Largest Bank Secrecy Act Settlement in History Entered Into by JPMorgan Chase
Although not a securities enforcement case, a recent case arising under the Bank Secrecy Act is nevertheless worth noting here because it underscores that the federal government is increasingly using criminal enforcement tools to address alleged violations that historically would have been the subject of only regulatory, administrative, or civil actions. This applies to all areas of government enforcement, including enforcement of federal securities laws and regulations.
On Jan. 7, 2014, Chase agreed to pay a total of $1.7 billion to the U.S. Department of Justice and $350 million to the Office of the Comptroller of the Currency (the bank’s primary federal regulator). The payments were made in order to settle allegations that the bank violated the Bank Secrecy Act by maintaining a banking relationship with the Ponzi schemer, Bernie Madoff. The $1.7 billion paid to the DOJ was required by the terms of a “deferred prosecution agreement.” A deferred prosecution agreement, or DPO, is a mechanism where the DOJ files criminal charges, but final resolution of the charges is deferred and then later dismissed upon compliance by the defendant with specified terms, including compliance requirements and payment of the fine. Unlike a typical civil settlement, a DPO requires an actual admission of criminal liability.
The admission of liability in the Chase settlement came in the form of a 17-page statement of facts agreed to by the bank and the DOJ. The factual statement was meant to support two criminal charges: (1) willfully failing to establish or maintain an effective anti-money laundering (AML) program, and (2) willfully failing to file a Suspicious Activity Report (SAR) regarding Madoff’s activities. Commentators have debated whether the conduct of Chase as set forth in the factual statement truly satisfies the requirement for the bank to have acted “willfully.” Some commentators assert that the factual statement does not show that anyone at Chase actually made an intentional (willful) decision to have a non-effective AML program or to help Madoff. Apparently, different business units within Chase, including a banking group in New York that handled Madoff’s accounts, a London-based derivatives trading group called the “equity exotics desk,” as well as various compliance groups, did not communicate well with each other. For example, the London-based group was very concerned about exposure to fraud risk at one point, and it even filed an SAR with U.K. authorities shortly before Madoff was arrested. However, the New York-based banking group was not informed.