The orders are the latest in a string of enforcement actions that the bank has faced in the past two years for a wide range of activity, including deficiencies in residential mortgage servicing and deceptive marketing of credit protection products. The common theme that runs through these orders is a disregard for safe and sound banking practices, a lapse in management that has cost the bank millions in penalties.
As for Monday’s charges, JPMorgan spokesman Mark Kornblau said, “We’ve been working hard to fully remediate the issues” related to risk management. He added that the bank also has made the prevention of money laundering a “top priority.”
Trading troubles at JPMorgan came to light in May when the bank disclosed that its London office had lost billions in trades designed to hedge against risk. A number of traders tried to conceal the size of the losses, which the bank said could top $9 billion.
The revelation of the risky bet set off a firestorm that resulted in congressional inquiries and revived public calls to break up the big banks. In response to the loss, JPMorgan fired several senior managers, reshuffled its top ranks and accepted the resignation of Chief Investment Officer Ina Drew, who led the trading strategy.
Regulators want JPMorgan to appoint a compliance committee of at least three directors to oversee the implementation of a new plan for managing risk. The order said regulators and other government agencies could pursue further action, if the bank does not comply.
The second order comes as federal regulators ramp up efforts against banks with lax anti-money laundering controls. Banks are supposed to flag any suspicious transactions from customers with ties to terrorism or countries under sanctions. But many institutions have let these transactions slip through the cracks, especially during the financial meltdown as they were putting out fires elsewhere.
Money laundering was a key focus of U.S. counterterrorism policy after the Sept. 11, 2001, attacks. The Patriot Act of 2002 instructed banks to strictly monitor and report potentially illegal transactions.
But a series of recent investigations revealed widespread failures of oversight at some of the most respected global banks — Credit Suisse, Lloyds Bank, ABN Amro, ING Bank and HSBC. At HSBC, for instance, a Mexican drug cartel routinely delivered stacks of cash in boxes to tellers at Mexican branches, according to legal documents. The Justice Department settled with HSBC for $1.9 billion last month.
Regulators are calling JPMorgan out for failing to adopt and implement an efficient compliance program, and to report suspicious customer activity. JPMorgan has to submit a progress report detailing its actions to comply to regulators within 90 days.
“We have already made progress addressing the issues cited in the consent orders, which contain no allegations of intentional misconduct by the firm or any of its employees,” JPMorgan’s Kornblau said.