Opinion: TD Bank, which has downplayed its money laundering problems for years, still needs to come clean to investors

Open this photo in gallery:

Toronto-Dominion Bank TD-T continues to court investors.

Even after U.S. Attorney General Merrick Garland was publicly demoted and criminally convicted of conspiring to launder money, Canada’s second-largest bank will not give the public a clear answer about what went wrong.

Chief Executive Officer Bharat Masrani wants people to believe that TD has taken “full responsibility” for the “serious failures” of its U.S. anti-money laundering program. But he and other senior leaders have spent years downplaying these failures, and they still don’t understand that transparency is an essential part of accountability.

To be sure, Mr. Masrani and other senior leaders expressed remorse. But their message rang hollow because they stuck to the same old playbook even after U.S. officials revealed that TD’s problems were systemic and that criminal investigations continued to scrutinize people “up and down the corporate ladder.”

“TD Bank created an environment that allowed financial crime to flourish. By making its services convenient for criminals, it became one,” Garland said.

This startling revelation should have prompted executives to finally come clean to investors. Instead, this week they offered recycled talking points.

“Why did this happen at TD and not at the other banks, the Canadian banks that operate in the U.S.?” Bank of America Securities analyst Ebrahim Poonawala asked during a conference call Thursday, according to a report from S&P Global Market Intelligence provided transcript.

“Listen, we made ourselves very clear. We had a major failure in our US AML program. There are various reasons for this. We talked about it. That’s up to us. We own it. We should have done better. We know the problems. We are repairing them,” replied Mr. Masrani.

Only the bank’s spin doctors – who have spent months confronting journalists and questioning the newsworthiness of some developments in this story – would consider this clarity.

TD’s executives and board members appear to be unaware of how much they have broken investor trust. The US Justice Department’s revelations were shocking because the bank spent years covering up the extent of its money laundering failures.

“As I get to the root of what happened, there were some procedural deficiencies in the U.S.,” Chief Risk Officer Ajai Bambawale said in May.

He also seemed to attribute this to some bad temper within the bank: “We were also disappointed that some of our colleagues did not follow our code of ethics.”

Mr. Masrani, however, portrayed TD as a victim just last month: “We had a situation here where some threat actors, bad actors, were able to exploit the bank.”

Investors deserve appropriate answers after learning that TD is guilty of criminality. Although the consent order is lengthy, it leaves many questions unanswered.

Executives can begin by explaining why TD declined its offer to buy First Horizon Corp. just days after the plea was announced by Da Ying Sze, part of a criminal network that illegally moved cash through its branches. Mr. Sze, also known as David, transferred more than $470 million in illicit funds through TD branches in the United States over a three-year period.

They also have to justify why they announced plans last year to open 150 U.S. retail stores by 2027, even after the U.S. regulatory investigation derailed that $13.4 billion deal.

In recent months, executives have repeatedly stated that there is no problem at the corporate level. But how does that square with the Federal Reserve Board’s demand that TD conduct a “thorough and independent review” of its board and management to ensure appropriate oversight of U.S. operations?

A separate requirement that TD move parts of its anti-money laundering compliance program responsible for complying with U.S. law to the United States creates the impression that this would result in the loss of Canadian jobs. Worse, it’s a black eye for Canadian regulators, including the Office of the Superintendent of Financial Institutions (OSFI) and the Financial Transactions and Reports Analysis Center of Canada (FinTRAC).

“This program is subject to the supervision of U.S. regulators,” the Federal Reserve Board said in its press release.

This speaks volumes about the loss of trust in Canada’s regulatory system. The Globe and Mail reported in May that U.S. regulators had questioned why their Canadian counterparts had previously failed to identify and address problems with TD’s anti-money laundering risk controls.

It remains a legitimate question.

Although FinTRAC imposed a $9.18 million administrative penalty on TD earlier this year, that is still a fraction of the more than $3 billion in fines imposed by U.S. regulators.

OSFI’s statement pointing out that it was prohibited by two federal laws from disclosing information about TD was a national embarrassment.

Where is the commitment from Prime Minister Justin Trudeau and Finance Minister Chrystia Freeland to unshackle federal regulators and hold TD accountable?

Unlike our slumbering lawmakers and regulators, you can bet that U.S. securities lawyers will be analyzing every word of TD’s consent order to find inconsistencies with the bank’s previous public statements about its anti-money laundering failures.

Canadians should not have to rely on the U.S. justice system to provide transparency about domestic banks. It’s time for TD executives to stop the PR talk and get things straight.