Toronto-Dominion Bank Faces Regulatory Scrutiny Over Money-Laundering Scheme

Toronto-Dominion Bank is currently under investigation by the U.S. Department of Justice for its involvement in a money-laundering scheme, connected to a US$653 million drug money-laundering case in New York and New Jersey. The probe, as reported by the Wall Street Journal, is examining how Toronto-Dominion Bank and other financial institutions were used by Chinese crime groups to conceal proceeds from U.S. fentanyl sales.

The bank’s entry into the U.S. regional banking market began nearly two decades ago with the acquisition of the Banknorth Group, leading to Toronto-Dominion becoming a significant player in the region. However, recent regulatory hurdles have hampered their growth, evident in the abandonment of a proposed acquisition of First Horizon Corp last year due to delayed regulatory approval.

Jefferies analyst, John Aiken, highlighted that the potential consequences for Toronto-Dominion Bank are severe, with a looming fine and anticipated constraints on U.S. operations for long periods. The bank has already set aside an initial US$450 million provision for penalties but expects more to come as multiple investigations are underway.

The compliance failures at Toronto-Dominion Bank may trigger changes in the management team as shareholders express concerns. Bharat Masrani, the Chief Executive Officer, acknowledged the AML program shortcomings, emphasizing the bank’s commitment to strengthening its anti-money laundering controls through significant investments in technology and new personnel.

Market analysts like Mike Rizvanovic and Meny Grauman have adjusted their price targets for Toronto-Dominion Bank, anticipating a slow recovery. Although shares took a hit following the news, there is optimism that the current market valuation may not completely reflect the bank’s U.S. earnings potential moving forward.