TD bank employee accused of helping clients skirt controls in new U.S. money-laundering case

A Toronto-Dominion Bank branch TD-T employee in Florida is accused of accepting bribes to help move millions of dollars to Colombia, adding to a mounting list of court cases underpinning the lender’s anti-money laundering troubles in the United States.

Canada’s second-largest lender has found itself embroiled in lengthy U.S. probes by three regulators and the Department of Justice into weaknesses in its anti-money laundering practices – investigations that have derailed its most significant deal in the market south of the border.

The investigations are expected to result in large financial penalties, which analysts estimate could hit US$2-billion, as well as non-monetary penalties that could stunt its growth ambitions in the market.

In the latest case, Gerardo Aquino Vargas – a former retail employee in Hollywood, Fla. – allegedly repeatedly accepted bribes to create bank accounts, provide debit cards, and grant online access for individuals to transfer millions of dollars to Colombia, largely through automated teller machines (ATMs), according to court documents filed in the United States District Court for the District of New Jersey.

The court documents do not directly name TD as the bank, instead referring to it as “Financial Institution-A” and “one of the largest retail banks in the United States.”

TD has fired Mr. Aquino Vargas, according to TD spokesperson Lisa Hodgins.

“TD, like all financial institutions, works with law enforcement to identify, stop and support the prosecution of criminals,” Ms. Hodgins said in an e-mailed statement. “When we became aware of these matters, we took action against these employees, coordinated efforts with the DOJ, and have supported their work to bring these criminals to justice.”

This is not the first anti-money laundering case TD has faced in the U.S. A former bank employee at a New Jersey branch has been accused of allegedly accepting bribes and helping to shuttle millions of dollars in drug-trafficking proceeds to Colombia through accounts linked to shell companies.

Another case involved a US$653-million money-laundering and drug-trafficking operation in New York and other areas, which was under investigation by federal prosecutors before TD announced its plan to acquire Tennessee-based First Horizon Corp. The U.S. Department of Justice said that the lead defendant in case, Da Ying Sze, who goes by David, laundered millions in cash through a single financial institution, referred to as “FI-1.” That bank is TD, according to a source.

The Globe and Mail is not identifying the source because they are not identified to speak publicly about the matter.

In the case against Mr. Aquino Vargas – who was charged with obstructing a grand-jury investigation – federal prosecutors allege that around April, 2022, Mr. Aquino Vargas began working with a Colombian national, referred to as “co-conspirator-1,” and others to open fraudulent bank accounts and issue debit cards using the names of “witting and unwitting foreign nationals.”

When TD froze the debit cards after identifying potentially fraudulent ATM withdrawals in Colombia, Mr. Aquino Vargas allegedly contacted the bank’s hotline and had two of the cards unblocked.

Federal prosecutors also allege that he was paid at least $5,600 by the co-conspirator, and charged about $200 per account opening. He created approximately 28 accounts around May and June of last year, the complaint says.

Mr. Aquino Vargas also said in a text message to his accomplice that he charged clients from Venezuela, Israel, Bolivia and Peru more money for his access to TD products and services. He had worked at the bank since 2012.

In another case, former New York-based branch manager James Gomes pleaded guilty in May to stealing more than US$200,000 from an elderly client, and crafting fraudulent e-mail messages on behalf of the client after the individual had died.

Bloomberg first reported TD’s connection to these two cases on Monday.

TD said Monday that it has fired Mr. Gomes. The bank has also made several changes to its leadership team in anti-money laundering and risk management units.

“More broadly, where our program was ineffective, we have held those leaders accountable and are taking action to drive the changes and meet our obligations,” Ms. Hodgins said.

In its second-quarter earnings results in May, the bank set aside US$450-million in provisions to cover penalties from the probe. Discussions with the regulators are continuing and the bank expects further penalties, but the extent and timing of those are unknown.

TD has also launched an overhaul of its U.S. and global anti-money-laundering program and has invested more than $500-million to improve its platforms.

The bank has also been caught in the crosshairs of Canadian regulators. In May, The Globe reported that Canada’s banking regulator has ordered TD to repair its risk controls. The Office of the Superintendent of Financial Institutions (OSFI) identified deficiencies with TD’s regulatory compliance management program during a recent assessment.

A few weeks prior, Canada’s financial-crimes watchdog, Financial Transactions and Reports Analysis Centre of Canada (FinTRAC), imposed its largest-ever monetary penalty on TD at nearly $9.2-million after a compliance examination found the bank had faulty anti-money-laundering controls.

The issues could cost TD more than just the expense to remediate the gaps. Analysts have said that the potential non-monetary penalties could constrain TD’s expansion in its main growth market.

Regulators could prevent the bank from expanding through acquisition, or cap its asset growth – which limits a bank’s ability to expand its balance sheet, a key factor in how lenders make money.

During a conference call discussing its second-quarter earnings results in May, TD officials said the bank is adjusting its growth strategy in the U.S., slowing its plan to open more than 150 branches by 2027 as the lender assesses the impact of the regulatory penalties.

Leo Salom, the head of TD’s U.S. division, said the bank is “deliberately pacing” its retail expansion in the U.S. as it awaits penalties from regulators there.

“Our first priority is making sure that we address fully and completely the AML and governance and control issues that we’re facing in the U.S., and that is drawing a significant amount of our investment dollars as we address that with the seriousness and the importance that it requires,” Mr. Salom said in response to an analyst question.