Madoff was sentenced to 150 years in prison five years ago for bilking investors out of billions of dollars in a Ponzi scheme he operated for nearly 20 years. After the arrest, many questioned how Madoff could have conducted his scheme undetected for as long as he did.
The Wall Street Journal reported victims of Madoff's fraud lost about $17 billion in principal and $9.5 billion had been recovered, $4.9 billion of which has been distributed to Madoff victims.
Federal prosecutors in New York Tuesday said Madoff's bank agreed on two occasions it failed to file suspicious activity reports despite indications that something was amiss.
The department announced JPMorgan would pay a $1.7 billion penalty in a deferred prosecution arrangement for its complacency.
The deal also says the bank will cooperate with the FBI "and any other governmental agency," regarding compliance with the Bank Secrecy Act that mandates banks warn authorities of suspicions client accounts are involved in criminal activities.
The swindler's bank "Failed miserably" in its responsibility to alert authorities, U.S. Attorney Preet Bharara told a press conference in New York.
Separately, the bank agreed to pay $350 million to the Office of the Comptroller of the Currency, which cited the bank for lackadaisical controls of money laundering, the Journal said.
The Financial Crimes Enforcement Network in Washington also announced a fine of $461 million levied on the bank "for failing to report suspicious transactions arising out of Bernard L. Madoff's decades-long multibillion-dollar fraudulent investment scheme."
"When JPMorgan suspected Mr. Madoff's fraud, it focused on its own investment exposure and saved itself approximately $250 million," FinCEN Director Jennifer Shasky Calvery said in a statement.
"If it had given the same attention to its anti-money laundering responsibilities, it could have saved itself $2 billion, and potentially saved thousands of other fraud victims untold misery and loss," Calvery said.
FinCen estimated investor losses at "more than $20 million."
"We recognize that 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," a JPMorgan spokesman said.
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