The United States federal authorities are charging JPMorgan Chase & Co $2 billion in penalties after the bank allegedly turned a blind eye to suspicious activity carried out by Bernard Madoff's ponzi scheme, according to Reuters.
The $2 billion will be divided to settle a penalty with the Department of Justice for $1.7 billion, which will go to the victims of Madoff's scheme, Reuters reported. Another penalty will be paid to the U.S. Office of the Comptroller of the Currency for $350 million, summing up to the largest penalty a bank has ever paid in anti-money laundering charges.
The bank also agreed to forfeit a tax deduction for the $1.7 billion paid to the Department of Justice as part of the agreement, according to Reuters. By Tuesday afternoon, JPMorgan shares were down 1.3 percent.
In the initial steps of the probe, the bank agreed to allow a full investigation of what could have led to the banks failure in recognizing and stopping Madoff. Through this process, the government found the bank had not rightfully been monitoring customer activity according to the law, Reuters reported.
"We recognize we could have done a better job pulling together various pieces of information and concerns about Madoff from different parts of the bank over time," JPMorgan spokesman Joe Evangelisti said in an email, Reuters reported. "We filed a Suspicious Activity Report (SAR) in the UK in late October 2008, but not in the U.S."
During the two decades Madoff ran the ponzi scheme, the bank failed to notice and notify authorities of laundering activity even though numerous employees raised concerns and questions, according to authorities, Reuters reported.
Through an account Madoff had with a JPMorgan Chase bank, about $150 billion was transferred or deposited almost entirely from Madoff Securities, but none of the money was used by the fund as Madoff promised it would be, according to a statement, Reuters reported.
Other findings showed JPMorgan employees were aware of Madoff's suspicious activity in the 1990s but neither ended their relationship with Madoff nor reported his activities to the authorities, according to Reuters.
According to Evangelisti, the bank does "not believe that any JPMorgan Chase employee knowingly assisted Madoff's Ponzi scheme," according to Reuters.
Madoff was convicted in 2009 for conducting the largest ponzi scheme using his hedge fund, Bernard L. Madoff Investment Securities LLC and is serving a 150-year sentence in prison, Reuters reported.
The newly-settled penalties the bank will now have to pay will resolve one of the several ongoing investigations the company faces. Investigations into the banks hiring practice in China and the Libor interest rate are also being conducted, Reuters reported.
"The facts are quite extreme," Jimmy Gurule, a former Treasury Department official, told Reuters. "The bank was clearly willfully blind, I think, to detecting and reporting suspicious transactions to the Treasury Department."
