one anecdote where in July 2020, they pulled a screenshot from a surveillance in a TD Bank branch in Midtown, New York, where you see Da Ying standing at the teller's window with a surgical mask on. This was around the time of COVID.

And he was depositing $372,000 in cash at that bank location. And there's just stacks of dollar bills on the teller's desk. And... I mean, that's a lot of money. Yeah. I mean, that's a lot of money. But if somebody's bringing in armfuls full of cash, aren't any of the employees saying anything? So there were instances in the court documents where the Department of Justice essentially quoted frontline employees, store managers, retail bank employees, Department of Justice essentially quoted another manager regarding deposits by Dai Ying and said,

you guys really need to shut this down, LOL. Yes, capital LOL. Yeah, nice. And later that year, a branch manager allegedly basically begged his supervisors who were, you know, TD regional managers to do something about this, saying, quote, it is getting out of hand and my tellers are at the point

that they don't feel comfortable handling these transactions. In another case in 2021, a TD branch employee saw that Dai Ying had purchased more than one million in cashier's checks in a single day. And asked, how is that not money laundering? Another employee responded according to DOJ saying, oh, it 100% is. My personal favorite is the bank employees have the ability to file

unusual transaction reports, basically kind of like the front line. Hey, I think there's something going wrong here. And they were filing them on Da Ying. And in September 2020, a retail employee just said, Every day, customers deposit a lot of cash. My jaw is on the floor over here. Xie pleaded guilty to charges related to money laundering in 2022. His lawyer didn't return a request for comment. According to prosecutors, anti-money laundering officials at TD Bank knew there were problems. They received those reports from branch employees.

But it's unclear why they weren't acted upon. They received those reports from branch employees. technology-driven platforms that are supposed to do this. And prosecutors said that TDs was basically static for over 10 years. They didn't update it with new typologies. They were aware that it wasn't picking up a lot of things, but they weren't doing anything about it. So it's like an outdated system that wasn't getting the upgrades. So one figure that really stood out from the court documents yesterday is that DOJ and regulators were basically able to estimate that between early 2018 and April 2024, TD's U.S. business failed to monitor 92% of its transaction volume. And that represented $18.3 trillion in total transactions. Prosecutors say that one reason TD Bank wasn't investing in these systems is because it was

too focused on something else, keeping costs down. So one thing that prosecutors and regulators pinpointed that appears to be a major driver of why TD Bank's anti-money laundering system was deficient, it had what it called a flat cost paradigm at the bank, or a zero expense growth paradigm. And what that meant was that while TD Bank was growing here, each department's budget, including the anti-money laundering expected to stay flat, even though the customer base was growing, the profits were growing, and as a result, the risks were growing.

So this was a downward pressure on costs that affected TD Bank's ability to stop money laundering from happening. In addition to what Shell was doing, prosecutors say there were other money laundering operations running through TD as well. They said in one case, there was a jewelry business that moved 120 million through shell accounts for some time before TD finally flagged that suspicious activity to regulators. They also pointed to a different money laundering scheme in which money launderers made cash deposits into US TD locations and then withdrew that from ATMs in Columbia. And in that case, there were five TD bank employees

who were allegedly involved helping those money launderers open accounts and basically kind of trying to help them escape notice from the bank's internal systems. But investigators were noticing. And they were ready to crack down. That's coming up. Last year, as part of its push to expand, TD Bank was planning to close a big acquisition. TD was trying to make a major move in the U.S. market and they wanted to grow. And so they were looking to acquire First Horizon Bank.

I think there was a lot of eagerness on both sides to hash First Horizon Bank. program that they essentially, this is what our reporting says, they weren't comfortable with TD Bank acquiring First Horizons. What went through your mind when you heard that this acquisition that TD Bank was trying to do was scuttled because an anti-money laundering investigation was ongoing? It was definitely eyebrow raising. You know, banks are often having back and forth with regulators about their anti-money laundering systems. I mean, this comes up quite often.

Then, this week, the results of the investigation came to light. TD Bank agreed to a plea deal. TD Bank's U.S. entity pleaded guilty to charges related to money laundering. The bank also agreed to a $3 billion fine and to allow two independent monitors to keep track of its compliance. And it's now subject to an asset cap that bars the company from growing beyond its current size. And how significant is this settlement? Can you put it into some context? cap that bars the company from growing beyond its current size.

And how significant is this settlement? Can you put it into some context? I mean, it's rare for regulators to do this. It's not what banks want. Banks want to grow. TD was pursuing a pretty aggressive strategy of acquiring banks in the U.S. to grow its business here. And this is a pretty sharp turn in its fortunes. It's going to be constrained from pursuing that strategy for some time. TD Bank has said it's working to address issues with its anti-money laundering programs. And in recent months, it's made a series of key hires to shore up its anti-money laundering and investigations groups.

Here's TD Bank CEO Barrett Mazrani in a conference call yesterday. Are these penalties going to be enough to get TD Bank to invest in and improve these anti-money laundering systems and not let it happen again? I think it remains to be seen whether TD Bank can really turn this around. There's going to be heavy scrutiny going forward and they've brought in former government people from the Homeland Security Department and other agencies that are experts in money laundering and stopping it, their systems are not where they should be yet.

That's a big part of these deals, right, is putting monitoring in place and requiring TD Bank to keep improving these systems they have in place to stop anti-money laundering. So their ability to get out from under this asset cap is going to be directly tied into their ability to prove to regulators and the Department of Justice that they're doing that. It seems somewhat ironic that the company that was trying to grow, and so in that pursuit, in some ways, it didn't invest in this Sandy Money Laundry stuff.

Now, its growth is being capped because of the problems that were created because it had that focus. Yeah. I mean, I agree. Is this a story of one bank that made big mistakes? Or is it a story of how easily criminals can take advantage of banks? That's a good question. I think it's both. I think when you really dig in to this case out in Flushing, you see that it wasn't just TD that these money launderers were using. They were using other banks, and prosecutors seized funds from a variety of other banks,

quite large ones. But what you also see is that there's a clear recognition here that TD banks' systems, their efforts to stop money laundering, were particularly deficient. stop money laundering were particularly deficient. And that's why I think you see these really historic fines against TD and these penalties. And I think it's why the Department of Justice chose to launch this investigation to TD in the first place. That's all for today, Friday, October 11th. The Journal is a co-production of Spotify and The Wall Street Journal.

Additional reporting in this episode by Justin Baer and Vipal Manga. The show is made by Catherine Brewer, Jonathan Davis, Pia Gadkari, Rachel Humphries, Matt Kwong, Kate Linebaugh, Jessica Mendoza, Annie Minoff, Laura Morris, Enrique Perez de la Rosa, Sarah Platt, Alan Rodriguez Espinosa, Alessandra Rizzo, Heather Rogers, Pierce Singie, Jeevik Averma, Lisa Wang, Catherine Whalen, Tatiana

Zamis, and me, Ryan Knudsen, with help from Trina Menino. Our engineers are Griffin Tanner, Nathan Singapok, and Peter Leonard. Our theme music is by So Wiley. Additional music this week from Katherine Anderson, Peter Leonard, Bobby Lord, Emma Munger, Nathan Singapok, Griffin Tanner, So Wiley, and Blue Dot Sessions. Fact-checking by Mary Mathis and Najwa Jamal. Thanks for listening.

We're off Monday for the holiday. See you on Tuesday.