American Airlines flight attendants rejected a 17% raise and a strike is getting closer

The workers haven't gotten a raise since their contract expired in 2019

Melvin Backman
Published Yesterday

American Airlines flight attendants on a picket linePhoto: Scott Olson (Getty Images)

American Airlines needs to offer a bigger pay raise if it wants flight attendants to stay off the picket line, according to their union. Reuters reports that the Association of Professional Flight Attendants, which represents the airline’s flight attendants, rejected a 17% raise offer on Wednesday that the carrier had put forward earlier this week.

The pay increase would be the first for American Airlines flight attendants since their contract expired in 2019. Negotiations were paused during the pandemic and things have been slow-going since they resumed in 2021. In recent weeks representatives from the airline and the union have been in Washington, D.C. for government-assisted mediation.

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Delta Air Lines is giving out raises and boosting starting pay

American Airlines offered flight attendants a 17% raise as a strike looms

Last month, CNN reported that American Airlines flight attendants were being offered starting salaries that could easily land them underneath the poverty line or qualify them for assistance measures such as food stamps.

The AFPA represents more than 23,000 employees of American Airlines. In its latest annual report, American Airlines said that 87% of its 129,700 full-time workers are unionized. The AFPA said Wednesday that it had set up a “strike command center” to coordinate a collective work stoppage in case it and American fail to reach a tentative agreement in the near future.

Flight attendant union rejects American Airlines’ proposed 17% pay raise

PUBLISHED WED, JUN 5 2024

Leslie Josephs@LESLIEJOSEPHS

KEY POINTS

American Airlines offered flight attendants a 17% immediate pay hike as contract talks drag on with no deal.

“There’s still a good deal of work to be done” despite the wage increase offer, CEO Robert Isom said.

American faces a flight attendant strike if the two sides don’t reach a deal with federal mediators.


American Airlines flight attendants demonstrate outside the White House in Washington, May 9, 2024.
Drew Angerer | AFP | Getty Images

The labor union that represents American Airlines flight attendants on Wednesday rejected a company proposal to immediately raise pay by 17%.

CEO Robert Isom offered flight attendants immediate 17% wage increases earlier Wednesday as contract talks continue without a deal, bringing the prospect of a strike closer.

The airline and the Association of Professional Flight Attendants have struggled to reach a new contract agreement, differing on major issues, such as pay. Flight attendants haven’t received contract raises since before the pandemic.

“We have made progress in a number of key areas, but there is still a good deal of work to be done,” Isom said in a video message to flight attendants.

The union said the two sides are scheduled to meet with federal mediators next week for a “last-ditch” effort to get a deal done, adding that flight attendants were told to prepare for a strike.

Strikes are extremely rare among airline employees. The last took place in 2010 among Spirit Airlines pilots. If the two parties can’t reach a deal, a release by federal mediators would be triggered, a process that would take several weeks.

“So, to get you more money now, we presented APFA with a proposal that offers immediate wage increases of 17% and a new formula that would increase your profit sharing,” Isom said Wednesday. “This means we’ve offered increased pay for all flight attendants and are not asking your union for anything in return. This is unusual, but these are unusual times.”

Julie Hedrick, the union’s national president, said that the airline’s focus should be on preparing a longer-term deal with the flight attendants.

“This is not that,” she said.

Also on Wednesday, the union said it opened a “strike command center” with dedicated phone lines and other resources to answer cabin crew questions.

U.S. airline pilots largely locked in new labor deals last year, while flight attendants at American, United Airlines and Alaska Airlines are still negotiating.

Last month, a bipartisan group of more than 160 House representatives wrote to the National Mediation Board, urging it to help complete deals with airlines and flight attendants.

American Airlines offers pay bump as flight attendant union opens strike center

Just last week, union leaders sent a memo to flight attendants calling for members to prepare to strike.

Julie Hedrick, president of the Association of Professional Flight Attendants leads a picket demanding better pay and working conditions in contract negotiations, Tuesday, Feb. 13, 2024 at Dallas Fort Worth International Airport.

 (Shafkat Anowar / Staff Photographer)


By Alexandra Skores
 Jun 5, 2024 


American Airlines flight attendants opened a strike center, signaling strife amid ongoing contract negotiations, while the Fort Worth-based airline offered an immediate wage increase to reach a deal.

The Association of Professional Flight Attendants, which represents American’s over 27,000 flight attendants, announced Wednesday that it opened a strike command center at its union headquarters in Euless.

Shortly after, a video message from American CEO Robert Isom was sent to flight attendants stating that a proposal was delivered to the union offering an immediate wage increase of 17% and a new formula to increase 2024 profit sharing among the workers.

If the union agrees, he said, the increase would be effective for the June bid month and increased rates would be shown in pay on June 30.

“We’re committed to paying all of our team members well and competitively,” Isom told shareholders at an annual meeting on Wednesday.

Meanwhile, union advocates will staff the center to answer questions from members, produce written materials in the event of a strike and more. Flight attendants at American are the final major workgroup among North Texas airline unions yet to reach a new contract after many became amendable before the pandemic.

“We are definitely trying to get a deal done,” said Julie Hedrick, president of the Association of Professional Flight Attendants this week. She added, “We’re going to hold our CEO to his word when he said that we will be an industry-leading [in] wages.”Related:Here’s what would it take for pilots, flight attendants to strike under federal law

Isom was also asked on Wednesday about the flight attendants’ contract during the annual meeting with shareholders.

“Our last remaining open agreement is with our flight attendants, and our plan assumes we reach a deal in 2024,” he said. “We remain in active negotiations with our flight attendants, and we’re working to get a deal as quickly as possible.”

Strike centers and strike authorization votes are often plays among unions in bargaining to place pressure on companies to get a deal to the finish.

Last year, when Southwest Airlines’ pilots represented by the Southwest Airlines Pilots Association were trying to get a contract, the union opened a regional strike center at its headquarters in Dallas. The center opened on Nov. 8. A contract was announced on Dec. 19 and ratified early this year.

The Association of Professional Flight Attendants plans to bargain with the company, alongside the National Mediation Board in Washington, D.C., next week as “one more attempt” at a deal, Hedrick said.

Many steps must be met for federal regulators to release a union from mediation and strike.

Flight attendants at American have requested such a release but remain in negotiations. The release, if allowed, would trigger a 30-day cooling off period, where parties can reach an agreement one last time. At the end of 30 days, without an agreement, an airline union would be allowed to strike and companies can lock out employees.

Union officials said every one of American’s 10 crew bases for flight attendants have trained representatives to answer questions.

American Airlines Flight Attendants Reject Immediate Pay Raise As Tensions Mount

Ted Reed
Senior Contributor
Author of Kenny Riley & Black Union Labor Power in Port of Charleston

Jun 5, 2024, 

American Airlines flight attendants picket at O’Hare International Airport in May.

 (Photo by Scott ... [+]GETTY IMAGES

This story was updated at 7:09 p.m. ET Wednesday to reflect APFA board of directors’ decision to reject Robert Isom’s offer.

American Airlines CEO Robert Isom sought to break through negotiations with flight attendants, offering an immediate 17% raise.

“We’ve offered increased pay for all flight attendants and are not asking your union for anything in return,” Isom said in a video released Wednesday. “This is unusual, but these are unusual times.” He said the raise would appear in June paychecks.

The video was sent to American’s 27,000 flight attendants, who are members of the Association of Professional Flight Attendants. It came as the union opened a strike center in Dallas and as the two sides prepare for what may be last-ditch negotiations next week. It did not provoke a positive response.

“Our CEO has decided to negotiate with our members directly,” APFA President Julie Hedrick said Wednesday in an interview. “He is trying to circumvent the union.”

Hedrick said the 17% increase represents a match of the existing Delta pay rates. “We have told them over and over again, it will not pass” in a membership vote, she said. The union’s board unanimously rejected the offer Wednesday evening.

Rather, she said, APFA wants an industry-leading contract, which would surpass Delta’s rates. Delta also provides boarding pay, which APFA has already secured in bargaining. For now, Southwest flight attendants, represented by the Transport Workers Union, have the leading industry contract. Southwest wages are 24% of American wages, but the Southwest contract does not have boarding pay.

Hedrick said American has made the same 17% offer previously, and members were not interested. That lack of interest has been made clear in emails and texts to her as well as in union chat groups, she said. “Too little, too late,” one flight attendant posted. “Stop trying to negotiate with the members and get to the damn table.”

Talks next week in Washington with the National Mediation Board will occur at American’s request. “They should focus on that, not on trying to circumvent the union,” Hedrick said.

In his video, Isom said, “The company and APFA negotiating teams have been meeting regularly for months to reach a new agreement. We have made progress in a number of key areas, but there’s still a good deal of work to be done.

“We will be back at the table with APFA leadership next week and a deal is within reach, but I don’t know how long it will take to get to the finish line and I don’t want another day to go by without increasing your pay.

“So to get more money to you now, we presented APFA with a proposal that offers immediate wage increases of 17% and a new formula that would increase your 2024 profit sharing,” Isom said.

The APFA strike center provides a dedicate strike hotline, produce written material including a strike handbook and communicate with members.

Talks are being conducted with a mediator from the National Mediation Board. So far, the NMB has held off releasing the parties, a move that would enable the union to call a strike after 30 additional days of talks. The NMB refused an APFA request for release in November, but Hedrick believes the response to a second request would be different.

ALL BOSSES HARASS

BlackBerry asks court to dismiss some claims in case alleging CEO harassed employee

IT'S THEIR JOB

Tara Deschamps, The Canadian Press

BlackBerry Ltd. and its chief executive John Giamatteo have asked a U.S. court to dismiss some of the claims made by a former employee who alleges Giamatteo sexually harassed her and then retaliated against her after she reported the behaviour.

In a filing made in a Northern California court this week, the Waterloo, Ont., cybersecurity company and Giamatteo say the unnamed plaintiff's claims have no merit and are filled with "falsehoods and mischaracterizations."

“The allegations made by the plaintiff fall well short of conduct that amounts to sexual harassment or discrimination," BlackBerry spokeswoman Camilla Scassellati Sforzolini said in an email on Wednesday.

The company and Giamatteo want the court to throw out claims the plaintiff made suggesting she had encountered a hostile work environment, discriminatory pay and unpaid wages. They also want allegations about negligent hiring and failure to prevent harassment and discrimination to be dropped.

The plaintiff, who is a woman of colour, told The Canadian Press when she filed her lawsuit in April that Giamatteo had "tried to get close to her" and "woo" her, after he became the president of BlackBerry's cybersecurity business in October 2021.

The woman known as Jane Doe claims in court documents that Giamatteo suggested the pair travel together and at a dinner she presumed was a business meeting, allegedly told her stories about how he dresses up when he’s out with his daughters so people mistake him for "a dirty old man” out on a date with them.

When she reported the behaviour, she said she started being cut out of meetings and later, was told she was being terminated effective immediately as part of a “restructuring.”

In the new court filings, the company and Giamatteo say the plaintiff lost her job at BlackBerry not because she reported harassment but because she was part of a layoff that culled more than 200 staff from the firm as it was separating its cybersecurity and internet of things businesses.

The filings say the plaintiff's position fit into neither portion of the business and they felt she was "a poor fit to be placed in a new or different role because she had engaged in a long-term pattern of antagonistic and demeaning conduct toward colleagues, leading to a negative and toxic culture that surrounded her."

In the two months prior to the plaintiff being let go, the documents say, a female employee reporting to her took medical leave to "address mental health issues caused by (the) plaintiff’s abusive behaviour, and another employee ... quit on the spot when (the) plaintiff insisted he work around the clock on a weekend to complete a project on an unrealistic timeline." 

"Although a favourite of (former BlackBerry chief executive) John Chen, who sponsored her rapid rise, (the) plaintiff alienated virtually all of her peers through years of rude and divisive conduct," the documents say.

They add that the plaintiff was offered the option to resign, but she declined.

The plaintiff's lawyer, Maria Bourn, fired back at the claims, saying BlackBerry "performed a sham investigation into Mr. Giamatteo's indefensible behaviour. 

"Now they submit a filing that doesn't even tie to the law," she said in an email.

Days after her client's termination, BlackBerry named Giamatteo its new chief executive.

The plaintiff previously told The Canadian Press the move left her feeling shocked but she decided to pursue legal action because she felt if she was "silenced" it wouldn't help other women.

"I feel like I have a responsibility, particularly having been at the executive level, to help other women, whether that is other women in BlackBerry or in the industry or broader than that," she said in April.

"I am hoping that if they can hear my story, that that will help give them strength."

This report by The Canadian Press was first published June 5, 2024.

CRIMINAL CAPITALI$M; BUSINESS AS USUAL

TD money-laundering fines may reach US$4 billion, Jefferies says

Christine Dobby, Bloomberg News

Fines against Toronto-Dominion Bank tied to U.S. money-laundering probes may total as much as US$4 billion following fresh allegations involving the lender, according to Jefferies Financial Group Inc. analysts — double previous estimates of the potential impact on Canada’s second-largest lender.

A now-departed Toronto-Dominion branch employee in Florida took a series of $200 bribes to help clients move millions of dollars to Colombia by skirting anti-money-laundering defenses, prosecutors allege in a case first reported this week by Bloomberg News. In another recent case, a former branch employee in New York admitted to bypassing the bank’s compliance measures to defraud a customer.

Toronto-Dominion is under investigation by the U.S. Department of Justice, bank regulators and the U.S. Treasury Department over allegations of money laundering and other financial crimes at several of the bank’s U.S. branches. 

“While our previous estimate for the regulatory fines was at $2 billion, given that a third AML issue has been reported, we now believe that this estimate could be low,” Jefferies analysts led by John Aiken wrote in a report Wednesday. “Although a $4 billion fine does seem a bit high at this juncture, we cannot deny that it is still within the realm of possibilities, potentially eroding all of TD’s current excess capital.”

The U.S. Attorney’s Office for the District of New Jersey has so far filed at least four cases alleging serious misconduct by branch employees in New York, New Jersey and Florida. One of those cases, reported by the Wall Street Journal in early May, involved TD branches being used to launder drug money as part of a $653 million conspiracy. 

The revelations came after Toronto-Dominion said on April 30 that it was setting aside an initial provision of $450 million for potential regulatory fines.

Toronto-Dominion likely knew of the additional cases that have since been reported when it took that charge, Bloomberg Intelligence analysts Elliott Stein and Paul Gulberg said this week. They maintained an estimate of $600 million to $1.1 billion in total fines facing the bank.

Analysts at firms including Bank of Nova Scotia and National Bank of Canada have previously estimated penalties in the range of $2 billion for Toronto-Dominion. Royal Bank of Canada’s Darko Mihelic wrote on May 8 that he believes the fine “may be larger than $1 billion” and that, in a “bad scenario,” Toronto-Dominion could pay $3 billion or more in penalties and face an asset cap on its U.S. business for five years.

The bank is also facing a proposed shareholder class-action lawsuit filed Tuesday in the Ontario Superior Court of Justice in Toronto. The suit, filed by law firm Sotos LLP on behalf of retail investor Gerald A. Gazarek, alleges that the bank misrepresented systemic deficiencies its anti-money-laundering controls and how those failures would affect its U.S. operations. 

“Following the disclosure of these deficiencies on April 30, 2024, TD Bank’s stock price dropped considerably, giving rise to remedies under Canadian securities legislation,” the firm said in a statement announcing the claim. The claim cited “material” disclosures in the Wall Street Journal and Bloomberg stories.

Glancy Prongay & Murray LLP and the Law Offices of Frank R. Cruz have also said they’re pursuing possible suits.

“TD’s disclosures and public statements are and have been accurate and consistent with our obligations under the securities laws and responsibilities to our shareholders,” spokesperson Lisa Hodgins said in an emailed statement Wednesday. “We will contest the assertions of these proposed class actions, which are without merit.”

Proposed class action launched against TD related to anti-money-laundering issues

The Canadian Press

A proposed class-action lawsuit has been launched against TD Bank related to the ongoing investigations into the bank's anti-money-laundering program in the U.S.

The suit launched by Sotos Class Actions is on behalf of shareholders who bought TD shares between Aug. 26, 2021 and June 3, 2024. 

It alleges TD misrepresented systemic deficiencies in its anti-money-laundering controls which, after the deficiencies were disclosed, caused a significant drop in TD's stock price. 

TD has faced financial penalties in connection to the ongoing U.S. regulatory inquiry into its anti-money laundering compliance program, which it disclosed last year. 

In a statement, the bank said the allegations in the proposed class action are without merit and would be contested.

TD said its disclosures and public statements are and have been consistent with its obligations under securities law and its responsibilities to shareholders. 

This report by The Canadian Press was first published June 5, 2024.

TD bribery woes spread to Florida as new allegations surface

Tom Schoenberg and Christine Dobby, Bloomberg News   Jun 3, 2024

Fresh allegations that a longtime Toronto-Dominion Bank branch worker in Florida took a series of US$200 bribes to help clients move millions to Colombia by skirting anti-money-laundering defenses are adding to the lender’s mushrooming U.S. legal problems.

Gerry Aquino Vargas, the now-former retail banker in a Hollywood, Florida, outpost of Canada’s second-largest bank, falsified documents to open dozens of accounts and provided concierge-like services to help cash flow across borders, according to American prosecutors. In another recent case, a former TD branch employee in New York admitted to bypassing the bank’s compliance measures to defraud a customer. 

The cases — which haven’t yet been reported and don’t identify Toronto-Dominion by name — are part of a sweeping probe by officials at the U.S. Justice Department, bank regulators and U.S. Treasury Department into allegations of money laundering and other financial crimes at the bank. The dragnet may ultimately lead to a costly settlement for TD that some analysts now peg at US$2 billion and, perhaps worse for the firm’s investors, a yearslong setback for its lofty U.S. ambitions.

In a major blow to those plans, the company last year scuttled a US$13.4 billion takeover of First Horizon Corp. — saying it didn’t see a path for regulatory approval. The deal would have consolidated TD’s status as one of the biggest U.S. banks. The lender has also had to spend more than US$350 million shoring up anti-money-laundering defenses and recently had its outlooks cut by Fitch Ratings Inc. and S&P Global Ratings.  

So far prosecutors in the U.S. Attorney’s Office for the District of New Jersey have filed at least four cases alleging serious misconduct by branch employees in New York, New Jersey and Florida. One case involved TD branches being used to launder drug money as part of a US$653 million conspiracy.

Taken together they paint a picture of a bank whose controls were easily skirted by U.S. employees looking to make extra cash. They’ve also trained an uncomfortable spotlight on the bank’s leadership back in Toronto. 

“Often it requires a management change for the regulators to feel confident that the issue’s really being taken serious and the management’s not sort of trying to protect its past track record,” Evan Mancer, chief investment officer at Cardinal Capital Management, said in a recent BNN Bloomberg Television interview. He said his firm recently sold Toronto-Dominion shares after investing in the bank for three decades.

TD’s fixes

Toronto-Dominion says Chief Executive Officer Bharat Masrani, who took a $1 million pay cut after the First Horizon deal failed, has no current plans to go anywhere. 

The CEO and other leaders have made substantial progress in boosting compliance, while delivering strong financial results, according to Toronto-Dominion spokesperson Lisa Hodgins. Executives are “focused on the work needed to overhaul” the bank’s anti-money-laundering procedures, she said in an email. The bank had no comment on analyst projections on potential penalties. 

The Justice Department declined to comment. 

Toronto-Dominion shares fell as much as 1.7 per cent in Toronto following the report Monday. They’re down 12 per cent this year, compared with a 3.9 per cent gain for the S&P/TSX Composite Financials Index.

The U.S. case against Aquino Vargas, whom the government alleges was paid at least US$5,600 by a Colombian client and also boasted that he’d helped Venezuelans, Israelis, Bolivians and Peruvians use Toronto-Dominion accounts to skirt U.S. rules, was filed in March. TD Bank, as the lender’s U.S. unit is known, is referred to only as “Financial Institution-A” in court documents.

Hodgins said TD fired Aquino Vargas. His lawyer didn’t respond to messages seeking comment on the case against him, which include alleged misconduct as recent as last fall. Court documents show he waived his rights to a preliminary hearing and hasn’t yet entered a plea. 

Branch growth

TD already has a network of almost 1,200 branches from Maine to Florida — a total that outnumbers its retail locations in Canada. The bank has more than 10 million U.S. customers and also offers business and wealth-management services. But, it is looking to get much bigger in the U.S. and expand into new regions.

When Toronto-Dominion killed its deal to buy Memphis-based First Horizon back in May 2023, executives said the bank would build its own new U.S. branches instead — 150 of them by 2027. As of this April, it only had three more than a year prior. 

That anemic growth has stoked speculation that American authorities were preventing the bank from a big U.S. expansion amid the money-laundering probe.

The company isn’t currently under any restrictions from regulators on growing in the U.S., but there isn’t yet clarity at Toronto-Dominion over whether it will eventually face such limits, said a person with knowledge of the bank’s internal response.

When pressed last month by analysts, Leo Salom, who runs Toronto-Dominion’s U.S. operations, said the lender is “deliberately pacing” how many locations it opens. The bank continues to talk with regulators and invest in compliance. Salom declined to comment directly on whether regulators had blocked its expansion.

Signs of trouble

The federal prosecutors in New Jersey have been working with the Justice Department’s money-laundering section in Washington to bring the smattering of cases involving conduct at branches and the broader probe into the bank’s defenses and compliance.

Signs of trouble started to become public even before Toronto-Dominion announced in early 2022 that it planned to buy First Horizon.

Months earlier, federal prosecutors said in a criminal complaint that several branches of an unnamed financial institution dubbed “FI-1” were integral in a massive plot to move drug trafficking proceeds to China and Hong Kong. It later emerged that the firm was Toronto-Dominion. 

As part of a plea deal, a New York man said in February 2022 that he coordinated a US$653 million money laundering conspiracy, partly by bribing bank employees with gift cards and other favours to open accounts in the names of shell companies.

In another case, Oscar Nunez-Flores, who worked at a branch in Scotch Plains, New Jersey, since 2020 was charged last October with taking bribes to open debit cards and online accounts in the names of shell companies registered in Florida. Nunez-Flores masked the real owners of the accounts on documents filed with the bank, according to the government’s complaint charging him with bribery and conspiracy to launder money.

The funds deposited into these Toronto-Dominion accounts included proceeds from the sale of illegal narcotics, prosecutors allege, and the scheme sent millions of dollars from the U.S. to Colombia. Nunez-Flores, who has been discussing a potential plea deal with the government, according to court papers, netted more than US$20,000 for his work, prosecutors allege. 

A lawyer for Nunez-Flores, whose court documents also indicate he hasn’t yet entered a plea in the case, declined to comment.

As part of the money-laundering investigation, prosecutors have uncovered seemingly unrelated misdeeds: In the other case that hasn’t been previously reported, a former New York-based branch manager pleaded guilty in May to stealing more than US$200,000 from an elderly customer and fabricating email messages after the client died. 

A lawyer for James Gomes, the former manager, said in an emailed message that her client was “extremely remorseful” and didn’t know about the customer’s death until just before admitting to the charges.

Thumbs up

Aquino Vargas, the banker in Florida, worked with customers at Toronto-Dominion since 2012, according to the government’s complaint, filed in federal court in New Jersey.

Prosecutors say that, in 2022, Aquino Vargas began helping the Colombian client – identified in court papers only as “Co-Conspirator-1” – by opening dozens of fraudulent accounts on his instructions in the names of “witting and unwitting” people. Debit cards for those accounts were used to transfer cash from the U.S. to Colombia. 

Aquino Vargas was charged with obstructing a grand-jury investigation. A judge in April gave him and the government until to July to negotiate a potential plea, according to filings in the case.

U.S. authorities say that when Toronto-Dominion later blocked some of the cards, Aquino Vargas called the bank’s hotline and vouched for the transactions. A few weeks before opening those accounts, Aquino Vargas discussed getting paid by his alleged Colombian conspirator via WhatsApp for 28 debit cards, seeking US$200 per debit card.

“That $200 I’m giving you guys, I’m not doing anymore,” Aquino Vargas wrote, according to prosecutors’ translation of the messages in Spanish. “With other people it’s $500-$800 per account man.”

After he received payment to his personal Toronto-Dominion account through Zelle, prosecutors say Aquino Vargas sent another WhatsApp message to the Colombian: “Gracias,” he said, with a meme of actor Jean-Claude Van Damme giving a thumbs up.

‘Strong bank’

More than a dozen people who worked with retail clients have been fired for code-of-conduct violations, said the person with knowledge of the matter, asking not to be identified discussing personnel matters. The lender also has replaced close to 10 senior leaders in compliance and legal roles, including hiring Herbert Mazariegos away from Bank of Montreal to become chief global anti-money-laundering officer. 

The U.S. hasn’t charged Toronto-Dominion with any crimes stemming from the cases. Investigations into conduct by financial firms can end with no charges being brought or fines being imposed. Toronto-Dominion said that Aquino Vargas, Gomes and Nunez-Flores were all terminated by the bank.

Still, the bank has acknowledged surveillance gaps and says it’s cooperating with authorities.

“When front-line staff were in any way complicit in activity, we investigated and took immediate action, coordinating our efforts with the DOJ” on its investigation, said Hodgins, the bank spokesperson. “More broadly, where our program was ineffective, we have held those leaders accountable and are taking action to drive the changes and meet our obligations.”

For Masrani, Toronto-Dominion’s CEO, regaining momentum in the U.S. may be key to his legacy. The 68-year-old executive has continued the bank’s aggressive push across Canada’s southern border during his tenure of almost a decade, and profit from U.S. retail banking almost tripled since he took the reins.

He’s already weathered past scandals during his time as a senior leader. Masrani, previously the lender’s chief risk officer as well as president and CEO of its U.S. division, became CEO of the entire company a little more than a year after Toronto-Dominion paid more than US$50 million to settle U.S. regulators’ claims that its American unit failed to file suspicious activity reports tied to a massive Ponzi scheme for which Scott Rothstein was convicted and sentenced to decades behind bars.  

And the bank agreed last year to pay US$1.2 billion to settle a lawsuit by investors who claimed Toronto-Dominion aided Allen Stanford’s US$7 billion Ponzi scheme more than a decade earlier, while denying wrongdoing. Stanford was also convicted and received a 110-year sentence in 2012.

Issues ‘unacceptable’

Masrani recently told analysts that Toronto-Dominion’s compliance issues were “unacceptable” and that he hoped Toronto-Dominion would reach a resolution with authorities “as soon as possible.” 

He was even more pointed in his remarks to employees in May, when he said he took the situation “very personally.” Masrani had just flown to Hollywood, Florida — the same town where Aquino Vargas is alleged to have run his scheme — to reassure executives. The bank often hosts internal events in the beach town, about 20 miles north of Miami.

“This is going to get tougher before it gets better. More information is going to drip out over the next little while,” he said, according to a transcript of his remarks. “We have the means to fix this and we will.” 

CRIMINAL CAPITALI$M

Toyota car certification scandal prompts calls for rules review

Masatsugu Horie, Bloomberg News

A 2025 Toyota Camry Hybrid Prototype is at the New York International Auto Show in New York on Saturday, March 30, 2024. (Ted Shaffrey/AP Photo)

(Bloomberg) -- The safety requirements that led Toyota Motor Corp., Honda Motor Co. and other Japanese carmakers to falsify certification tests may be overly stringent and outdated given advancements in automobile design and technology, fueling calls for their review. 

Despite revisions since the standards were enacted in 1951, regulations haven’t kept up with the times, Takaki Nakanishi, an analyst at Astris Advisory Japan KK, wrote in a report. Although Akio Toyoda, chairman of Toyota, apologized earlier this week for failing to take proper steps, he also pointed to gaps between tests carried out in the field and the procedures required during the certification process.

As government officials raided Toyota’s headquarters Tuesday, the carmaker halted shipments of three cars: Corolla Fielder, Corolla Axio and Yaris Cross. Even so, the latest round didn’t include warnings over operational safety. There doesn’t appear to be any evidence of an “organizational cover-up at this stage” by the manufacturers, according to Nakanishi.

“This could present an opportunity to reform a certification testing system that’s out of kilter with actual conditions,” Nakanishi wrote.

Toyota’s three models in question account for less than two per cent of the 11 million vehicles automaker produced last year. Shipment halts will impact two assembly lines responsible for the production of about 130,000 units a year, according to the carmaker.

The latest certifications scandal comes on top of others disclosed over the past year that pose a reputational risk for the broader group of Toyota companies. In December, an internal probe of Daihatsu Motor Co. showed most of its vehicles had not been properly tested for collision safety. Toyota Industries Corp. also suspended all engine shipments in January after an investigation revealed it had falsified power-output figures.

The latest emerging scandal is “extremely regrettable,” Ken Saito, the minister of economy, trade and industry, said during a news conference in Tokyo, adding the agency is investigating the impact on suppliers and will respond appropriately.

Toyoda, grandson of the company’s founder, cited an episode at a dealership where some maintenance steps were omitted when examining cars with improved performance and precision, resulting in them being tagged as fraudulent inspections. 

“This will provide an opportunity for the government and original equipment manufacturers to work out whats best for customers, the competitiveness of the Japanese automobile industry, and how to go about the certification system itself,” Toyoda said.

The system requires auto manufacturers to notify the transport ministry in advance of the production and sale of new vehicles, to be examined for conformity with safety standards.

“In many cases even if the certification process was not followed exactly, tests that were effectively even more rigorous were subsequently conducted in many instances,” Arifumi Yoshida, an analyst at Citigroup Global Markets Japan Inc., wrote in a report. “This incident is likely in our view to trigger a push to review the certification process.”

Honda was found to have fabricated data related to noise and gasoline engine output, affecting more than three million units under 22 models including the Accord and Odyssey. The automaker didn’t find any falsification for cars currently being sold, or for upcoming models, it said.

Separately, Mazda said it falsified test results and tampered with the units used for collision testing in five models, including the Mazda2 and Roadster RF. Irregularities were identified in over 150,000 units the automaker has produced since 2014 for the Japan market.

“If no problems were found despite deviating tests, the question becomes what were the procedures and conditions stipulated by the certification system in the first place,” said Bloomberg Intelligence analyst Tatsuo Yoshida.

Wet'suwet'en hereditary chiefs urge banks to snub TC Energy bonds

The Canadian Press

The terminus for the Coastal GasLink natural gas pipeline is seen at the LNG Canada export terminal under construction in Kitimat, B.C., Wednesday, Sept. 28, 2022. THE CANADIAN PRESS/Darryl Dyck

An Indigenous group that opposed the construction of the Coastal GasLink pipeline is urging banks and investors against financing a proposed second phase of the project.

Hereditary chiefs of the Wet'suwet'en First Nation of B.C. have written an open letter to Canada's biggest banks and investors urging them to make a public commitment not to buy any new bonds issued by Calgary-based TC Energy Corp., the company behind Coastal GasLink.

The Coastal GasLink pipeline, which was designed to transport natural gas from Western Canada to the Shell-led LNG Canada export facility currently nearing completion in Kitimat, B.C., was completed last fall.

TC Energy has not yet made a final investment decision on a potential Phase 2 of the project, which could see the construction of six additional compressor stations in order to double the capacity of Coastal GasLink without requiring additional pipeline.

The company confirmed Tuesday it is engaged in discussions to refinance a portion of its existing construction loan through private bond sales, though a spokesperson declined to disclose the size of the bond offering. The company said the proceeding is part of the "normal course" of post-construction project financing.

In the winter of 2020, protesters blockaded freight and passenger rail services across the country to show solidarity with the Wet'suwet'en hereditary chiefs, whose traditional territory is crossed by Coastal GasLink and who opposed the project.

All 20 of the elected Indigenous groups along the 670-km pipeline route supported the Coastal GasLink project, and 17 out of 20 signed agreements with TC Energy to acquire a 10 per cent equity stake in the pipeline.

This report by The Canadian Press was first published June 4, 2024.

TC Energy shareholders approve spinoff, creation of South Bow pipelines business

Amanda Stephenson, The Canadian Press

TC Energy Corp. shareholders have voted in favour of spinning off the company's crude oil pipelines business.

Shareholders at the Calgary-based company's annual meeting Tuesday endorsed the company's plan, announced last July, to split into two separate publicly traded companies.

The plan will see TC Energy look more like a utility company, with a focus on natural gas infrastructure as well as nuclear, pumped hydro energy storage and new low-carbon energy opportunities.

The company's crude oil pipelines, including the critical Keystone pipeline system, will become part of a new liquids pipeline business called South Bow.

South Bow will be headquartered in Calgary with an office in Houston. It will be led by Bevin Wirzba, the current executive vice-president for TC Energy's natural gas and liquids pipelines business.

At Tuesday's annual meeting, TC Energy CEO François Poirier said separating the company's lines of business will allow for faster growth.

"As two separate entities, each company will have the ability to focus on their distinct strategies and opportunity sets, delivering essential energy that the world relies upon," Poirier said.

The spinoff plan is the result of a two-year strategic review by TC Energy, in which the company considered other options including the potential sale of the oil pipelines business.

The company has been under scrutiny by analysts and credit rating services for its significant debt load as well as for cost overruns on the Coastal GasLink pipeline project, which was completed in the fall of 2023.

Spinning off the oil pipelines business, which has long-term committed contracts with oil shippers, will give South Bow the chance to use its robust cash flows to pay down debt and enhance shareholder returns, while TC Energy will become a growth-oriented company focused on natural gas.

TC Energy — which has natural gas transportation infrastructure in Canada, the U.S., and Mexico — is bullish on the future of the commodity, in particular the potential for growth spurred by demand for liquefied natural gas (LNG).

"Make no mistake, natural gas will be central to the world's energy future," Poirier said.

In addition, by offering a pure-play natural gas and low-carbon investment opportunity, TC Energy believes it can attract a wider set of investors than it could before the spinoff.

In a note to clients Tuesday, TD Cowen analyst Linda Ezergailis said the new South Bow is expected to work towards enhancing the value of its pipeline network by increasing capacity on under-utilized portions of the system, as well as increasing pipeline connectivity to additional receipt and delivery points.

She said she believes the new TC Energy will be well-positioned to play a key role in enabling energy transition and reducing global emissions, while ensuring reliability for growing energy demand.

"We view the successful spinoff vote as a significant milestone on executing strategic priorities, including improving leverage metrics," she said. 

As part of the spinoff arrangement, TC Energy shareholders will receive, in exchange for each share, a new TC Energy common share along with 0.2 of a South Bow common share.

The spinoff is expected to close in the second half of this year. 

This report by The Canadian Press was first published June 4, 2024.

Rail workers reject binding arbitration offer as strike threat still looms: CN

Rail workers have rejected an offer from Canadian National Railway Co. to enter into binding arbitration, as the country's largest railroad operator tries to steer clear of a strike in a move the union called disingenuous.

The process, when agreed to, sees a mutually approved arbitrator settle a labour dispute by deciding the terms of a new collective agreement between the parties.

CN said Thursday it has put forward two proposals for those agreements: one looked to pay hourly wages to workers on a schedule in a change from the longstanding practice of pay per mile with no schedule; the other aimed to extend parts of the current arrangement.

"The TCRC (Teamsters Canada Rail Conference) has rejected all offers put to them and has now rejected a voluntary arbitration process," CN said in a statement.

Teamsters Canada has countered that the first offer involves "forced relocation" of workers for months at a time, while the second compels shifts of up to 12 hours — in line with regulations, but beyond the 10-hour ceiling currently available to employees. The latter change would also raise the risk of accidents, the union has claimed.

"The call for binding arbitration at this late stage of the bargaining process underscores the disingenuousness and failure of CN's negotiation strategy," said spokesman Christopher Monette in an email.

"We firmly believe that binding arbitration can be avoided if CN stopped demanding concessions that would negatively impact workers' quality of life and undermine rail safety."

Last month, employees at CN and Canadian Pacific Kansas City Ltd. authorized a strike mandate that could see some 9,300 workers walk off the job if they are unable to reach new agreements.

Labour Minister Seamus O'Regan, in an apparent move to delay a potential strike, stepped in by asking the country's labour board to review whether a work stoppage would jeopardize Canadians' health and safety.

The Canada Industrial Relations Board has extended a late-May deadline for replies to submissions to June 14, CN said Thursday, making a decision unlikely before mid-July, according to both railways.

This report by The Canadian Press was first published June 6, 2024.

Rail strike could cost manufacturers millions, industry says

Christopher Reynolds, The Canadian Press

A rail strike would raise expenses, lower sales and delay shipments for Canada's manufacturers, an industry group says, as various sectors grapple with looming uncertainty around a key cross-country transport link.

Two-thirds of respondents to a new survey of members from the Canadian Manufacturers & Exporters said the effects of a work stoppage would be "significant or severe," while more than three-quarters expect higher costs.

The organization cited the poll results, gleaned from 225 of its 2,500 member companies over the last three weeks, in a letter to cabinet urging the federal government to take action to prevent a strike or lockout later this year.

Last month, employees at Canadian National Railway Co. and Canadian Pacific Kansas City Ltd. authorized a strike mandate that could see some 9,300 workers walk off the job if they are unable to reach new agreements.

Labour Minister Seamus O'Regan, in an apparent move to delay a potential strike, stepped in by asking the country's labour board to review whether a work stoppage would jeopardize Canadians' health and safety. A decision is unlikely before mid-July, according to CPKC.

Manufacturers — from auto and chemical makers to propane exporters and brewers — are worried about the prospect of a work stoppage, said Dennis Darby, who heads the group.

"What we do now is make parts and pieces," he said of domestic industry. "We don't make washing machines anymore, but we have companies that make the motors in the washing machines. 

"That's why it always has a knock-on effect when you talk about supply chains, because Canada is part of that North American supply chain."

The possibility of a halt to freight traffic on the tracks has already had an impact, said Darby, whose organization counts Ford Canada, Maple Leaf Foods, Bombardier Inc., Cenovus Energy and Moosehead Breweries among its members.

"In some cases they're pre-ordering extra inventory," he said of manufacturers generally.

"In some cases they're trying to book space on other carriers ... but on transport trucks, prices are at a premium."

The cost of a rail traffic halt would average $275,000 per company each day, according to the 225 respondents. If accurate, that means the cost for a sliver of Canada's manufacturers alone would top $433 million per week.

The manufacturers group is just one of hundreds of organizations and companies that have made submissions to the Canada Industrial Relations Board over the impact of job action at rail lines that haul more than $28 billion worth of cargo each year.

The labour minister referred the issue to the board after receiving a letter from the Canadian Propane Association, according to two sources with knowledge of the matter. The Canadian Press is not naming the sources because they were not authorized to speak publicly.

O'Regan highlighted heavy fuel, propane, food and water treatment materials needed in remote communities "and throughout Canada," said tribunal spokesman Jean-Daniel Tardif.

Darby said that Ottawa can now use "moral suasion" to wring a deal out of the two sides. Longer-term, Ottawa should look to frame rail transport as "some kind of an essential service" in order to impose binding arbitration if necessary, he said.

Teamsters Canada rejected the call for binding arbitration — a process that follows back-to-work legislation unless the two parties enter it voluntarily — or any government move to "prevent a rail stoppage," in the words of the manufacturers' letter to cabinet. 

"Occasional labour disputes are a hallmark of a free and democratic society," said union spokesman Christopher Monette in an email. "It would be a step back to a time when workers had no rights."

Commuters could also feel the effects of a work stoppage.

Should one occur involving the 80 CPKC rail traffic controllers bargaining for a contract — distinct from CPKC's main group of engineers, conductors and yard workers — passenger trains that run on Canadian Pacific-owned tracks in Vancouver, Toronto and Montreal could shut down.

Thousands of riders could see major disruptions on TransLink's West Coast Express, GO Transit's Milton line and Exo's Candia, Saint-Jérôme and Vaudreuil/Hudson lines, according to the Montreal Economic Institute.

This report by The Canadian Press was first published June 3, 2024.

 

Carbon capture rollout lags as industry, Ottawa at odds over who shoulders risk

BIG OIL CARBON CAPTURE IS A SCHEME TO FRACK OLD WELLS

Amanda Stephenson, The Canadian Press

The question of who should bear the financial risk for pricey carbon capture and storage projects has become a stumbling block slowing the technology's adoption in Canada.

It has been half a year since privately held Entropy Inc. inked a deal with the federal government that saw Ottawa agree to underwrite much of the risk for the company's proposed carbon capture and storage project. 

Entropy said it would go ahead with its $49-million second phase of the project — located at parent company Advantage Energy's Glacier gas plant in Alberta — after the two parties signed the first-of-its-kind deal. Called a "carbon offtake agreement," or "contract for difference," the deal was hailed by many as an example of what needs to be done if Canada is to see a significant rollout of carbon capture and storage. 

But six months after the Entropy agreement, not a single other company has successfully negotiated a similar deal. And the bulk of carbon capture projects proposed for Canada still only exist on paper, with final investment decisions yet to be made.

Carbon capture, or CCUS as it is often called, traps harmful greenhouse gas emissions from industrial processes and stores them deep underground. Its deployment is widely seen as being key to successfully decarbonizing the energy sector.

So what's the holdup? It comes down in part to tension between government and industry over the perceived financial risk of CCUS investments, and differing opinions about how much of that risk should be borne by taxpayers.

"If you're the government, you want to make sure the money that taxpayers are paying is being spent wisely," said Entropy CEO Mike Belenkie.

He added not all carbon capture projects are the same. Their cost can vary widely based on factors like the intensity of the emissions being captured and whether the site has access to local underground storage or must invest in pipeline transportation.

“For carbon capture and storage to work, there has to be a relentless focus on picking the best projects," Belenkie said.

Captured carbon doesn't have any value on its own as a product, but can lower a company's own carbon tax expenses by reducing its overall emissions. In addition, companies that deploy CCUS can generate carbon credits to sell to big polluters looking to offset their own emissions.

But companies have said in order for carbon capture projects to make financial sense, they need some kind of assurance that a future government won't come in and eliminate the industrial carbon price, or that the bottom won't fall out of the carbon credit market 10 years down the road and remove the expected return on investment.

That's where carbon contracts for difference, or carbon offtake agreements, come in. 

The federal government, through the $15-billion Canada Growth Fund, has committed to reaching such agreements with emitters who deploy CCUS — essentially guaranteeing that if the price of carbon falls below a certain level in the future, the fund will pay the difference.

The sticking point, though, appears to be at what "strike price" these contracts will be triggered. Entropy's successful carbon offtake agreement saw the Canada Growth Fund agree to purchase up to 185,000 tonnes of carbon credits from Entropy for a 15-year term at an initial strike price of $86.50 per tonne. 

That means if the market price Entropy can expect to receive for its captured carbon falls below $86.50, the Canada Growth Fund will step in and pay the difference.

While that assurance was enough to convince Entropy it could make a go of its project, other proponents are likely seeking a significantly higher strike price, said Michael Bernstein, executive director of the non-profit organization Clean Prosperity.

"What the Canada Growth Fund has been trying to do is bespoke negotiations with various emitters, prioritizing projects that they think are particularly good value for taxpayers," Bernstein said.

"It means they could face disagreements with companies, as I believe they did with Capital Power around what the appropriate price was for that project."

Earlier this spring, Edmonton-based Capital Power cancelled plans for a proposed carbon capture project at its Genesee power plant, saying while the project is technically viable, the economics don't work.

The Pathways Alliance, a consortium of companies proposing to build a $16.5-billion carbon capture and storage network for Alberta's oilsands, also has yet to successfully negotiate a carbon offtake agreement with the Growth Fund.

In a February report, global consultancy Wood Mackenzie warned there is a real chance of the Pathways project being "delayed and potentially scuppered" if industry and the federal and provincial governments cannot come together to underwrite the risk that exists.

At a recent investor update, an executive for Pathways Alliance member Suncor Energy Inc. reiterated the industry's refrain that it needs more certainty before moving forward with "material capital commitments" for carbon capture.

For its part, the federal government has pledged to develop an expanded range of carbon offtake offerings tailored to different markets and their unique risks and opportunities. It has said the Canada Growth Fund — which still has $6 billion left earmarked for contracts for difference — will explore developing ready-to-go contracts for certain jurisdictions, so that each contract doesn't have to be negotiated from scratch one by one.

That would go a long way toward removing investor uncertainty, Bernstein said.

"There are various ways you could do this, but Clean Prosperity's recommendation is to have a standard strike price," he said.

"You would basically design a contract that says 'Come one, come all, at $100 a tonne' or whatever price you choose and then let everyone that’s cheaper than that come and fill it," Belenkie said. 

In an emailed statement, Carolyn Svonkin — press secretary to federal Natural Resources Minister Jonathan Wilkinson — said the government is already investing more than $90 billion to help Canadian companies decarbonize, so it's time for industry to step up and help carry the load.

"The federal government expects all companies who have committed to CCUS projects to move as quickly on these projects as the climate crisis requires," Svonkin said.

This report by The Canadian Press was first published June 4, 2024.