Bank to Pay Almost $2 Billion Civil Asset Forfeiture Judgment
The Department of Justice announced on January 7, 2014 that it reached a settlement with JPMorgan Chase for the bank's role in the Bernie Madoff Ponzi scheme. With the bank agreeing to pay a $1.7 billion dollar civil asset forfeiture judgment, the settlement represents the largest forfeiture by a bank in the U.S., as well as the largest penalty the United States Department of Justice (DOJ) has obtained for a violation of the Bank Secrecy Act.
Is the Record Judgment and Payment of Judgment to Fraud Victims A Possible Shield to Further Prosecution of Bank?
The DOJ alleged that JPMorgan failed to meet its legal obligations to protect customers' money because the bank did not report the suspicious activity of Bernie Madoff while Madoff worked at the bank. According to the DOJ, the bank withdrew $300 million of its own money from funds controlled by Madoff in 2008 after receiving a memo from its London office stating that it could not validate Madoff's trading activity, asset custody and accounting practices. The bank did not widely report the irregularities to others. Details released with the announcement of the agreement revealed that JPMorgan employees thought that Madoff's investment returns were "too good to be true" and that there were several "red flags" surrounding his activity as early as 1998.
JPMorgan will pay an agreed upon civil asset forfeiture judgment of $1.7 billion as part of a settlement of two felony charges of violating the Bank Secrecy Act the bank was facing, along with $350 million in civil penalties, for its failure to report the suspicious activity of Bernie Madoff while Madoff banked at JP Morgan. In a separate proceeding involving Irving Picard, the trustee liquidating Madoff's business, the bank will also pay $543 million to settle the claims of Madoff's fraud victims. Part of the agreement includes a deferred prosecution agreement that requires the bank to admit that its oversight of money laundering activities was lax and to agree to reform its anti-money laundering procedures.
In an unusual step for the DOJ, it explicitly agreed in the deferred prosecution agreement that it "intends to distribute the [forfeited $1.7 billion paid by JP Morgan] to the victims" of the Madoff fraud. Typically, the DOJ only allows a U.S. Attorney to state that it will "recommend" that forfeited funds be used to pay victims, with Main Justice, DOJ Headquarters in Washington, reserving the prerogative to reject such recommendations once they are made in agreements. See U.S. v. Pescatore, 637 F.3d 128, 131 (2d cir. 2011)(stating that Main Justice is entitled to deny a recommendation in a plea agreement that forfeited funds be used to pay victims because Main Justice is entitled to make its own determination of whether such payment is appropriate, including deciding whether the defendant can pay the victims out of other funds not subject to forfeiture).
An additional noteworthy feature of the Madoff settlement is that JP Morgan agreed that its payment of the $1.7 billion civil asset forfeiture judgment "shall be treated as a penalty paid to the United States government for all purposes, including tax purposes." The reference in the agreement that the payment of the civil forfeiture judgment is a penalty "for all purposes" indicates that the payment is a punishment for all purposes. The breadth of this language is noteworthy because although normally pursuant to Austin v. United States, 509 U.S. 602, 605 (1993), civil forfeiture is considered punishment subject to the Eighth Amendment of the U.S. Constitution, the Government's position normally is that pursuant to United States v. Ursery, 518 U.S. 267 (1996), forfeiture does not constitute punishment for the purposes of the Double Jeopardy Clause of the Fifth Amendment of the U.S. Constitution. By agreeing to the language included in the Madoff settlement binding JP Morgan to treating the payment of the civil forfeiture judgment as a penalty "for all purposes," the Government seems to be offering JP Morgan at least an argument later if it is prosecuted for its conduct in the Madoff matter that the payment of the $1.7 billion was a penalty "for all purposes," thus triggering the Double Jeopardy Clause protections and precluding later criminal prosecution of the bank, notwithstanding the language in the settlement agreement stating that if following payment of the $1.7 billion by the bank that if it violates the settlement agreement it "shall . . . thereafter be subject to prosecution for any federal criminal violation."
Bank Secrecy Act
The Bank Secrecy Act, the statute JPMorgan Chase was accused of violating, was first passed in 1970 to impose record-keeping duties on banks and obligates banks to report certain transactions to the federal government. Banks must file a Suspicious Activity Report with the Financial Crimes Enforcement Network of the U.S. Department of Treasury when the institution "knows, suspects or has reason to suspect" that a transaction includes money obtained from illegal activity.
The law is intended to make it easier for the federal government to uncover those laundering money, as well as punish banks that fail to be vigilant in screening for money laundering activity.
If You are Fraud Victim or Own Funds Subject to Forfeiture, Talk to a Lawyer
Victims of financial frauds as well as anyone with a financial interest in seized funds subject to forfeiture should consult with qualified counsel to review their legal options. The Government is not always as generous as it was in the JP Morgan settlement in promising to pay victims out of the forfeited assets. Counsel can assist victims in seeking a recovery of funds through forfeiture proceedings. Similarly, anyone with an interest in seized assets subject to forfeiture should act promptly to protect their interest in the funds by securing qualified representation.