JPMorgan Chase & Co. will pay more than $2 billion of penalties to pay federal prosecutors and regulators for failing to report suspicious activity involving Bernard Madoff’s Ponzi scheme.
The $2 billion amount is the largest amount a bank has had to pay to resolve anti-money laundering violations.
As part of the deal, JPMorgan admits that it failed to investigate the many red flags that left bankers skeptical of the methods Bernard Madoff’s company was using. Years of high investment returns at Madoff Securities were not scrutinized, and JPMorgan violated laws requiring it to monitor customer activity for money laundering. This occurred for the two decades that the bank and Madoff’s firm worked together, authorities said Tuesday.
Manhattan U.S. Attorney Preet Bharara’s office hit JPMorgan with a $1.7 billion penalty for violating the Bank Secrecy Act, the law calling on financial firms to alert authorities to suspicious activity. In a separate deal, JPMorgan’s primary regulator, the Office of the Comptroller of the Currency, levied a $350 million civil penalty against the bank for violating federal banking laws.
JPMorgan entered into a deferred prosecution agreement (DPA) that gives the Department of Justice (DOJ) the right to pursue criminal charges if the bank fails to live up to the terms of the settlement. As part of the agreement, the bank must admit to the facts of the government’s case and rework its money laundering controls.
Adding to the list of penalties, officials at the Treasury Department’s Financial Crimes Enforcement Network imposed a $461 million fine, which was satisfied by the money JPMorgan agreed to pay DOJ.
All of the monies collected by federal authorities will go to a compensation fund established for Madoff’s victims.
The agreements arrive after the five-week anniversary of Madoff’s arrest for duping more than 4,000 clients in his $50 billion Ponzi scheme. Madoff Securities looked to have $65 billion in total in its coffers, but it turned out the company had only $300 million in assets, according to the statement of facts included in the current DPA.
Prosecutors say that on two occasions, in 2007 and 2008, JPMorgan’s internal systems raised alarms about Madoff’s investment practices. A Madoff account received $757.2 million in customer wires on one day in 2007 — 27 times the average daily value of such activity in the preceding 90 days. JPMorgan employees did not flag the transactions as unusual, according to the statement of facts.
JPMorgan has steadfastly maintained that it was not aware of Madoff’s scheme and was as duped as the regulators and his clients at the time.
Madoff is serving a 150-year prison sentence.
Julie DiMauro is the executive editor of FCPA Blog and can be reached here.