Open this photo in gallery: A criminal complaint filed by the U.S. Drug Enforcement Administration (DEA) reveals details of potential weaknesses in TD’s anti-money-laundering controls.SEAN KILPATRICK/THE CANADIAN PRESS
A former Toronto-Dominion Bank TD-T employee at a New Jersey branch allegedly accepted bribes and helped to shuttle millions of dollars in drug-trafficking proceeds from the United States to Colombia through accounts linked to shell companies, according to documents filed in a New Jersey court.
A criminal complaint filed by the U.S. Drug Enforcement Administration (DEA) reveals details of potential weaknesses in TD’s anti-money-laundering controls as Canada’s second-largest lender faces the prospect of significant penalties stemming from an investigation by U.S. law enforcement and regulatory authorities.
Oscar Nunez-Flores, who worked at a TD branch in Scotch Plains, N.J., was charged by the U.S. Department of Justice in October with accepting bribes and helping launder the proceeds of illegal drug sales since early 2022.
The allegations against Mr. Nunez-Flores haven’t been proven in court. TD has not said whether the case is related to the U.S. anti-money-laundering investigation that the bank disclosed to shareholders in August.
The court documents, which came to light this week in a report by trade publication Capitol Forum, do not name TD directly, but described Mr. Nunez-Flores’s previous employer as an international lender and one of the largest retail banks in the United States.
“In respect of the recent charges of a TD branch employee in New Jersey, TD is co-operating fully with law enforcement and this employee has been terminated,” TD spokesperson Lisa Hodgins said in a statement on Tuesday.
Mr. Nunez-Flores and his lawyer did not respond to requests for comment.
In its report Monday, Capitol Forum also quoted unnamed sources saying TD executives knew about the U.S. anti-money-laundering probe more than six months before the company publicly disclosed the investigation that derailed its acquisition of Tennessee-based First Horizon Bank.
TD’s takeover of First Horizon was terminated in May after TD said that it did not have a timetable for receiving regulatory approval. In August, the lender disclosed in its third-quarter earnings results that it expected fines or other penalties stemming from probes by regulators and law-enforcement agencies, including the Department of Justice, related to its anti-money-laundering practices.
While the details of the investigation have not been disclosed, analysts and investors have said that the anti-money-laundering breaches must have been severe enough to scuttle a major strategic transaction.
Mr. Nunez-Flores was charged with one count of conspiracy to launder money instruments for more than a year. He was also charged with one count of receiving bribes as a bank employee.
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The court filings state that the unnamed financial institution has anti-money-laundering policies in place, and that it provides training to make employees aware that they are “prohibited from requesting or receiving anything of value in order to influence an act or a decision.” Staff are required to complete annual anti-money-laundering training, added the case documents.
In April, 2022, Mr. Nunez-Flores accepted a bribe of US$1,200 to conduct certain transactions at the lender, alleges the DEA.
He joined TD in October, 2020, as a financial-services representative at a branch in New Jersey. As the person in charge of sales at the branch, he was the primary contact for new and existing customers, according to the court filings. The former employee “repeatedly and corruptly accepted bribes” to create accounts under shell companies with owners that he was aware were not controlling the accounts, the documents allege.
Mr. Nunez-Flores also allegedly provided numerous debit cards to access the accounts online. The documents allege that through those debit cards, individuals were able to launder millions of dollars from the U.S. to Colombia, largely through ATM withdrawals in Colombia.
The documents allege that Mr. Nunez-Flores opened a bank account for a shell company registered in Florida. The DEA said that he listed an individual in control of the account, even though he knew that person was not overseeing the account.
He then “knowingly and willfully” provided a third-party individual with complete access to the shell company’s account, and did not identify the person on any account records. In exchange, he was offered a US$2,500 bribe, and was paid about half the amount.
Later that month, Mr. Nunez-Flores issued more than 20 debit cards that were used to withdraw cash from ATMs in Colombia, alleges the DEA. After receiving additional bribe payments, he created two more accounts for the individual, according to the documents.
Between May and August, 2022, more than 17,000 international ATM withdrawals were conducted and about US$1.9-million was routed from the U.S. to Colombia and other countries, according to the court filings.
Meanwhile, Mr. Nunez-Flores allegedly oversaw the activity in the accounts, recognized that the transactions were considered unusual, and continued to issue new debit cards.
The documents also outlined the details of multiple other shell companies that were used to launder money through products and services provided by Mr. Nunez-Flores. In one example, he received 37 bribery payments totalling US$20,622.
A shell corporation is a business that exists purely on paper because it lacks operations. Financial criminals often create empty shells and name nominee directors on the paperwork to obscure their true ownership. They then use the shells to open banks accounts and gain access to the financial system to launder the proceeds of their crimes.
The U.S. government, however, is cracking down on the misuse of shell companies. The Financial Crimes Enforcement Network, which is an arm of the U.S. Treasury Department, has created a corporate registry to reveal the true owners of those private companies.
Moreover, the Biden administration also announced last year that it is targeting drug trafficking and transnational organized crime including cartels linked to Latin American countries such as Colombia.
Concerning TD’s undisclosed anti-money-laundering issues related to the U.S. Department of Justice investigation, analysts have estimated that the penalty could range between US$500-million and US$1-billion.
Depending on the severity of the infractions, fines could far exceed those estimates. In 2012, HSBC paid about US$2-billion to settle charges connected to illegal drug money laundering.