U.S. Justice officials announced today that JPMorgan Chase & Co. will pay US$1.7 billion to settle charges that it failed to raise red flags after it became suspicious of the trading carried out by convicted Ponzi schemer Bernie Madoff.
The U.S. Department of Justice released court documents outlying a deferred prosecution agreement with the bank, which sees it consenting to charges that it failed to maintain an effective anti-money laundering program, and failed to file a suspicious activity report in relation to its dealings with Madoff’s firm.
As part of the deal, the bank will pay the US$1.7 billion penalty to the government, which will, in turn, distribute those funds to victims of the Madoff Ponzi scheme. It also agrees to cooperate with the FBI and other government agencies in the ongoing investigation into the Madoff affair; and, to continue beefing up its anti-money laundering program.
In turn, the government agrees to defer prosecution for two years; and, to dismiss the charges after two years if the firm complies with the terms of the deal. It also pledges not to bring any other charges in the case, except for possible charges related to any criminal tax prosecutions.
According to the information filed in the case, a JPM analyst in London, UK raised an alarm about the returns reportedly being generated by Madoff, the custody of assets, and its choice of auditor, in an October 2008 memo. Later that month, the bank filed a report with the UK Serious Organized Crime Agency outlining its concerns, and it began withdrawing its own assets from the Madoff funds. However, it notes that these concerns weren’t communicated to anti-money laundering personnel in the U.S., and there was “no meaningful effort” to investigate the relationship between the bank and Madoff’s firm.
In separate actions, the U.S. Department of the Treasury, Office of the Comptroller of the Currency (OCC), and the Financial Crimes Enforcement Network (FinCEN), announced their own agreements, and sanctions against, JPMorgan Chase.
The OCC announced that it has levied a US$350 million civil penalty against the bank, which follows a cease and desist order ordering it to correct “critical and widespread deficiencies” in the banks anti-money laundering (AML) compliance program. FinCEN also assessed a US$461 million penalty, although that is deemed satisfied by the forfeiture to the U.S. government.
“Today, the largest financial institution in the country stands charged with two criminal offenses. Institutions, not just individuals, have an obligation to follow the law and to police themselves. They must exercise due care not only with their own money but with other people’s money also. In this case, JPMorgan connected the dots when it mattered to its own profit, but was not so diligent otherwise,” said Manhattan U.S. attorney, Preet Bharara.
“Fortunately, with today’s resolution, the bank has accepted responsibility and agreed to continue reforming its anti-money laundering practices. Most importantly, the victims of Bernie Madoff’s epic fraud are US$1.7 billion closer to being made whole,” he added.
FBI assistant director-in-charge, George Venizelos, said: “In order to avoid these types of disasters in the future – we all need to be invested in making our markets safer and more equitable. The FBI can’t do it alone. Traders, compliance officers, analysts, bankers, and executives are the gatekeepers of the financial industry. We need their help protecting our markets.”