J.P. Morgan Chase Hit For $461M For Madoff-Related Bank Secrecy Act Violations


The Financial Crimes Enforcement Network (FinCEN)  today fined J.P. Morgan Chase Bank, N.A. $461 million for willfully violating the Bank Secrecy Act (BSA) by failing to report suspicious transactions arising out of Bernard L. Madoff’s decades-long, multi-billion dollar fraudulent investment scheme. In consenting to the civil money penalty, JPMorgan admitted to the facts set forth by FinCEN and that its conduct violated the Bank Secrecy Act.

FinCEN’s anti-money laundering regulations require financial institutions to report transactions to FinCEN that the financial institution “knows, suspects, or has reason to suspect” are suspicious. Among other things, a transaction is “suspicious” if it involves funds derived from illegal activities, or is conducted to disguise the funds derived from illegal activities, and the financial institution knows of no reasonable explanation for the transaction. FinCEN then makes these suspicious activity reports available to law enforcement and regulators, such as the Securities and Exchange Commission, to pursue appropriate enforcement action.

In 2007, JPMorgan had concerns that BLM could be engaged in fraud that culminated in the identification of several “red flags” by 2008. These red flags included: (1) BLM’s investment performance appeared too good to be true; (2) BLM’s trading techniques and investment activity lacked expected transparency; (3) BLM used a small, unknown auditor; and (4) BLM repeatedly refused to provide full information to JPMorgan as part of its due diligence reviews. In the Fall of 2008, JPMorgan took steps to protect its own business interests yet failed to notify FinCEN of the same suspicious, potentially fraudulent, activities and failed to file any Suspicious Activity Report (SAR) with FinCEN as required by the BSA.

In October 2008, JPMorgan filed a SAR-equivalent with FinCEN’s counterpart in the United Kingdom, the Serious Organised Crime Agency, identifying their concerns about potential fraud. JPMorgan did not file a SAR with FinCEN until after Mr. Madoff’s arrest in December 2008. During the intervening time, JPMorgan redeemed approximately $275 million of its own investments from the BLM feeder funds, which in turn drew the funds out of BLM’s JPMorgan accounts in the United States. Mr. Madoff also drained billions of dollars out of BLM’s JPMorgan accounts during this time period. When Mr. Madoff was arrested on December 11, 2008, JPMorgan booked a loss of approximately $40 million, substantially less than it would have lost but for its transactions in the Fall of 2008.

Workingwith the U.S. Attorney’s Office for the Southern District of New York (SDNY) and the Office of the Comptroller of the Currency (OCC), FinCEN has determined that the penalty for this misconduct will be $461 million, based on the suspicious transactions that flowed through Mr. Madoff’s primary account at JPMorgan during 2008. The OCC will collect a $350 million fine. SDNY will collect $1.7 billion through asset forfeiture and has stated that the funds collected will be contributed to the recovery fund for Mr. Madoff’s victims. To ensure the maximum amount of money for the victims, FinCEN deemed its penalty satisfied by JPMorgan’s payment to SDNY. In total, JPMorgan has agreed to a combined collection amount of $2.05 billion.

FinCEN’s Enforcement Division, established in June 2013 is charged with seeking to protect the U.S. financial system from being exploited by illicit actors. Its efforts focus on compromised financial institutions and their officers, managers, and employees; compromised jurisdictions; and third party money launderers. The division has a broad array of enforcement authorities to target both domestic and foreign actors affecting the U.S. financial system.

Today’s civil monetary penalty is one of a growing list of sanctions and enforcement actions arising out of the massive investment scandle carried out by Madoff.

For Help or More Information

If you need help with human resources and internal controls, compliance and risk management, or other business and performance management concerns please contact the author of this update, Cynthia Marcotte Stamer.

A Board Certified Labor and Employment attorney, Fellow in the American Bar Association, Texas Bar Association and American College of Employee Benefit Council,  Ms. Stamer is recognized, internationally, nationally and locally for her work for her extensive and creative knowledge and experience helping businesses and government manage people, process and risk.

Ms. Stamer continuously advises and assists employers, bankruptcy trustees, investors, creditors, government agencies and others to address a wide range of performance management and operational concerns.  She also assists these and other organizations to investigate and address compliance, liability and operational crises and ongoing issues, as well as to design, reengineer, administer and defend their business, workforce, employee benefit plan and other operations and practice to deal wtih evolving legal, financial and other operational requirements.  Her work includes more than 25 years of helping these and other clients prevent and solve problems and achieve other business goals and objectives.

A primary drafter of the Bolivian Social Security pension privatization law, Ms. Stamer also works extensively with management, service provider and other clients to shape, monitor and respond to legislative and regulatory developments and to deal with Congressional and state legislators, regulators, and enforcement officials on regulatory, investigatory or enforcement concerns.

Recognized in Who’s Who In American Professionals, Ms. Stamer’s experience includes 25 years extensive involvement helping businesses, employee benefit plans and their fiduciaries and others prevent, investigate and redress fraud and other misconduct concerns impacting their operations, funds and investments and other essential functions and liabilities.

Ms. Stamer serves on the Editorial Advisory Board of HR.com, Insurance Thought Leaders, Employee Benefits News, and in the leadership of many other other professional and civic organizations.   She also is a widely published author and highly regarded speaker on these matters. Her insights on these and other matters appear in the Bureau of National Affairs, Spencer Publications, the Wall Street Journal, the Dallas Business Journal, the Houston Business Journal, Modern and many other national and local publications.   You can learn more about Ms. Stamer and her experience, review some of her other training, speaking, publications and other resources, and register to receive future updates about developments on these and other concerns from Ms. Stamer here.

About Solutions Law Press, Inc.

Solutions Law Press, Inc.™ provides business risk management, legal compliance, management effectiveness and other resources, training and education on human resources, employee benefits, compensation, data security and privacy, health care, insurance, and other key compliance, risk management, internal controls and other key operational concerns. If you find this of interest, you also be interested in exploring other Solutions Law Press, Inc. ™ tools, products, training and other resources here.

Other Helpful Resources & Other Information

If you found these updates of interest, you also be interested in one or more of the following other recent articles published in this electronic Solutions Law publications available for review here including:

If you or someone else you know would like to receive future updates about developments on these and other concerns, please be sure that we have your current contact information – including your preferred e-mail by creating or updating your profile at here.

For important information about this communication click here. THE FOLLOWING DISCLAIMER IS INCLUDED TO COMPLY WITH AND IN RESPONSE TO U.S. TREASURY DEPARTMENT CIRCULAR 230 REGULATIONS.  ANY STATEMENTS CONTAINED HEREIN ARE NOT INTENDED OR WRITTEN BY THE WRITER TO BE USED, AND NOTHING CONTAINED HEREIN CAN BE USED BY YOU OR ANY OTHER PERSON, FOR THE PURPOSE OF (1) AVOIDING PENALTIES THAT MAY BE IMPOSED UNDER FEDERAL TAX LAW, OR (2) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY TAX-RELATED TRANSACTION OR MATTER ADDRESSED HEREIN.

©2013 Cynthia Marcotte Stamer, P.C.  Non-Exclusive License To Republish Granted To Solutions Law Press, Inc.  All Other Rights Reserved.

Advertisements

About Cynthia Marcotte Stamer

Management attorney and operations consultant Cynthia Marcotte Stamer uses a client objective oriented approach to help businesses, governments, associations and their leaders manage performance, operations and risks.
This entry was posted in CEO, Director Liabiloity, Employee Benefits, Employment, Fiduciary Responsibility, Health Plans, Tax and tagged , , , , , , , , , , , , , , , , , , , , , , . Bookmark the permalink.

One Response to J.P. Morgan Chase Hit For $461M For Madoff-Related Bank Secrecy Act Violations

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s