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JPMorgan Chase has agreed to pay nearly $2.6 billion to settle charges that it failed to report suspicious activity in accounts held by Bernard Madoff. Madoff ran a giant Ponzi scheme for more than a decade. JPMorgan was his primary bank and U.S. officials say it willfully ignored evidence that Madoff was cheating his investors.
NPR's Jim Zarroli begins our coverage.
JIM ZARROLI, BYLINE: U.S. attorney Preet Bharara says Bernie Madoff probably couldn't have gotten away with this Ponzi scheme for so long without the willful blindness of JPMorgan Chase.
PREET BHARARA: JPMorgan, because of its vantage point as Madoff's banker, had plenty of reasons to be uniquely suspicious about him. Warning signs abounded.
ZARROLI: Bharara says that billions of dollars flowed in and out of Madoff's accounts and none of it went to buy stock. Under the Bank Secrecy Act, banks are supposed to flag suspicious activity like that and tell the federal government about their concerns.
Jimmy Gurule is a former Treasury Department official who now teaches at Notre Dame Law School.
JIMMY GURULE: It goes back to a very fundamental principle, a very fundamental concept called Know Your Customer.
ZARROLI: U.S. officials say that people within JPMorgan gradually grew suspicious about Madoff and even warned British regulators that something was going on. And eventually, the bank pulled its own money out of Madoff's operation.
Again, Preet Bharara.
BHARARA: The bank connected the dots when it mattered to its own profit but was not so diligent when it came to its legal obligations.
ZARROLI: For its part, JPMorgan issued a statement today saying it could have done a better job pulling together various pieces of information and concerns about Madoff being expressed at the bank. But a spokesman said he did not believe any employee knowingly assisted Madoff, who's now serving a 150-year prison sentence.
Under the settlement, the bank agreed to pay $1.7 billion to the Treasury Department and more money will go to other regulators and to the private trustee representing victims.
Ron Stein is president of the Network for Investor Action and Protection, which represents a lot of Madoff victims. He says the fine paid by the bank is puny.
RON STEIN: That $1.7 billion is going back to victims who have lost, I don't know, somewhere between 17 and $20 billion in actual numbers, and $65 billion on paper, amounts to essentially a slap on the wrist.
ZARROLI: Stein also criticizes the government's decision to defer prosecution of the bank on two criminal charges for two years. If JPMorgan pays its fines and reforms its anti-money laundering program, it probably won't be prosecuted.
STEIN: We are basically sending a message to the banking industry that they can do whatever it is they want to do with relative impunity.
ZARROLI: For JPMorgan, this is only the latest in a long string of government investigations resulting in fines and settlements. In November, the bank paid more than $13 billion to settle allegations of mortgage abuse in the years leading up to the financial crisis. In those cases, just like in today's settlement, the bank has decided to pay its fine, promise to do better in the future and try to put the matter behind it.
Jim Zarroli, NPR News, New York.
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