US regulators plan to fault JPMorgan, which served as Bernie Madoff's main bank for two decades, for failing to conduct adequate due diligence and report suspicious activity, according to sources.
The Office of the Comptroller of the Currency is expected to issue a cease-and-desist order against JPMorgan, which will require the largest US bank to put an end to the alleged failures in its anti-money laundering practices.
The timing of the order is uncertain but could come later this year, the source said. A fine is not expected. If the OCC is not satisfied with JPMorgan's response, it can take harsher action against the bank, including financial penalties.
OCC spokesman Bryan Hubbard declined comment, as did JPMorgan spokeswoman Jennifer Zuccarelli.
Madoff was arrested in December 2008, pleaded guilty in 2009 to running a massive, decades-long Ponzi scheme, and is serving a 150-year prison sentence.
Irving Picard, a trustee for Madoff's victims, has accused JPMorgan of ignoring warning signs that Madoff's business was a fraud and has attempted to sue the bank.
A judge has thrown out all but $425 million of Mr Picard's $19.9 billion lawsuit against JPMorgan.
Mr Picard is in the process of appealing the ruling. JPMorgan has said there was no evidence showing that anyone at the bank knew of Madoff's elaborate scheme.
The bank did file a suspicious activity report in London two months before Madoff was arrested, describing his investment performance as "too good to be true," according to Mr Picard's lawsuit.
The OCC will fault JPMorgan for treating Madoff and his related entities as low-risk customers, and find that the bank failed to heed red flags, such as funds being shuffled between accounts without clear business purpose.
As a result, "suspicious" transactions were not reported to authorities, said the sourc.
The OCC in January ordered JPMorgan to tighten its risk controls and improve its anti-money laundering compliance. But the regulator separated that order from any action related to Madoff's accounts, in a dispute with the bank over which documents it had to turn over as part of the inquiry.
