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TD Bank will pay $3 billion to settle allegations that it failed to properly monitor money laundering by drug cartels, regulators announced Thursday.

The fine includes a $1.3 billion penalty paid to the U.S. Treasury Department’s Financial Crimes Enforcement Network, a record fine for a bank. TD also intends to pay $1.8 billion to the U.S. Department of Justice and plead guilty to resolve the U.S. government’s investigation that the bank violated the Bank Secrecy Act and permitted money laundering.

The U.S. Department of Justice said in a statement that TD Bank had “long-standing, widespread and systemic deficiencies” in its transaction monitoring procedures. More than 90% of transactions went unmonitored between January 2018 and April 2024, allowing “three money laundering networks to collectively transfer more than $670 million through TD Bank accounts,” according to a legal filing.

In one case, TD Bank employees collected more than $57,000 worth of gift cards to process more than $470 million in cash deposits from a money laundering network to “ensure employees continued to process their transactions” and not in the required reports, the DoJ said.

In a statement, the Office of the Comptroller of the Currency (OCC), a US agency that regulates banks, said TD processed hundreds of millions of dollars in transactions, clearly indicating highly suspicious activity.

The Wall Street Journal first reported the news late Wednesday.

The Canadian bank will be subject to four years of monitoring by FinCEN to closely monitor the lender and ensure it is complying with the agreement.

“The vast majority of financial institutions have partnered with FinCEN to protect the integrity of the U.S. financial system. TD Bank did the opposite,” Deputy Treasury Secretary Wally Adeyemo said in a statement. “From fentanyl and drug trafficking to terrorist financing and human trafficking, TD Bank’s chronic failures provided fertile ground for a variety of illegal activities to penetrate our financial system.”

The Federal Reserve also fined TD Bank and will force the company to move its anti-money laundering compliance office to the United States.

And in a key part of the agreement, the OCC restricts TD Bank’s growth in the United States. Although extraordinary, it is not uncommon for a bank to be monitored by the U.S. government and its growth restricted. Wells Fargo was hit with similar growth restrictions and a hefty fine in 2018 for “widespread consumer abuse” and has yet to convince regulators to lift that asset cap. Wells Fargo previously admitted that its employees responded to wildly unrealistic sales targets by creating up to 3.5 million fake accounts.

TD Bank declined to comment but plans to speak with investors later Thursday.

The tough penalties from regulators on Thursday surprised Wall Street. U.S.-listed shares of TD Bank (TD) fell 6% as investors braced for higher legal costs and weaker growth.

“We believe the market has become increasingly comfortable with the idea that there would be no constraints on TD’s growth,” John Aiken, an analyst at Jefferies, wrote in a note to clients on Thursday. “TD must find a new path to growth that moves away from its traditional reliance on U.S. retail banking.”

Justice and Treasury Department officials are increasingly concerned that Mexican cartels are using the U.S. banking system to launder proceeds from sales of fentanyl and other drugs that kill tens of thousands of Americans each year.

Couriers who launder money for the cartels are “opening accounts at banks large and small here in the United States,” a senior Treasury Department official told CNN in May.

Treasury and IRS officials began informing U.S. banks and social media companies on whose platforms the drugs are often bought and sold earlier this year to get a clearer picture of how the cartels are exploiting the financial system , CNN reported.

A focus of the meetings, the Treasury official said, was utilization intelligence provided by smaller banks that can identify money laundering fronts in their communities.

Because of the seriousness of the allegations, some critics, including Massachusetts Democratic Sen. Elizabeth Warren, said the penalties did not go far enough.

“Big banks view government fines as a cost of doing business,” Warren said in a statement. “This settlement exonerates bad bank managers for using TD Bank as a criminal slush fund. The Department of Justice and the Office of the Comptroller of the Currency must do a better job enforcing our anti-money laundering laws.”

Last year, TD Bank paid $1.2 billion to settle a lawsuit over its involvement in a notorious $7 billion Ponzi scheme orchestrated by disgraced financier Allen Stanford more than a decade ago.

The money was used to compensate victims of the scheme, but the bank denied any wrongdoing.

This is breaking news. It will be updated.