TD’s Ethical Deficit: Banking on Consumer Apathy in the Culture War Era

Another day, another banking scandal. This time, TD Bank has made history by becoming the largest bank ever to plead guilty to Bank Secrecy Act violations, agreeing to pay a combined $4 billion in criminal and civil penalties to settle the matter and facing a cap on its future growth in the U.S.

Meanwhile, the DOJ is prosecuting two dozen individuals, including two lower-level TD Bank employees, in connection with the expansive money-laundering schemes that involved moving over $670 million in illicit funds through the institution. 

And yet despite evidence that the perpetrators of the scheme chose TD for specific reasons, it seems unlikely that many bank-going consumers in the U.S. will respond with more than a shrug. Why? Are we desensitized to scandals at banks, even when they involve rampant criminality? Or are we distracted by petty culture war grievances? Maybe both?

‘Because we are convenient’

The Bank Secrecy Act, enacted in 1970, requires banks to establish and maintain programs to prevent money laundering. Enforcing anti-money laundering laws can significantly reduce white-collar crime, street crime, terrorism and political corruption. In connection with violating the act, making it the largest bank ever to plead guilty to such charges, TD has agreed to pay a $1.8 billion criminal penalty. When combined with civil fines, the total amount the bank will pay to settle these charges is $3 billion. 

Indeed, TD Bank’s lax practices made it a prime target, U.S. officials say, with the criminals choosing to launder most of their funds at TD Bank because it had the most permissive policies and procedures. They also bribed TD Bank employees over $57,000 in gift cards to further the scheme. The illegal conduct was obvious, as, on multiple occasions, the criminals deposited more than $1 million in cash daily and promptly moved the funds out of the bank using official bank checks and wire transfers.

In announcing the charges and settlement with TD Bank, Attorney General Merrick Garland reported that the bank’s reputation was a frequent discussion topic among TD’s employees.

“Employees consistently joked on the bank’s instant messaging platform about the bank’s motto, ‘America’s Most Convenient Bank.’ They linked it to the bank’s approach to combating money laundering. For example, a compliance employee asked a colleague why ‘all the really awful one’s bank here lol’ The colleague replied: ‘Because we are convenient.'”

Ethics

Help, the Compliance Department Won’t Stop Talking About Ethics

by Vera Cherepanova

October 16, 2024

Ask an Ethicist digs into age-old ethics vs. compliance question

Read moreDetails

Too big to boycott?

This conduct was clearly illegal, and the employees knew. Some employees were even bribed to allow money laundering to continue. There is no question about that! What is in question is how the public and shareholders will respond to TD Bank’s involvement in this money laundering scheme.

Several companies have faced public backlash and boycotts in recent years due to various controversies. Here are few examples:

• Nike faced boycotts due to allegations of sweatshop labor but has since tried to improve its labor practices.
• Chick-fil-A faced boycotts due to its CEO’s public opposition to marriage equality.
• Target faced boycotts over its transgender bathroom policies in 2016.
• Hobby Lobby faced boycotts due to its owners’ religious beliefs and legal battles over contraceptive coverage in health insurance.
• Walmart has faced boycotts for its labor practices, low wages and treatment of employees, as well as its gun sales policies and environmental practices.
• Anheuser-Busch faced significant backlash and calls for a boycott after a controversial 2023 promotional campaign involving a transgender influencer.

While all of these companies are still in business, they have had to face the consequences of public backlash, and these examples illustrate how public sentiment can significantly impact companies, often leading them to change policies or practices in response to consumer pressure.

The question today is: How will the public and shareholders respond to the TD Bank scandal? 

For some answers, we could look to other financial institutions that have been hit with criminal charges. After all, even though banking is highly regulated, banks may still find ways to behave badly.

Numerous misconduct and illegal activities resulted in charges against individuals and institutions over the past 10 years; here’s a brief list of some of the worst offenders:

• Wells Fargo: In 2016, Wells Fargo was involved in a scandal where employees created millions of unauthorized accounts to meet sales targets. The bank faced significant fines from regulators, and several executives, including former CEO John Stumpf, were called to testify before Congress. Stumpf ultimately stepped down, and the bank paid hundreds of millions in fines.
• Goldman Sachs: In 2020, the DOJ charged Goldman Sachs with its role in the 1MDB scandal, in which billions were embezzled from a Malaysian sovereign wealth fund. The bank agreed to pay over $2.9 billion in penalties as part of a settlement. Several former executives faced scrutiny, and the scandal raised questions about compliance and ethical practices within the firm.
• Deutsche Bank: Deutsche Bank has faced multiple legal issues, including a significant fine in 2017 for its role in a Russian money-laundering scheme, where it allegedly helped clients move $10 billion out of Russia. The bank has also faced scrutiny for its involvement in the 2008 financial crisis and has settled various lawsuits related to mortgage-backed securities.
• Credit Suisse: The bank faced legal issues related to its role in various scandals, including the Mozambique “tuna bonds” scandal, in which it allegedly helped raise $2 billion in loans under false pretenses. As a result, Credit Suisse has faced fines and legal challenges.

These examples reflect the range of misconduct within the banking industry, from fraud and misrepresentation to regulatory violations. Regulatory and enforcement bodies, including the SEC, FINRA and the DOJ, actively investigate and prosecute such cases to maintain the financial system’s integrity.

And yet, despite repeated investigations and scandals involving major banks and other financial institutions, the likes of Wells Fargo, Bank of America and PNC, all of which have faced investigations in recent years, have continued to rake in tens of billions of dollars in revenue every year — more than $300 billion combined in 2023 alone.

We have yet to see how the consumers, customers, business partners and shareholders will respond to the TD Bank case, and it’s worth noting that this isn’t TD Bank’s first go-round with criminal allegations. In 2013, the bank settled charges with multiple U.S. authorities over a Ponzi scheme to the tune of $50 million-plus.

It’s all about ethics

Clearly, banking scandals like these do not move the needle of public outrage as does cable news fodder, which is not surprising. Fraud, bribery, money laundering and other financial crimes seem widely accepted by society and, in some industries, are even expected.

More work needs to be done to create a society in which we discuss the issues of bribery and corruption and their impact on the consumer and the product itself. We need to teach our children from their teenage years about the impact of bribery and corruption, among other things; these young adults need to grow up knowing about these issues and learn not to accept these behaviors as a part of the “normal course of business.” 

We need to shift the expectations. Suppose everyone understands that we ultimately share the cost of bribery and corruption for someone’s direct gain, whether it is a company, leadership team or other bad actors. Only then, when these criminal activities are discovered, will the public be ready to leave the banks and companies acting badly. 

We have a long way to go. Let’s talk about ethics!