JPMorgan Chase has been fined more than $2 billion for violations of the Bank Secrecy Act tied to failure to report suspicious activity related to Bernie Madoff's decades-long, multi-billion dollar Ponzi scheme. Madoff was sentence in 2009 to 150 years in prison for his deception.
The fines against Chase were the result of three settlements. A settlement with the U.S. Attorney's Office for the Southern District of New York included a $1.7 billion penalty; a separate settlement with the Office of the Comptroller of the Currency included a $350 million penalty. Additionally, the Treasury Department's Financial Crimes Enforcement Network fined Chase $461 million for BSA-related violations. But FinCEN determined that its fine was satisfied by Chase's payment to the U.S. Attorney of New York.
In January 2013, the OCC issued a cease and desist order, directing Chase's three affiliated banks - JPMorgan Chase, JPMorgan Bank and Trust Company and Chase Bank - to correct deficiencies in their compliance programs.
"Since issuing the January 2013 cease and desist order, the OCC continues to monitor progress that JPMorgan Chase has made to correct weaknesses identified by the agency as well as their ongoing work and commitment to remedy the remaining deficiencies," the OCC says. "We will continue our oversight efforts and take further actions as warranted."
Independent anti-money-laundering and financial fraud expert Ben Knieff says the timing of the settlements was surprising because they came just one year after the OCC issued its cease and desist order.
"For an institution so large, it is challenging to remediate all the BSA failures in such little time," Knieff says. "I think this indicates the regulators' expectations are very high and institutions must rapidly demonstrate progress in remediation efforts.
"It would be surprising if other institutions did not find themselves in similar situations with respect to Madoff and other high-profile cases," Knieff adds. "Everyone wants to know how it could have happened, and when you follow the money, any cracks in the regulatory compliance program begin to show."
Other Banks' Shortcomings
Chase is not the only institution to face recent regulatory scrutiny for AML violations, he adds. Banking institutions across the board are being held responsible for lax BSA practices, Knieff points out.
"It is interesting to note some of the failings cited are similar to those in the HSBC and Standard Chartered cases, such as inadequate CDD [customer due diligence] and lack of cohesive global AML compliance program," he says. "This indicates the regulators are still very much prioritizing these aspects - and many institutions, large and small, have not yet attained the mature and comprehensive program that is expected."
On Dec. 11, 2012, HSBC Group announced it would pay $1.92 billion for BSA violations stemming from a cease and desist order issued by the OCC in October 2010 against HSBC's North American Branch [d.b.a. HSBC USA]. Regulators say the bank neglected to monitor bulk-cash transactions with foreign affiliates and conducted bulk-cash wire transfers and purchases without due diligence. HSBC's lack of monitoring and due diligence limited its assessment of customer risk and the identification of suspicious activity, authorities said (see HSBC's BSA Violations Set Example).
On Dec. 10, 2012, SCB agreed to hefty U.S. financial penalties for sanctions violations linked to illegal transactions and payments the bank pushed through its New York branch for entities in nations, such as Iran, which are subject to U.S. economic sanctions. Similar to the HSBC settlement, the Justice Department agreed not to prosecute SCB for illegally conducting transactions with Iran, Sudan, Libya and Burma in exchange for SCB's forfeiture of $227 million in illegal transactions.
Chase Settlement Details
Chase entered into a deferred prosecution agreement with the U.S. Attorney's Office. As part of the agreement, Chase must enhance its BSA/AML compliance program. The agreement gives the Department of Justice the right to pursue criminal charges if the bank fails to live up to the terms of the settlement.
"Today, the largest financial institution in the country stands charged with two criminal offenses," U.S. Attorney Preet Bharara says in a statement. "Institutions, not just individuals, have an obligation to follow the law and to police themselves."
"JPMorgan connected the dots when it mattered to its own profit but was not so diligent otherwise," Bharara says. "Fortunately, with today's resolution, the bank has accepted responsibility and agreed to continue reforming its anti-money laundering practices."
The OCC found critical and widespread deficiencies in the banks' BSA and AML compliance programs with respect to SARs, monitoring of transactions for suspicious activity, customer due diligence and risk assessments, as well as internal controls and independent testing, according to a statement issued Jan. 7.
"The penalty is based in part on JPMorgan Chase's failure to report suspicions about Bernard L. Madoff Investment Securities LLC to U.S. law enforcement and regulators, despite having alerted United Kingdom authorities in the months prior to Mr. Madoff's arrest," the OCC says.
FinCEN fined JPMorgan Chase for willfully violating the BSA by failing to report Madoff's fraudulent investment scheme.
According to FinCEN, from the 1970s until his arrest in December 2008, Madoff committed a massive securities fraud scheme against investors that resulted in losses to thousands of victims.
"JPMorgan, its predecessors and affiliates, had a long relationship with Bernard L. Madoff Investment Services LLC, including holding the primary bank accounts in the United States used by BLM to facilitate its fraudulent investment scheme," FinCEN says in a statement.(Jeffrey Roman, senior associate editor, contributed to this story).