NEW YORK – JPMorgan Chase & Co., already beset by costly legal woes, will pay more than $2.5 billion for ignoring obvious warning signs of Bernard Madoff’s massive Ponzi scheme, authorities said Tuesday.
The nation’s largest bank will forfeit a record $1.7 billion to settle criminal charges, plus pay an additional $543 million to settle civil claims by victims. It also will pay a $350 million civil penalty for what the Treasury Department called critical and widespread deficiencies in its programs to prevent money laundering and other suspicious activity.
The bank failed to carry out its legal obligations while Madoff built his massive house of cards, George Venizelos, head of the FBI’s New York office, said. It took until after the arrest of Madoff, one of the worst crooks this office has ever seen, for JPMorgan to alert authorities to what the world already knew, he said.
Madoff banked at JPMorgan through what court papers referred to as the 703 account. In 2008, the bank’s London desk circulated a memo describing JPMorgan’s inability to validate his trading activity or custody of assets and his odd choice of a one-man accounting firm, the government said.
In late October 2008, it filed a suspicious activity report with British officials. In the weeks that followed, JPMorgan withdrew about $300 million of its own money from Madoff feeder funds. The fraud was revealed when Madoff was arrested in December 2008.
Despite all these alarm bells, JPMorgan never closed or even seriously questioned Madoff’s Ponzi-enabling 703 account, said U.S. Attorney Preet Bharara. On the other hand, when it came to its own money, JPMorgan knew how to connect the dots and take action to protect itself against risk.
Prosecutors called the $1.7 billion the largest forfeiture by a U.S. bank and the largest Department of Justice penalty for a Bank Secrecy Act violation.
The settlement includes a so-called deferred prosecution agreement that requires the bank to acknowledge failures in its protections against money laundering but also allows it to avoid criminal charges. No individual executives were accused of wrongdoing.
The agreement resolves two felony violations of the Bank Secrecy Act in connection with the bank’s relationship with Bernard L. Madoff Investment Securities, the private investment arm of Madoff’s former business.
The Treasury Department’s civil penalty was assessed because the bank failed to pass along to U.S. authorities suspicions about Madoff it had reported to Britain’s Serious Organised Crime Agency, and because the bank failed to detect and report other cases of suspicious activity, including more than $2 billion in transactions involving the Puerto Rican affiliate of an unidentified Venezuelan bank.
Under the agreement, criminal charges will be deferred for two years as JPMorgan admits to its conduct, pays the $1.7 billion into a fund established for victims of Madoff’s fraud and reforms its anti-money laundering policies, prosecutors said.