Transcript of The Money Laundering Behind TD Bank’s $3 Billion Fine

Law enforcement officials were investigating a Mexican drug cartel. And a few years ago, they hit the streets in Queens, New York, entailed 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. As law enforcement was tracking this activity, they came to see that these money launders were using multiple financial institutions, but there was one that the money launders were using in particular, and that was TD Bank.

Td Bank, one of the largest banks in Canada and the US. 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 US history to plea 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 money, business, and power. I'm Ryan Knutson. It's Friday, October 11th. Coming up on the show, How Criminal groups laundered more than 660 $70 million dollars through TD Bank. You let him try Violin because you love him. And if you love him that much, love him enough to make sure he's buckled up and in the back seat. Find out more at nhtsa. Gov/therrightseat. Brought to you by the National Highway Traffic Safety Administration and the Ad Council. One of the key figures in the money laundering operation that brought TD Bank onto regulator's radar is a man named Da Yin Xi.

Da Yin 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 depositing money into bank branches in New York, but also in New Jersey and Philadelphia. In total, law enforcement says he was successful in laundering 653 million dollars.

Sorry, 653 million dollars he was laundering? Yes. That must be a giant washing machine.

Yeah, it was a massive operation. And prosecutors say that more than 470 million of that went through TD Bank.

In the dark underworld of cartels and drug traffickers, Che 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.

Da Yang 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 groups, criminal activity often generates a lot of cash. As you can imagine it's a logistical problem with having huge, huge stacks of cash. There's limited things you can do with that cash. And to really utilize it fully, you need to get it into the banking system, right? You 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 Yin, in Fleshing, 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. They would transfer it. They might be transferring it to a bank account in China or in Mexico.

In one case here, we saw them just depositing it, and then people would just go take that money out of ATMs in Colombia. So it's about moving that cash into other countries, and it's about cleaning it up and making it available to use however you want to use it.

To carry out this laundering operation, Jacques 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 in flushing, or just individuals. They would put money into this account and then withdraw it either via wire transfers or cashers checks.

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, 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 Yang 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.

I mean, that's a lot of money.

Yeah.

But if somebody's bringing in armfuls full of cash, aren't any of the employees saying anything?

There were instances in the court documents where the Department of Justice essentially quoted frontline employees, store managers, retail bank employees, expressing discomfort or even just joking around about how easy it was to do this. In one instance, in August 2020, they said a TD Bank location manager emailed another manager regarding deposits by Da Yang and said, You guys really need to shut this down, L-O-L. L-o-l? What? Yes, capital L-O-L.

Is that short for laundering it out loud because it's so obvious what was happening here?

Yeah, nice. And later that year, a branch manager allegedly basically begged his supervisors, who were TD regional managers, to do something about this, saying, 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 Da Yin 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. They're basically like the front line. Hey, I think there's something going wrong here. And they were filing them on Da Yin. And in September 2020, a retail employee just said, in capital letters, every day, customer deposit a lot of cash.

By jaw is on the floor, Over here. Juh 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. Banks do have other systems that are supposed to catch potential money laundering, though.

Banks process tens of millions of transactions. They have to have some way of picking out ones as suspicious. They have these automated technology-driven platforms that are supposed to do this. 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.

Yeah. 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 US 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. What that meant was that while TD Bank was growing here, each department's budget, including the anti-money laundering program's budget, was expected to stay flat, even though the customer base was growing, the profits were growing, and as a result, the risks were growing. This was a downward pressure on costs that affected TD Bank's ability to stop money laundering from happening.

In addition to what Shah 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 launders made cash deposits into US TD locations and then withdrew that from ATMs in Colombia. In that case, there were five TD Bank employees who were allegedly involved helping those money launders open accounts and basically 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 US 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 out a deal, but amid their efforts to do this, prosecutors and regulators regulators were starting to look at TD's own anti-money laundering systems, and regulators became so concerned about that program, the anti-money laundering 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. Banks are often having back and forth with regulators about their anti-money laundering systems. I mean, this comes up quite often. But it was clear that if regulators were putting a stop to this deal, that it was probably a lot more serious.

Then this week, the results of the investigation came to light. Td Bank agreed to a plea deal. Td Bank's US 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. It's now subject to an asset cap that bars the company from growing beyond its current size. How significant is this settlement? Can you put it into some context?

I would say that's very significant for them. 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 US 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.

This is on us. We own it. We should have done better. We know what the issues are. We are fixing them. As we move forward, we're ensuring that this never happens again.

This is a sad day in our history. 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 It's putting monitoring in place and requiring TD Bank to keep improving these systems they have in place to stop anti-money laundering. Their ability to get out from under this asset cap is going to be directly into their ability to prove to regulators and 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 the Sandy Money Lantern 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 launders 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 Bank's systems, their efforts to 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 in TD in the first place.

That's all for today, Friday, October 11th, The Journal is a coproduction of Spotify and the Wall Street Journal. Additional reporting in this episode by Justin Baer in Vee Paul Manga. The show is made by Katherine Brewer, Jonathan Davis, Pia Gadkari, Rachel Humphreys, Matt Kwong, Kate Lineba, Jessica Mendoza, Annie Minoff, Laura Morris, Enrique Perez De La Rosa, Sarah Platt, Alan Rodriguez Espinosa, Alessandra Rizzo, Heather Rogers, Pierre Singie, Jivika Verma, Lisa Wang, Katherine Whalen, Tatiana Zamis, and me, Ryan Knutszen, with help from Trina Menino. Our engineers are Griffin Tanner, Nathan Singapock, and Peter Leonard. Our theme music is by So Wily. Additional music this week from Katherine Anderson, Bobby Lord, Emma Munger, Nathan Singapock, Griffin Tanner, So Wily, and Blue Dot Sessions. Fact-checking by Mary Mathis and Najma Jamal. Thanks for listening. We're off Monday for the holiday. See you on Tuesday.