How JPMorgan Chase Kept Turning A Blind Eye

Bernie Madoff’s $68 billion Ponzi drove America’s biggest financial institution to the edge of a criminal indictment. So why did the bank keep working with Jeffrey Epstein?

The year 2013 was a sobering time for the thousands of compliance staffers at JPMorgan Chase, then and still the largest bank in America. Due to the institution’s shameful role as the financial engine for history’s lengthiest and largest fraud—Bernie Madoff’s $68 billion Ponzi scheme ($100 billion in today’s money)—it was deep in the weeds in negotiations with the feds to avoid pleading guilty to a criminal indictment.

JPMorgan (also JPMC) ultimately agreed to a set of damning facts to its colossal failures as part of a deferred prosecution agreement with the U.S. Attorney’s Office in Manhattan that has since been a subject of study at major law schools. Among other transgressions, concluded one of the enforcement arms of the U.S. Treasury Department, the bank “willfully” violated the law by failing to detect and report Madoff’s suspicious transactions.

Meanwhile, also in 2013, five years after he had pled guilty to procuring an underaged girl for prostitution, the bank finally ‘unbanked’ Jeffrey Epstein as a customer—a good subject for another case study, and one that keeps unfolding. (As a consequence of his 2008 conviction, he spent 13 months in a county jail in Palm Beach and was listed on Florida’s public sex offender registry—for even a banker with an Internet connection could see, and with news outlets at the time covering the scandal.)

It’s reasonable to assume that Epstein was high on the minds of JPMorgan’s top executives in those 2013 Madoff-related negotiations. Like Bernie, he was one of the bank’s biggest customers, although the feds had no way of knowing this at the time. (In an email three years earlier, a JPMC banker had ranked Epstein among his largest clients with a net worth of $500 million.)

Epstein was part of a mega-rich group referred to internally as the bank’s “Wall of Cash.” According to a recently-unsealed 161-page report by Jorge Amador—a forensic accountant retained by the Attorney General of the U.S. Virgin Islands (where Jeffrey owned his two private islands)—Epstein’s accounts “generated one of the largest annual revenue flows of private clients in the private bank [unit].” JPMC paid him millions of dollars in fees on various business deals, and the bank also approved loans for him. [In this Forbes Talks segment, reporters explain how Epstein got so rich.]

Certainly, ditching Epstein would be in harmony with prosecutors’ Madoff-driven demands that JPMorgan significantly repair and upgrade its global compliance programs over the next several years—or face yet again a possible criminal indictment. But while it had finally dropped Epstein in January 2013 as a customer, he didn’t really go away. Bank execs continued working with the convicted felon as a source of referrals for business with other ultra-wealthy customers, such as billionaire Leon Black, as first reported in the New York Times.

In an internal email that appears in recently unsealed court documents, a top JPMC official told a higher-up that Epstein “maintains he will become Leon’s primary advisor and will be calling the shots.” And so it came to pass. (Black has said he regrets working with Epstein.) Moreover, as reported in the Wall Street Journal, a chain of emails reveals that three JPMC bankers met with Epstein a dozen times—either at his Manhattan townhouse or New Mexico ranch—between his official debanking and 2017.

Not only that, it turns out it wasn’t the Madoff-spawned agreement with the feds (which JPMC signed in January 2014) that prompted the bank to do a full and exhaustive review of Epstein’s accounts for suspicious transactions. It was his federal indictment five years later (on charges of trafficking minors and conspiracy) that sparked it, with JPMC finally alerting banking officials—as required by law— to thousands of suspicious wire transfers in and out of Epstein’s numerous accounts totally over $1 billion.

And that’s a huge problem for the bank.

Over a 15-year period, according to the forensic accountant’s report, JPMorgan Chase held “at least 134 accounts” for Epstein and Epstein-related individuals and entities. As worlds can collide, he was so important to the bank that when Madoff’s Ponzi collapsed in late 2008, a top JPMC exec asked another to “call JE to get the scoop” about how wealthy clients in the Palm Beach area were weathering the catastrophe. (While their mansions in Palm Beach were a ten-minute drive from each other, there’s no indication they ever crossed paths. And, unlike ”JE,” if there’s one thing Bernie tried to avoid like poison it was celebs and financiers who could lead to his crimes being exposed.

As for JPMorgan’s importance to Madoff, who ran virtually the entire Ponzi scheme from a Chase personal checking account, here’s former prosecutor Lisa Baroni, who was part of a team of feds that dug into the bank’s relationship with Madoff: “Bernie without Chase doesn’t exist,” she told me for a recent book about the fraudster. “If he had a bank that actually paid attention to the ins and outs of the account, then the Ponzi scheme definitely couldn’t have been sustained for so long.” It was once estimated by a court-appointed trustee that JPMC made more than a half billion dollars in fees and profits from its relationship with Madoff, ignoring signs of fraud even as its due diligence unearthed evidence of it. (It was an aggressive estimate by the trustee, but the best we have.)

No fewer than a dozen executives at JPMC ignored the red flags. Here’s one of a multitude of those flags: In the deferred prosecution agreement (or DPA), the bank confirmed that Madoff refused to meet with JPMC personnel to answer their questions as part of an examination into his operation. And yet the bank didn’t cut him off.

In the end, JPMC paid $2.6 billion in fines, penalties, and settlements—representing barely .1 percent of its assets at the time, but a penalty nonetheless. No bank employees were prosecuted. That fact generated some public outrage at the time, particularly because not a single banker anywhere had gone to prison in relation to the overall 2008 fiscal crisis, which was directly traceable to the banking industry.

Tempting as it is, it is difficult to blame prosecutors for the fact that no bankers were held to account for the Madoff scam. But while the collective behavior of those at JPMC may have been prosecutable for its Madoff lapses—hence the fines—it is difficult to jail a company, an abstraction. And the behavior of any single individual Chase officer or employee did not appear to cross the sometimes too-forgiving bar for criminality in connection with Madoff. I learned there was one exception, almost: a senior compliance official in the United States, a title he held there until 2014—shortly after JPMC signed the DPA— when he was promoted to a global position. A source close to the investigation confirms that he came closer than any other Chase employee to facing criminal or civil liability. He insisted to me he did nothing wrong.

In the case of Epstein, did JPMC violate the terms of the Madoff-related DPA? That’s unclear. The agreement was only for three years (until 2017). On the other hand, the bank did maintain a business relationship with Epstein until his 2019 arrest.

Under the Bank Secrecy Act of 1970, U.S. financial institutions are required to actively search out fraud in their operations. Not only that but banks can be prosecuted for what’s known as “flagrant organizational indifference” for not having a well-designed anti–money laundering and compliance program. Put another way, “if your compliance and anti–money laundering program is designed in a way not to catch all the suspicious activity, then that can give rise to criminal liability,” according to Matthew L. Schwartz, who served as the lead prosecutor on the Chase-Madoff action.

Banks are also required by law to not only “know their customers” (or KYC) but to file suspicious activity reports (SARs) with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN)—within 30 days of when the bank “knows, suspects, or has reason to suspect” that a transaction of at least $5,000 is suspicious.

In the case of Madoff, not a single SAR was filed by JPMC with FinCEN—even though between 1986 and the day of his arrest in 2008, his checking account received deposits and transfers of about $150 billion—almost all of it from investors. That figure represented more than 7% of JPMorgan’s total global assets in 2008. And more than $70 billion of that money moved in and out—in rapid-fire, back-and-forth transactions—between Madoff and just one of his four largest investors.

And Epstein? Nowhere in the same galaxy as Bernie’s numbers, but JPMC’s internal data shows that between 2002 and 2016, the bank reported only $4.3 million in transactions from Epstein’s accounts in seven SARs. It wasn’t until Sept 2019—two months after Epstein was arrested, and one month after he killed himself while in federal custody—that JPMC filed two bombshell SARs for an additional 5,000 wire transfers (in two SARs) totaling roughly $1.3 billion that moved in and out of Epstein’s accounts.

Looked at another way: The total dollar value in the SARs the bank reported after Epstein’s death was nearly 300 times greater than the value of the transactions it reported while he was alive and trafficking girls for himself and others. Moreover, the retroactively flagged wire transfers included hundreds of millions in payments to Russian banks and young women who were brought to the United States, according to Senate investigators.

JPMC has said it regrets its involvement with Epstein, with CEO Jamie Dimon stating in a deposition in 2023 that he does not recall knowing anything about Epstein until the news broke about his second (2019) arrest. That statement is red meat to a fierce super-lawyer like David Boies, who negotiated a $290 million settlement from the bank on behalf of many Epstein victims. Boies recently told the Times that either Dimon knew about Epstein and lied in his deposition or his subordinates kept him in the dark. “Neither is good,” Boies said.

Regarding the SARs, the bank puts some blame on the feds. “It does not appear that anyone in the government or law enforcement acted on those SARs for years,” a bank spokesperson maintains. (The spokesperson is clearly referring to the earlier SARs filed between 2002 and 2016—encompassing transactions totaling $4.3 million—while Epstein was alive.)

In JPMC’s defense, it has a point here. “When you’re running these [compliance] programs, you’re looking at millions of transactions worth trillions of dollars—and trying to find a needle in that haystack is very, very hard,” says James Mulhall, a banking consultant who spent 12 years at a major global institution during the time frame in question, where he oversaw projects in anti-money laundering and SARs analysis. “And FinCEN wouldn’t tell you anything. It’s a black box; you wouldn’t have known if you’re getting it right or not, which made it very hard to improve on your work.

“But the other side of that coin,” he adds, “is that if you do happen to know what you’re looking for, or you do happen to know what the malicious activity is, it becomes much, much harder to justify that you didn’t see it. So, if you have a case in which there was a known bad guy involved, because there was a conviction, it becomes a whole lot harder to justify missing it.”

Suspicious activity can mean anything from money laundering and fraud to corruption and drug or sex trafficking. “Being able to file SARs within 30 days for transactions as little as $5,000 borders on unreasonable,” says Mulhall, “especially for the larger banks that have dollar amounts and numbers of transactions that you hear in astronomy more than you hear in economics.” Fortunately for banks, Senate Republicans recently introduced a bill that would increase the threshold from $5,000 to $10,000, with regular inflation adjustments every five years.

_{[A Q&A with Jim Mulhall on these topics can be read here]}

Newly-unsealed records have further illuminated Epstein’s relationship with JPMC. Drawing on those documents, a senior investigator for the Senate Finance Committee—in an 18-page memo written two weeks ago—calls for JPMorgan’s conduct to be “fully investigated to determine whether this underreporting [of SARs] was deliberate. The unsealed documents also reveal that Epstein’s accounts were closely supervised by senior JPMC executives reporting directly to CEO Jamie Dimon.”

In October, JPMC wrote to the committee that “with the exception of one former JPMC executive [a onetime heir apparent to Dimon who the bank is pinning the scandal on], the bank’s executives (current and former) are respected professionals who acted with integrity and would never have allowed Epstein to remain a client if they knew of his ongoing crimes.” Senator Ron Wyden, the committee’s ranking member, is nonetheless calling for a criminal investigation, as well as for the Treasury department to release what he says are thousands of the bank’s records.

“Bank executives tuned out compliance officers who were alarmed by Epstein’s transactions, seemingly withheld evidence of potential money laundering, and coached Epstein on how to obscure suspiciously large cash withdrawals,” Wyden said recently. “This goes beyond a total compliance breakdown, and it’s impossible to believe the decisions that led to this disaster never reached the very top of the executive suite.”

(In the wake of Madoff’s arrest 2008 arrest, and until it signed the DPA five years later, JPMC maintained that “all personnel acted in good faith.” It wasn’t true.)

In comparing Madoff and Epstein, there are huge differences, of course, but lots of déjà vu. Devotees of “Ali G”—the fictional TV character known for asking empty-headed questions to prominent people—might recall when he sat with Gore Vidal for an interview and began by asking him: “Is history happening all the time?”

It would seem so for Chase. Fortunately, there were banks that were on their toes. Epstein had an account with an HSBC branch in Paris. But in 2007, a year before his 2008 conviction, the branch closed the account after finding suspicious activity, according to emails obtained by Bloomberg. With respect to Madoff, Manufacturers Hanover closed his account in the 1990s (and filed a SAR) after flagging Madoff and one of his biggest customers engaging in suspicious activities.

For both of these con men, embarrassing JPMC emails eventually surfaced (as they perhaps always will). With Epstein, some bankers made sexual references, with one joking about a Hamptons fundraiser where “the ages between husband and wives would have fit in well with Jeffrey.” The very day Epstein got out of prison in 2009, a JPMC banker asked a colleague to be his “buddy” on Epstein’s accounts. “No one wants him,” reads another email.

Some emails show that bank employees repeatedly raised concerns about the risks of being associated with Epstein, while other bankers withheld information on Epstein’s suspicious activity from the compliance department. [With Bernie, too, and even worse: Compliance folks ignored the clues.]

The bank’s general counsel, Stephen Cutler, told top execs in 2011, two years after Epstein’s guilty plea, “This is not an honorable person in any way. He should not be a client.” But Cutler was overruled. (Three years later, Cutler signed the Madoff-linked DPA with the feds.)

In the Bernie scandal, over many years spent probing JPMC’s role, investigators kept turning up more emails, more memos, more bankers expressing to one another something close to terror about what they were involved in. And yet the bank didn’t merely continue its relationship with Bernie—it expanded it.

And just as some Chase bankers didn’t want to entirely part with Epstein, others didn’t want to lose Madoff, who once threatened to take his business elsewhere. “Chase will have a hard time getting out of this,” Bernie once told me. “I had hundreds of millions of dollars going in and out of my account—always ending each quarter with the initial balance I started with. But nobody gave a shit. I met with the president of Chase and others there. They just wanted to kiss the ring.” (Before quickly hanging up the phone, that former president confirmed he met Bernie once.)

The cliche “Too Big to Fail” has been used for decades to describe financial institutions whose failure could trigger an economic crisis due to their size. But perhaps “Too Big to Trail” should apply to JPMC given its seeming inability to follow the money mazes with eyes open wide.

“JPMC employees were intentionally siloed,” one of the investigators on the Madoff-JPMC case told me. Surely not to permit crimes to happen? “No, but the problem with all these banks to different degrees is that the compliance functions are cost centers, not profit centers, in what is a profit-seeking enterprise.” Translated into plain English, this means that the compliance needs are subjugated to the profit motive as long as someone can justify it to themselves that they are doing the bare legal minimum.

Former bank anti-fraud executive Mulhall puts it this way: “There’s a fundamental conflict of interest in having banks run these programs. You’re asking them to police their own customers. They want to be in a for-profit business. They want to be good to their customers and keep their customers happy.”

JPMorgan had a compliance function for each part of the bank, each of which reported up the chain of command. But information never flowed across and around.

The bottom line is this: if all the trails of information about the Madoff enterprise that sat within JPMC had ever been put together in one place, the investigator concluded, “It would have been obvious what was going on.” But the bank never did that, for reasons we can only speculate about. (Not with Bernie, and apparently not with Epstein.)

“These are very complicated problems,” the investigator explained. “You can sort of say the answer, but it’s easier said than done. The answer is you have to make sure that different parts of the bank are talking to one another.” That’s not easy at an institution like JPMorgan Chase, which has over 300,000 employees—roughly the size of Pittsburgh. It’s almost an IT problem, in other words: banks have to ensure that their record keeping resides in a system that lets bankers see that an account in the investment bank, say, also has a relationship with an account holder in the commercial bank and/or private bank. Banks must see to it that the compliance function spans the entire organization, rather than being balkan-ized within particular reporting lines. “It is hard to do,” sighed the investigator. “They were not trying enough.”

In the midst of the 2013 Madoff negotiations between Chase and the U.S. attorney’s office, the bank announced that it would spend $4 billion on compliance risks and controls and commit 5,000 extra employees to those units. The question for all giant banks is whether throwing more resources at the problem is an excuse to not have it designed properly. There needs to be an organizational intent to get it right, or a behemoth like JPMorgan Chase may find itself in trouble again and again.

^{Also by the author:
“How Many Red Flags Did My Aunt Adele Need On Her Madoff Statements?” – Forbes, July 31, 2024}

^{“Jeffrey Epstein Spent Time Alone With Young Woman In Prison’s Attorney Room” – Forbes, Aug 15, 2019 (with additional reporting by Lisette Voytko)}