Open this photo in gallery: TD Bank admitted in a plea agreement with the U.S. Department of Justice that its U.S. bank allowed criminals to launder hundreds of millions of dollars and failed to properly monitor trillions of dollars’ worth of transactions.ANDREW LAHODYNSKYJ/THE CANADIAN PRESS
Toronto-Dominion Bank spends millions of dollars each year to pay august, accomplished business leaders to serve on its board of directors, the ultimate stewards of the corporation.
They seem to have overlooked a few things, to put it lightly.
In a plea agreement with the U.S. Department of Justice, TD admitted its U.S. bank allowed criminals to launder hundreds of millions of dollars and failed to properly monitor trillions of dollars’ worth of transactions. TD was America’s most convenient bank for criminals.
While the settlement between TD and U.S. prosecutors and regulators details all manner of wayward behaviour by TD employees, it also explicitly lays blame where it ultimately belongs: with the boards of the Canadian parent company and its various U.S. banking subsidiaries.
The U.S. regulator, the Financial Crimes Enforcement Network, said it believes some of the problems were not escalated to the boards of the U.S. bank or bank holding companies. But in other instances, those boards – which included key members of TD’s parent-company board – were told about money-laundering issues.
And the U.S. Department of Justice charges, to which TD Bank N.A., the U.S.-based bank, pled guilty, said that over at least the past 11 years, U.S. regulators, TD Bank N.A.’s internal audit employees and third-party consultants all “repeatedly identified its transaction monitoring program as an area of concern.” The DOJ says the senior executive leaders and boards of directors of the U.S. bank, the U.S. holding companies and the Canadian parent “were made aware of certain of the concerns identified by these regulators and auditors.”
The DOJ also says the boards were informed in 2018 and 2020 of compliance deficiencies and failures, and the lack of a plan to fix some of them.
Importantly, there was no reason to believe that this was a fresh, emerging or minor problem. Two U.S. regulators had already dinged TD Bank N.A. in 2013 to the tune of US$37.5-million for violations of that country’s Bank Secrecy Act, and the bank had to enter a compliance agreement with the Office of the Comptroller of the Currency, the primary national regulator of U.S. banks.
TD also says explicitly – and the U.S. prosecutors and regulators agree – that the board’s audit committee is responsible for supervising the bank’s compliance and anti-money-laundering functions. For example, in its most recent proxy statement to shareholders, TD says the committee “oversaw the execution and ongoing effectiveness” of the AML program and received regular updates on the status of its “operational performance and effectiveness.”
In short, it was their job to know.
U.S. regulators say they will require TD to conduct a thorough evaluation of its boards and its governance procedures. But the evidence is already in: With TD officially a criminal enterprise in the United States, the past decade’s worth of TD board members have earned a black mark that should preclude them from continuing to serve at TD – or on any other corporate board, for that matter. (TD did not comment for this column.)
So, where was the board? During the 10 years cited by the DOJ, TD’s audit committee was largely populated by directors who hadn’t worked for long periods in the banking industry. For most, their biographies suggest little experience with money-laundering controls.
And until recently, the majority of the members of the TD audit committee were not chartered professional accountants. (TD has added three CPAs since mid-2022, and as of the end of last year, five of six board committee members are CPAs.)
Former chief executive officers can be considered an audit committee “financial expert” if they’re deemed to be familiar with accounting principles and how those rules are applied. The committee has included Claude Mongeau, the former CEO of Canadian National Railway Co. (on the TD audit committee from 2015 to 2023); Irene Miller, the former chief financial officer of Barnes & Noble Inc. (2006 to 2021); and Nova Scotia billionaire John Bragg (2004 to 2015). TD designated Mr. Mongeau and Ms. Miller “financial experts.”
Non-accountants with some degree of financial-industry experience included former Business Development Bank of Canada head Jean-Ren Halde (on TD’s audit committee from 2016 to 2022); former Ontario Teachers’ Pension Plan executive Jane Rowe, who previously had been CEO of Scotia Mortgage Corp. (on TD’s audit committee from 2020 onward); and William Bennett, a former chief credit officer at First Chicago Bank (on the audit committee from 2005 to 2019, including chairing it from 2009 to 2015). TD designated Ms. Rowe and Mr. Bennett as “financial experts.”
Current board member Brian Ferguson, the former CEO of Cenovus Energy Inc., is a CPA. He has served on TD’s audit committee since 2015, and is designated as a “financial expert.”
There are other directors who have a robust banking or accounting background that suggests expertise that went unused.
CPA Karen Maidment was the CFO of Bank of Montreal from 2003 to 2009. She served on TD’s audit committee from 2013 to 2016, and remains on the board today. She has also been serving on the board of one of the U.S. holding companies, for which she is paid extra.
Amy Woods Brinkley, a TD director since 2010, served as the chief risk officer of Bank of America Corp. from April, 2002, to mid-2009. She has not served on TD’s audit committee, but does serve on the boards of all of TD’s U.S. banks and bank holding companies, receiving extra pay.
Then there is Alan MacGibbon. Mr. MacGibbon became chair of TD’s audit committee in 2016 and served until December, 2023. He’s also served on the boards of TD’s U.S. banks and bank holding companies.
Mr. MacGibbon is a CPA who served as the CEO of Deloitte LP from 2004 to June, 2012.
Because of the extra fees that TD pays to directors who also serve in the U.S., Mr. MacGibbon has been among TD’s best-compensated directors for several years. He made $857,764 in the year ended Oct. 31, 2023. He has collected $5.78-million in fees and stock awards from TD in his first 10 years on the board. (He also currently serves as chair of the board at engineering company CAE Inc., earning fees there. CAE did not respond to a request for comment.)
Remarkably, TD elevated Mr. MacGibbon to chair of its entire board in February of this year.
In TD’s prepared statement last Thursday, Mr. MacGibbon was quoted as saying, “The board has and continues to take action to address these failures and hold those responsible accountable,” citing new U.S. executives and AML employees. “Enhancing our program and meeting our obligations today and into the future is the number one priority of the board and management.”
How could so many well-paid (TD directors made an average of $285,000 last year for a part-time job) and purportedly talented business leaders botch things so badly? While TD’s audit committee could have stood more expertise, the answer is more troubling. All the knowledge and skills in the world won’t help if the bank’s board won’t challenge executive leadership, ask tough questions, express skepticism and remain alert for red flags.
We’ve largely moved past the era when corporate boards were rainmaker rubber-stamp clubs. But TD illustrates that we may not have moved far enough. And in this, we have a lesson for all banks, and all corporations: When your organization begins to rot, who will call out the smell?