TD Bank Group could be subjected to more severe penalties than initially anticipated after a report surfaced linking the bank to the laundering of profits from illicit fentanyl sales, according to insights from a banking analyst. Gabriel Dechaine of National Bank of Canada suggests a reassessment of the potential outcomes of multiple U.S. investigations currently facing TD Bank, following revelations published by the Wall Street Journal.
The U.S. Justice Department is reportedly investigating how Chinese drug traffickers allegedly used TD Bank to launder at least $653 million USD, involving the bribery of bank employees to facilitate these transactions. In response to these allegations, TD Bank acknowledged that its anti-money laundering defenses in the U.S. were inadequate.
“Criminals constantly seek to use banks to launder money. Regrettably, our U.S. (anti-money laundering) program did not effectively thwart these activities. This is unacceptable, and we must and we will do better,” stated Elizabeth Goldenshtein, a spokesperson for TD Bank. She confirmed that the bank is cooperating with law enforcement and regulators and is making comprehensive efforts to strengthen its anti-money laundering programs.
The severity of these allegations could lead to fines significantly exceeding the $500 million to $1 billion range previously expected by many investors, with potential fines reaching as high as $2 billion, according to Dechaine. Furthermore, regulatory-imposed limitations could restrict the bank’s business activities, affecting its operations for years and possibly eroding future earnings by over $1 billion. As a result, Dechaine has lowered his price target for TD’s shares listed on the Toronto Stock Exchange (TSX) by nearly nine percent to $84.
This news comes in the same week that TD announced an initial provision of $450 million USD related to the ongoing U.S. regulatory inquiry into its compliance with anti-money laundering regulations. The discussions with three U.S. regulators and the Department of Justice are ongoing, with additional financial penalties expected.
In a separate development, Canada’s financial-crime watchdog Fintrac imposed a $9.2-million penalty on TD Bank for non-compliance with money laundering and terrorist financing measures.
As the situation unfolds, TD Bank’s stock price has seen a notable decline, falling more than four percent in midday trading Friday to $75.85 on the TSX.