--:-- [Theme music fades out]
--:-- Ryan Knudsen: Welcome to The Journal, our show about money, business, and power. I'm Ryan Knudsen. It's Friday, October 11th.
--:-- [Discussion begins]
--:-- Ryan Knudsen: Law enforcement officials were investigating a Mexican drug cartel. And a few years ago, they hit the streets in Queens, New York, and tailed some of the alleged criminals. Law enforcement were following the money. They were following couriers as they were delivering cash to this Chinese money laundering ring in Flushing.
--:-- Dylan Tokar: That's right. So they were following these cars, a Lexus, a box truck, through the streets of Queens as it went from bank branch to bank branch. And the members of this money laundering group were carrying bags of cash into these different bank locations. And basically depositing at the bank with the help of tellers.
--:-- Ryan Knudsen: And, you know, as law enforcement was tracking this activity, they came to see that, you know, these money launders were using multiple financial institutions. But there was one that the money launders were using in particular, and that was TD Bank.
--:-- Dylan Tokar: TD Bank, one of the largest banks in Canada and the U.S.
--:-- Ryan Knudsen: And yesterday, this investigation came to a dramatic conclusion. TD Bank created an environment that allowed financial crime to flourish. By making its services convenient for criminals, it became one.
--:-- Dylan Tokar: What we saw yesterday was really a historic settlement. You know, TD Bank has just become the largest bank in U.S. history to plead guilty to what's called Bank Secrecy Act violations. That's the law that requires them to prevent money laundering from happening.
--:-- Ryan Knudsen: They've just been handed the largest penalty ever imposed under that act. The bank pleaded guilty to money laundering charges and agreed to pay a $3 billion fine.
--:-- Ryan Knudsen: Welcome back to The Journal. I'm Ryan Knudsen. Coming up on the show, how criminal groups laundered more than $670 million through TD Bank.
--:-- [Discussion continues]
--:-- Ryan Knudsen: One of the key figures in the money laundering operation that brought TD Bank onto regulators' radar is a man named Da Ying Shi. Da Ying was not someone I understand with extensive criminal background, apart from this enormous money laundering ring that he came to operate.
--:-- Dylan Tokar: They were essentially going around and depositing money into bank branches in New York, but also in New Jersey and Philadelphia. And in total, law enforcement says he was successful in laundering $653 million.
--:-- Ryan Knudsen: Sorry, $653 million he was laundering? Yes. That must be a giant washing machine.
--:-- Dylan Tokar: Yeah, it was a massive operation.
--:-- Ryan Knudsen: And, you know, prosecutors say that more than 470 million of that went through TD Bank.
--:-- [Discussion continues]
--:-- Dylan Tokar: In the dark underworld of cartels and drug traffickers, Xi played a particular role. His job was to get the money generated from the illegal drug business, cleaned up and back into the legitimate financial system.
--:-- Ryan Knudsen: Dai Ying represents a type of money laundering group that we've been seeing more of popping up throughout the United States. They are fulfilling a service that other criminal groups need, right? Criminal groups, criminal activity often generates a lot of cash.
--:-- Dylan Tokar: As you can imagine, there's kind of a logistical problem with having huge huge stacks of cash. There's limited things you can do with that cash. And to really utilize it fully, you need to get it into the banking system, right? You can't just walk around paying with everything with large stacks of dollars.
--:-- Ryan Knudsen: You also need to move to the extent that this money laundering group is doing business with the cartels. They need to find some way of transferring that value from the United States back to places like Mexico and China.
--:-- Dylan Tokar: And so Da Ying in Fleshing was offering a way to do that. But to the extent that they have the ability to just put it into a bank, I mean, what we saw here is that they're putting it into a bank and then they were just moving it elsewhere, right? They would transfer it, and they might be transferring it to a bank account in China or in Mexico.
--:-- Ryan Knudsen: In one case here, we saw them just depositing it and then people would just go take that money out of ATMs in Colombia, right? So it's about moving that cash into other countries, and it's about cleaning it up and making it available to use however you want to use it.
--:-- [Discussion continues]
--:-- Dylan Tokar: To carry out this laundering operation, Zhe and his network opened bank accounts. His group set up shell companies, and they were essentially laundering money through the accounts for those shell companies, which could be a business, often something that might look like a business that would be cash-intensive, like a small business in Flushing, or just, you know, individuals.
--:-- Ryan Knudsen: And they would put money into this account and then withdraw it either via wire transfers or cashier's checks. And then they'd often just walk into TD Bank branches with giant bags full of cash.
--:-- Dylan Tokar: The prosecutors noted that this money laundering activity was obvious, you know, even to the casual observer. They recounted one anecdote where in July 2020, they pulled a screenshot from a surveillance in a TD bank branch in Midtown New York, where you see Da Ying standing at the teller's window with a surgical mask on. This was around the time of COVID. And he was depositing $372,000 in cash at that bank location. And there's just stacks of dollar bills on the teller's desk.
--:-- Ryan Knudsen: I mean, that's a lot of money. Yeah. But if somebody's bringing in armfuls full of cash, aren't any of the employees saying anything?
--:-- Dylan Tokar: So there were instances in the court documents where the Department of Justice essentially quoted frontline employees, store managers, retail bank employees expressing discomfort or even just joking around about, you know, how easy it was to do this.
--:-- Ryan Knudsen: So in one instance in August 2020, they said a TD Bank location manager emailed another manager regarding deposits by Dai Ying and said, you guys really need to shut this down, LOL.
--:-- Dylan Tokar: LOL? Yes, capital LOL. Is that short for laundering out loud because it's so obvious what was happening here?
--:-- Ryan Knudsen: Yeah, nice.
--:-- Dylan Tokar: And later that year, a branch manager allegedly basically begged his supervisors, who were TD regional managers, to do something about this, saying, quote, It is getting out of hand and my tellers are at the point that they don't feel comfortable handling these transactions.
--:-- Ryan Knudsen: In another case, in 2021, a TD branch employee saw that Da Ying had purchased more than $1 million in cashier's checks in a single day. And asked, how is that not money laundering?
--:-- Dylan Tokar: Another employee responded, according to DOJ, saying, oh, it 100% is.
--:-- Ryan Knudsen: My personal favorite is, you know, the bank employees have the ability to file unusual transaction reports, basically kind of like the front line, hey, I think there's something going wrong here. And they were filing them on Da Ying.
--:-- Dylan Tokar: And in September 2020, a retail employee just said, In capital letters, every day, customer deposit a lot of cash. My jaw is on the floor over here.
--:-- Ryan Knudsen: Ja pleaded guilty to charges related to money laundering in 2022. His lawyer didn't return a request for comment.
--:-- Dylan Tokar: According to prosecutors, anti-money laundering officials at TD Bank knew there were problems. They received those reports from branch employees. But it's unclear why they weren't acted upon.
--:-- Ryan Knudsen: Banks do have other systems that are supposed to catch potential money laundering, though. Out ones as suspicious. And so they have these, you know, kind of automated technology-driven platforms that are supposed to do this.
--:-- Dylan Tokar: And prosecutors, you know, said that TD's was basically static for over 10 years. They didn't update it with new typologies. They were aware that it wasn't picking up a lot of things, but they weren't doing anything about it.
--:-- Ryan Knudsen: So it's like an outdated system that wasn't getting the upgrades.
--:-- Dylan Tokar: Yeah. So one figure that really stood out from the court documents yesterday is that DOJ and regulators were basically able to estimate that between early 2018 and April 2024, TD's U.S. business failed to monitor 92% of its transaction volume, and that represented $18.3 trillion in total transactions.
--:-- Ryan Knudsen: Prosecutors say that one reason TD Bank wasn't investing in these systems is because it was too focused on something else, keeping costs down.
--:-- Dylan Tokar: So one thing that prosecutors and regulators pinpointed that appears to be a major driver of why TD Bank's anti-money laundering system was deficient, it had what it called a flat cost paradigm at the bank or a zero expense growth paradigm.
--:-- Ryan Knudsen: And what that meant was that while TD Bank was growing here, each department's budget, including the anti-money laundering programs, budget was expected to stay flat, even though, you know, the customer base was growing, the profits were growing, and as a result, the risks were growing.
--:-- Dylan Tokar: So this was a downward pressure on costs that affected TD Bank's ability to stop money laundering from happening.
--:-- Ryan Knudsen: In addition to what Shell was doing, prosecutors say there were other money laundering operations running through TD as well. They said in one case, there was a jewelry business that moved $120 million through shell accounts for some time before TD finally flagged that suspicious activity to regulators.
--:-- Dylan Tokar: They also pointed to a different money laundering scheme in which money launderers made cash deposits into US TD locations and then withdrew that from ATMs in Columbia. And in that case, there were five TD bank employees who were allegedly involved helping those money launderers open accounts and basically kind of trying to help them escape notice from the bank's internal systems.
--:-- Ryan Knudsen: But investigators were noticing, and they were ready to crack down.
--:-- Ryan Knudsen: Welcome back to The Journal. I'm Ryan Knudsen. Mint is still $15 a month for premium wireless. And if you haven't made the switch yet, here are 15 reasons why you should.
--:-- [Discussion continues]
--:-- Ryan Knudsen: One of the key figures in the money laundering operation that brought TD Bank onto regulators' radar is a man named Da Ying Shi. Da Ying was not someone I understand with extensive criminal background, apart from this enormous money laundering ring that he came to operate.
--:-- Dylan Tokar: They were essentially going around and depositing money into bank branches in New York, but also in New Jersey and Philadelphia. And in total, law enforcement says he was successful in laundering $653 million.
--:-- Ryan Knudsen: Sorry, $653 million he was laundering? Yes. That must be a giant washing machine.
--:-- Dylan Tokar: Yeah, it was a massive operation.
--:-- Ryan Knudsen: And, you know, prosecutors say that more than 470 million of that went through TD Bank.
--:-- [Discussion continues]
--:-- Dylan Tokar: In the dark underworld of cartels and drug traffickers, Xi played a particular role. His job was to get the money generated from the illegal drug business, cleaned up and back into the legitimate financial system.
--:-- Ryan Knudsen: Dai Ying represents a type of money laundering group that we've been seeing more of popping up throughout the United States. They are fulfilling a service that other criminal groups need, right? Criminal groups, criminal activity often generates a lot of cash.
--:-- Dylan Tokar: As you can imagine, there's kind of a logistical problem with having huge huge stacks of cash. There's limited things you can do with that cash. And to really utilize it fully, you need to get it into the banking system, right? You can't just walk around paying with everything with large stacks of dollars.
--:-- Ryan Knudsen: You also need to move to the extent that this money laundering group is doing business with the cartels. They need to find some way of transferring that value from the United States back to places like Mexico and China.
--:-- Dylan Tokar: And so Da Ying in Fleshing was offering a way to do that. But to the extent that they have the ability to just put it into a bank, I mean, what we saw here is that they're putting it into a bank and then they were just moving it elsewhere, right? They would transfer it, and they might be transferring it to a bank account in China or in Mexico.
--:-- Ryan Knudsen: In one case here, we saw them just depositing it and then people would just go take that money out of ATMs in Colombia, right? So it's about moving that cash into other countries, and it's about cleaning it up and making it available to use however you want to use it.
--:-- [Discussion continues]
--:-- Dylan Tokar: To carry out this laundering operation, Zhe and his network opened bank accounts. His group set up shell companies, and they were essentially laundering money through the accounts for those shell companies, which could be a business, often something that might look like a business that would be cash-intensive, like a small business in Flushing, or just, you know, individuals.
--:-- Ryan Knudsen: And they would put money into this account and then withdraw it either via wire transfers or cashier's checks. And then they'd often just walk into TD Bank branches with giant bags full of cash.
--:-- Dylan Tokar: The prosecutors noted that this money laundering activity was obvious, you know, even to the casual observer. They recounted one anecdote where in July 2020, they pulled a screenshot from a surveillance in a TD bank branch in Midtown New York, where you see Da Ying standing at the teller's window with a surgical mask on. This was around the time of COVID. And he was depositing $372,000 in cash at that bank location. And there's just stacks of dollar bills on the teller's desk.
--:-- Ryan Knudsen: I mean, that's a lot of money. Yeah. But if somebody's bringing in armfuls full of cash, aren't any of the employees saying anything?
--:-- Dylan Tokar: So there were instances in the court documents where the Department of Justice essentially quoted frontline employees, store managers, retail bank employees expressing discomfort or even just joking around about, you know, how easy it was to do this.
--:-- Ryan Knudsen: So in one instance in August 2020, they said a TD Bank location manager emailed another manager regarding deposits by Dai Ying and said, you guys really need to shut this down, LOL.
--:-- Dylan Tokar: LOL? Yes, capital LOL. Is that short for laundering out loud because it's so obvious what was happening here?
--:-- Ryan Knudsen: Yeah, nice.
--:-- Dylan Tokar: And later that year, a branch manager allegedly basically begged his supervisors, who were TD regional managers, to do something about this, saying, quote, It is getting out of hand and my tellers are at the point that they don't feel comfortable handling these transactions.
--:-- Ryan Knudsen: In another case, in 2021, a TD branch employee saw that Da Ying had purchased more than $1 million in cashier's checks in a single day. And asked, how is that not money laundering?
--:-- Dylan Tokar: Another employee responded, according to DOJ, saying, oh, it 100% is.
--:-- Ryan Knudsen: My personal favorite is, you know, the bank employees have the ability to file unusual transaction reports, basically kind of like the front line, hey, I think there's something going wrong here. And they were filing them on Da Ying.
--:-- Dylan Tokar: And in September 2020, a retail employee just said, In capital letters, every day, customer deposit a lot of cash. My jaw is on the floor over here.
--:-- Ryan Knudsen: Ja pleaded guilty to charges related to money laundering in 2022. His lawyer didn't return a request for comment.
--:-- Dylan Tokar: According to prosecutors, anti-money laundering officials at TD Bank knew there were problems. They received those reports from branch employees. But it's unclear why they weren't acted upon.
--:-- Ryan Knudsen: Banks do have other systems that are supposed to catch potential money laundering, though. Out ones as suspicious. And so they have these, you know, kind of automated technology-driven platforms that are supposed to do this.
--:-- Dylan Tokar: And prosecutors, you know, said that TD's was basically static for over 10 years. They didn't update it with new typologies. They were aware that it wasn't picking up a lot of things, but they weren't doing anything about it.
--:-- Ryan Knudsen: So it's like an outdated system that wasn't getting the upgrades.
--:-- Dylan Tokar: Yeah. So one figure that really stood out from the court documents yesterday is that DOJ and regulators were basically able to estimate that between early 2018 and April 2024, TD's U.S. business failed to monitor 92% of its transaction volume, and that represented $18.3 trillion in total transactions.
--:-- Ryan Knudsen: Prosecutors say that one reason TD Bank wasn't investing in these systems is because it was too focused on something else, keeping costs down.
--:-- Dylan Tokar: So one thing that prosecutors and regulators pinpointed that appears to be a major driver of why TD Bank's anti-money laundering system was deficient, it had what it called a flat cost paradigm at the bank or a zero expense growth paradigm.
--:-- Ryan Knudsen: And what that meant was that while TD Bank was growing here, each department's budget, including the anti-money laundering programs, budget was expected to stay flat, even though, you know, the customer base was growing, the profits were growing, and as a result, the risks were growing.
--:-- Dylan Tokar: So this was a downward pressure on costs that affected TD Bank's ability to stop money laundering from happening.
--:-- Ryan Knudsen: In addition to what Shell was doing, prosecutors say there were other money laundering operations running through TD as well. They said in one case, there was a jewelry business that moved $120 million through shell accounts for some time before TD finally flagged that suspicious activity to regulators.
--:-- Dylan Tokar: They also pointed to a different money laundering scheme in which money launderers made cash deposits into US TD locations and then withdrew that from ATMs in Columbia. And in that case, there were five TD bank employees who were allegedly involved helping those money launderers open accounts and basically kind of trying to help them escape notice from the bank's internal systems.
--:-- Ryan Knudsen: But investigators were noticing, and they were ready to crack down.
--:-- [Discussion continues]
--:-- Ryan Knudsen: Last year, as part of its push to expand, TD Bank was planning to close a big acquisition. TD was trying to make a major move in the U.S. market, and they wanted to grow. And so they were looking to acquire First Horizon Bank.
--:-- Dylan Tokar: I think there was a lot of eagerness on both sides to hash out a deal. But amid their efforts to do this, prosecutors and regulators were starting to look at TD's own anti-money laundering systems. And regulators became so concerned about that program, the anti-money laundering program, that they essentially, this is what our reporting says, they weren't comfortable with TD Bank acquiring First Horizons.
--:-- Ryan Knudsen: What went through your mind when you heard that this acquisition that TD Bank was trying to do was scuttled because an anti-money laundering investigation was ongoing?
--:-- Dylan Tokar: It was definitely eyebrow-raising. You know, banks are often having back and forth with regulators about their anti-money laundering systems. I mean, this comes up quite often. But it was clear that if, you know, regulators were putting a stop to this deal, that it was probably a lot more serious.
--:-- Ryan Knudsen: Then this week the results of the investigation came to light. TD Bank agreed to a plea deal. TD Bank U entity pleaded guilty to charges related to money laundering. The bank also agreed to a $3 billion fine and to allow two independent monitors to keep track of its compliance. And it's now subject to an asset cap that bars the company from growing beyond its current size.
--:-- Dylan Tokar: And how significant is this settlement? Like, can you put it into some context? I mean, I would say that's very significant for them, right? I mean, it's rare for regulators to do this. It's not what banks want. Banks want to grow.
--:-- Ryan Knudsen: TD was pursuing a pretty aggressive strategy of acquiring banks in the U.S. to grow its business here. And this is a pretty sharp turn in its fortunes. It's going to be constrained from pursuing that strategy for some time.
--:-- Dylan Tokar: TD Bank has said it's working to address issues with its anti-money laundering programs. And in recent months, it's made a series of key hires to shore up its anti-money laundering and investigations groups.
--:-- Ryan Knudsen: Here's TD Bank CEO Barrett Mizrani in a conference call yesterday. This is on us. We own it. You know, we should have done better. We know what the issues are. We are fixing them. As we move forward, you know, we're ensuring that this never happens again.
--:-- Dylan Tokar: Are these penalties going to be enough to get TD Bank to invest in and improve these anti-money laundering systems and not let it happen again? I think it remains to be seen whether TD Bank can really turn this around. There's going to be heavy scrutiny going forward. And they've brought in former government people from the Homeland Security Department and other agencies that are experts in money laundering and stopping it.
--:-- Ryan Knudsen: Their systems are not where they should be yet. That's a big part of these deals, right, is putting monitoring in place and requiring TD Bank to keep improving these systems they have in place to stop anti-money laundering.
--:-- Dylan Tokar: So their ability to get out from under this asset cap is going to be directly tied into their ability to prove to regulators and the Department of Justice that they're doing that.
--:-- Ryan Knudsen: It seems somewhat ironic that the company that was trying to grow, and so in that pursuit, in some ways, it didn't invest in the Sandy Money Liner stuff. Now its growth is being capped because of the problems that were created because it had that focus.
--:-- Dylan Tokar: Yeah, I mean, I agree. Is this a story of one bank that made big mistakes? Or is it a story of how easily criminals can take advantage of banks? That's a good question.
--:-- Ryan Knudsen: I think it's both. I think when you really dig in to this case out in Flushing, you see that it wasn't just TD that these money launderers were using. They were using other banks, and prosecutors seized funds from a variety of other banks, quite large ones.
--:-- Dylan Tokar: But what you also see is that there's a clear recognition here that TD Bank's systems, their efforts to stop money laundering, were particularly deficient. And that's why I think you see these really historic fines against TD and these penalties.
--:-- Ryan Knudsen: And I think it's why the Department of Justice chose to launch this investigation into TD in the first place.
--:-- [Discussion continues]
--:-- Ryan Knudsen: That's all for today. Friday, October 11th. The Journal is a co-production of Spotify and The Wall Street Journal. Additional reporting in this episode by Justin Baer and Vipal Manga. The show is made by Catherine Brewer, Jonathan Davis, Pia Gadkari, Rachel Humphries, Matt Kwong, Kate Lyne Ba, Jessica Mendoza, Annie Minoff, Laura Morris, Enrique Perez de la Rosa, Sarah Platt, Alan Rodriguez Espinosa, Alessandra Rizzo, Heather Rogers, Pierce Singhi, Jivika Verma, Lisa Wang, Catherine Whalen, Tatiana Zamis, and me, Ryan Knudsen, with help from Trina Menino. Our engineers are Griffin Tanner, Nathan Singapak, and Peter Leonard. Our theme music is by So Wiley. Additional music this week from Catherine Anderson, Peter Leonard Bobby Lord, Emma Munger Nathan Singapak, Griffin Tanner So Wiley and Blue Dot Sessions. Fact checking by Mary Mathis and Najwa Jamal. Thanks for listening. We're off Monday for the holiday. See you on Tuesday. Thank you.
--:-- [Theme music fades in]
