Canadian Bank Had “Deficient” Anti-Money Laundering Controls: Class Action

Canada is known for three things these days—maple syrup, hockey, and money laundering. Earlier this month, poor attention to the last one may have derailed TD’s $13.5 billion acquisition of US bank First Horizon. Now Robbins LLP, a firm specializing in shareholder rights, has made it the center of a new class action suit. The firm alleges TD knew the bank had issues with anti-money laundering procedures, but failed to disclose the material fact to shareholders of the American bank they were acquiring.  

TD Terminates Acquisition of US Bank After Regulator Uncertainty

TD’s $13.4 billion attempt to acquire First Horizon came to an end about a year after it began. Earlier this month, TD stated the deal was mutually terminated due to regulator uncertainty. More specifically, it couldn’t determine when regulators would approve the deal. Had the deal gone through, Canada’s second largest bank would have become the sixth largest in the US. 

It probably wasn’t an easy deal to walk away from, either. TD is now on the hook for a $200 million penalty, and First Horizon shareholders saw their price plummet.

Poor Anti-Money Laundering Procedures Alleged In Class Action

The reason? Money laundering. A WSJ piece revealed that regulatory delays were over insufficient anti-money laundering concerns. TD pledged more comprehensive and prompt controls are coming. The Office of the Comptroller of the Currency and US Federal Reserve would need to see practical rollouts before concerns were alleviated. 

The bank hasn’t commented on the allegations, but a shareholder class action lawsuit is in the works. Robbins LLP alleges the bank failed to disclose material risks. Specifically: 

• (1) TD had deficient controls over anti-money laundering (AML) and suspicious transaction reporting; 
• (2) that the lack of controls posed a significant risk to the closing of the First Horizon acquisition; 
• (3) that the deficient AML controls actually caused the delay in obtaining regulatory approvals for the First Horizon acquisition. 

Robbins LLP council is currently seeking investors impacted by the share price decline. 

Canadian Banks Face Toothless Regulators & Intentional Weakening of Institutions

It’s important to note, even if TD loses the suit, it doesn’t mean they encouraged laundering. It means it wasn’t a management concern significant enough for them to pursue as a priority. That highlights Canada’s culture of willful blindness when it comes to money laundering.

Not vetting money flowing through institutions sufficiently doesn’t mean its illicit money. However, it means illicit money won’t encounter many hurdles when it does flow through. That’s part of the reason Canada’s become a global money laundering hub.

Canada’s banks are often said to be better regulated than other advanced economies. This is based on a lack of negative evidence, but it’s hard to see evidence when no one can look for it. The bank regulator (OSFI) has insufficient powers to investigate allegations, and Canada lacks whistleblower protections. That’s not the case in many of the countries Canada is compared to. 

OSFI can have the toughest and strictest regulator, but they don’t have the power to execute. You won’t see any issues if you can’t look, and have limited power for recourse. 

Meanwhile, international investigations are finding significant issues at Canada’s banks… quite a few of them. It’s not a new problem either. 

Allegations against TD have yet to be proven, but they aren’t surprising. Having strict anti-laundering controls isn’t a priority in a place where the government weakened enforcement mechanisms in the middle of a public inquiry into the government’s role in anti-money laundering regulations. Rules are only worth a damn if they can be enforced, and weakening institutions is a clear sign they won’t be.

Maybe if TD loses, the bank regulator will allow them to amortize the cost over 70+ years, like a mortgage. It may not be allowed officially, but what would stop them? A strongly worded letter from OSFI isn’t a very powerful tool.