JPMorgan Chase & Co. and its Affiliates Agree to Pay the DOJ, OCC and FinCEN an Aggregate of $2.05 Billion to Resolve Violations of the Bank Secrecy Act and Other Matters Related to the Madoff Ponzi Scheme

by Goodwin
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JPMorgan Chase & Co. and its affiliates (collectively, “JPMorgan”) agreed to pay an aggregate of $2.05 billion to resolve civil and criminal claims generally related to JPMorgan’s Bank Secrecy Act (“BSA”) compliance program deficiencies and its failure to file suspicious activity reports (“SARs” and each an “SAR”) under the BSA with FinCEN and the OCC and admitted to two felony violations of the BSA cited by the U.S. Attorneys’ Office for the Southern District of New York (the “DOJ”) all concerning Bernard L. Madoff’s (“Madoff”) decades long Ponzi scheme that FinCEN stated “resulted in more than $20 billion in losses to thousands of victims.” 

Specifically, JPMorgan: (1) agreed, under the terms of a deferred prosecution agreement, to make a payment of $1.7 billion (the stipulated forfeiture amount) to the DOJ, the proceeds of which will be contributed to the recovery fund for Madoff’s victims; (2) consented to the payment of a $350 million civil money penalty to the OCC; and (3) was fined $461 million by FinCEN.  FinCEN stated that to ensure the maximum amount of money to the victims of Madoff, it would deem the penalty satisfied by JPMorgan’s payment to the DOJ. 

OCC  

The OCC assessed an aggregate $350 million civil money penalty against three bank subsidiaries of JPMorgan because it determined that the subsidiary banks’ BSA and anti-money laundering compliance programs were deficient “with respect to suspicious activity reporting, monitoring of transactions for suspicious activity, the conduct of customer due diligence and risk assessments, and internal controls and independent testing.”  The OCC said its penalty was partially based on the fact that JPMorgan failed to file an SAR concerning Madoff with the OCC and other U.S. authorities “despite having alerted United Kingdom authorities in the months prior to Mr. Madoff’s arrest.”

FinCEN

JPMorgan’s lead bank subsidiary was, as noted above, fined $461 million by FinCEN, but the fine was deemed satisfied by JPMorgan’s payment to the DOJ.  In FinCEN’s announcement of the fine it stated that JPMorgan failed to report suspicious transactions arising out of Madoff’s Ponzi scheme and that, in consenting to the fine, JPMorgan had admitted:  (1) to the facts asserted by FinCEN; and (2) that the conduct violated the BSA.  FinCEN stated that JPMorgan had concerns as early as in the 1990s and in 2007 and 2008 that Madoff could be engaged in fraud, had protected JPMorgan’s investment position and had notified United Kingdom authorities, but failed to notify FinCEN and other U.S. authorities.

DOJ   

Based on many of the same facts cited by FinCEN and the OCC, the DOJ entered into a deferred prosecution agreement with JPMorgan’s lead bank subsidiary under which JPMorgan will pay $1.7 billion to the DOJ that the DOJ will distribute to the victims of Madoff’s fraudulent scheme.  The DOJ determined and JPMorgan admitted to two BSA felony violations:  (1) failure to maintain an effective BSA/anti-money laundering program; and (2) failure to file an SAR regarding Madoff.  JPMorgan also agreed with the DOJ under the deferred prosecution agreement that JPMorgan would take steps to strengthen its BSA/anti-money laundering program.  Notably, the DOJ confirmed that it would not charge any JPMorgan employee in connection with the Madoff matter.  The DOJ stated that $1.7 billion penalty consented to by JPMorgan was the largest DOJ penalty ever assessed for violations of the BSA. 

Looking Forward

It is widely expected that the DOJ and banking regulatory agencies will:  (1) continue to expend significant human and financial resources to determine whether there are deficiencies in banks’ BSA/anti-money laundering compliance programs; and (2) bring additional criminal and civil enforcement actions related to such matters against banking organizations of various sizes.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this informational piece (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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