Rose Airaldi

Associate Editor

Loyola University Chicago School of Law, JD 2026

Toronto Dominion Bank, known as TD Bank, is one of the largest banks in the United States. In early October of this year, TD Bank agreed to pay almost $2 billion in penalties for its involvement in money laundering practices and “violations of the Bank Secrecy Act (BSA).” Over the span of a decade, TD Bank failed to stop hundreds of millions of dollars worth of drug money from flowing through its system and became a common bank for criminal enterprises to use. Attorney General Merrick B. Garland discussed how TD Bank made “its services convenient for criminals” when they decided to maximize their profit margins over complying with the law.

The importance of the BSA and AML regulations

TD Bank made history as the largest U.S. bank to plead guilty to charges brought under the Bank Secrecy Act (BSA). Passed in 1970, the BSA is an important series of laws and regulations that help promote financial integrity and deter misuse of the financial system, acting as the first line of defense in the fight against money laundering and illegal financial activity. Under the BSA, banks are required to implement Anti-Money Laundering (AML) regulations which help detect and report suspicious activity that is associated with criminal enterprises. These regulations include monitoring suspicious activity, creation of risk-based AML programs, and the establishment of effective BSA compliance training programs.

A pillar of financial integrity includes financial institution’s requirements to report suspicious activity to government agencies. Since mid-2023, banks have been required to use the BSA’s E-Filing System to file Suspicious Activity Reports (SARs). For example, if a bank notices a customer made a cash transaction over $10,000 within a day, they are obligated to file an SAR with the appropriate government agency in order to ensure that the purchase is legal.

Another expansion of AML regulations comes in the form of the US PATRIOT Act. Title III, the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001, enhances financial institutions’ responsibilities in monitoring foreign transactions. Under the PATRIOT Act, banks must establish and enforce Customer Identification Programs (CIP) to identify customers and verify customer’s identities. If a financial institution notes that they are dealing with a customer they deem “high-risk,” they must engage in enhanced due diligence (EDD) procedures to assess associated risks. EDD requirements vary from bank to bank, but they usually involve conducting risk assessments and engaging in risk-mitigation procedures to minimize any harmful effects.

Major compliance failures by TD Bank

TD Bank’s compliance issues span back nearly a decade. TD Bank failed to strengthen their AML program to combat the known issues, allowing itself to become a sitting duck for criminal enterprises to prey upon. There are several instances in which TD Bank fell short on their obligations, such as a 6 year span from 2018 to 2024 in which 92% of transactions – $18.3 trillion – were unmonitored. Instead of taking steps to enhance is AML procedures, senior executives “enforced a budget mandate” to keep TD Bank’s budget stagnant and prioritize “the customer experience.” This included understaffing its AML department and doing away with necessary AML projects. From 2014 to 2022, TD Bank committed a slew of financial no-no’s, such as allowing over $5 billion worth of transactions to occur within closed accounts, implementing Zelle transactions without the correct coverage, and ignoring transactions to and from “high-risk countries.”

Three money laundering schemes were able to transfer almost $700 million through TD Bank within a four year span, one scheme even directly involving five TD employees. Several employees across the TD Bank network knew of the issues faced by the bank and were aware of how easy it was for criminals to take advantage of the system.

Responses and implications for the broader U.S. financial industry

Failure to follow these compliance standards carry hefty penalties, such as large fines, potential downsizing, and reputational damage – all things that can easily be seen to have been suffered by TD Bank as a result of this scandal. TD Bank agreed to a plea agreement, resulting in a financial penalty of $1,886,945,780,400 and “an independent compliance monitor” to help enhance its AML program and monitor it’s overall business practices. Additionally, TD Bank now is subject to an asset cap and may possibly be forced to downsize in the future if they do not meet standards set by the Office of the Comptroller of the Currency. Michael J. Hsu, Acting Comptroller of the Currency, discussed the “egregious and unacceptable” nature of TD Bank’s actions and how the OCC’s action will put TD back on the right track.

The lessons banks can learn from TD Bank’s money laundering scandal are incredibly important. First, financial institutions must prioritize and strengthen their AML practices. Banks can do this through using AI to detect anomalies in their systems or hiring compliance professionals to monitor transactions more closely. Additionally, this ordeal emphasizes the importance of listening to employees when they raise an issue. As seen in this case, multiple employees reported numerous problems with TD’s system, but management failed to implement change to address these concerns. This, in turn, exacerbated the issue and created one of the largest financial scandals in U.S. history.

TD Bank’s money laundering scandal reminds the financial world of the importance of regulatory oversight and adhering to BSA regulations to ensure the protection of the financial integrity in the industry.