The bank will pay USD 1.7 billion to settle criminal charges and a USD 350 million civil penalty for what the Treasury Department called "critical and widespread deficiencies" in its programs to prevent money laundering and other suspicious activity.
George Venizelos, head of the FBI's New York office, said the company failed to carry out its legal obligations while Madoff "built his massive house of cards."
"It took until after the arrest of Madoff, one of the worst crooks this office has ever seen, for JP Morgan to alert authorities to what the world already knew," he said in a statement.
US Attorney Preet Bharara said in a release that "JPMorgan connected the dots when it mattered to its own profit, but was not so diligent otherwise."
He added that financial institutions "must exercise due care not only with their own money but with other people's money also."
The settlement includes a so-called deferred prosecution agreement that requires the bank to acknowledge failures in its protections against money laundering but also allows it to avoid criminal charges. No individual executives were accused of wrongdoing.
The agreement resolves two felony violations of the Bank Secrecy Act in connection with the bank's relationship with Bernard L. Madoff Investment Securities, the private investment arm of Madoff's former business.
The civil penalty was imposed by the Treasury Department's Office of the Comptroller of the Currency.
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