JPMorgan Settles With Federal Authorities in Madoff Case Before Bernard L. Madoff was charged with stealing billions of dollars from his clients, and before he received a 150-year prison sentence for those crimes, JPMorgan Chase missed its chance to warn federal authorities about his Ponzi scheme. On Tuesday, five years after Mr. Madoff's arrest set off a panic on Wall Street and in Washington, Mr. Madoff's primary bank received a punishment of its own. Federal prosecutors in Manhattan imposed a $1.7 billion penalty on JPMorgan for two felony violations of the Bank Secrecy Act, a record payout under that 1970 law, which requires banks to alert authorities to suspicious activity. The prosecutors, essentially accusing the nation's biggest bank of turning a blind eye to Mr. Madoff's fraud, will require JPMorgan to pay the $1.7 billion to his victims. The bank cannot write off the sum as a tax deduction. And including the Madoff settlement, JPMorgan will have doled out some $20 billion to resolve government investigations over the last 12 months. Later on Tuesday, federal regulators are expected to announce their own rebuke of the bank in a civil case. The Office of the Comptroller of the Currency, according to people briefed on the matter, struck a $350 million settlement with the bank over the Madoff case and broader breakdowns in safeguards against anti-money laundering. The case will be fully detailed at a news conference scheduled for Tuesday afternoon at the United States attorney's office in Manhattan. The criminal element of the case involved a so-called deferred-prosecution agreement with that office, run by the United States attorney, Preet Bharara. That agreement essentially suspends for two years an indictment as long as JPMorgan admits its actions and overhauls its controls against money laundering. Deferred-prosecution agreements, while not as forceful as leveling an indictment or demanding a guilty plea, have been rarely used against a giant American bank and are typically employed only when misconduct is extreme. JPMorgan, having served as Mr. Madoff's primary bank for more than two decades, had a unique window into his scheme. In a document outlining the bank's wrongdoing, prosecutors argued that "the Madoff Ponzi scheme was conducted almost exclusively through" various accounts "held at JPMorgan." On two occasions, in 2007 and 2008, JPMorgan's own computer system raised red flags about Mr. Madoff, according to prosecutors. But both times, prosecutors say, JPMorgan employees "closed the alerts." "JP Morgan failed to carry out its legal obligations while Bernard Madoff built his massive house of cards," George Venizelos, a senior F.B.I. official, said in a statement. The F.B.I. and prosecutors traced the problem to JPMorgan "willfully" failing to create sufficient controls against money laundering. "There was no meaningful effort by the Bank to examine or investigate the Madoff Securities banking relationship," prosecutors said. In a statement on Tuesday, a JPMorgan spokesman noted that that the bank has since poured significant resources into bolstering its controls but acknowledged that the bank "could have done a better job pulling together various pieces of information and concerns about Madoff from different parts of the bank over time." The spokesman, Joseph M. Evangelisti, also struck a defensive note, saying "We do not believe that any JPMorgan Chase employee knowingly assisted Madoff's Ponzi scheme." He added that "Madoff's scheme was an unprecedented and widespread fraud that deceived thousands, including us, and caused many people to suffer substantial losses." Prosecutors did not charge any JPMorgan employees with wrongdoing. And the bank itself could have faced a harsher punishment, according to people briefed on the settlement talks, with prosecutors considering last year whether to demand a guilty plea from the bank. Ultimately, prosecutors concluded that a deferred-prosecution agreement was more appropriate for a case that began as a civil investigation, without a criminal component. The charges against JPMorgan, the result of an F.B.I. investigation that spanned several years, are emblematic of a broader problem among giant global banks: ignoring the warning signs of fraud. The case comes a year after HSBC, the large British bank, paid a $1.9 billion fine for money laundering for enabling Mexican drug cartels to move cash through its branches. The case punctuated a sweeping investigation into the movement of tainted money through the American financial system, a crackdown that ensnared other large British banks like Standard Chartered and Barclays. Each of the banks received a deferred-prosecution agreement. Amid such scrutiny, Wall Street has become newly vigilant about alerting federal authorities to suspicious customer activity. In 2012, the bank filed more than 860,000 so-called suspicious activity reports, an increase of roughly 18 percent since 2008. It is unclear whether banks, deluging authorities with reports, are helping to thwart financial crimes. In the case of Mr. Madoff, prosecutors argued in a 19-page statement of facts that JPMorgan acknowledged, the bank alerted British authorities in October 2008 that his investment returns were "so consistently and significantly ahead of its peers" that the results must be "too good to be true." But JPMorgan never provided a similar warning to authorities in Washington, a violation of the Bank Secrecy Act. Another bank, identified in the statement of facts as "Madoff bank 2," cut off ties to Mr. Madoff in 1996 and brought its concerns to authorities. For JPMorgan, the Madoff case is the latest steep payout to the government. In November, JPMorgan paid a record $13 billion to the Justice Department and other authorities over its sale of questionable mortgage securities in the lead-up to the financial crisis. On Tuesday, JPMorgan also announced more than $500 million in payouts to resolve private lawsuits from the trustee overseeing the return of money to Mr. Madoff's victims. The payouts, which all but entirely resolve JPMorgan's Madoff problems, present a paradox for the bank. While the big-dollar sums are something of an embarrassment to a bank that was once one of Wall Street's most influential institutions, the settlements also allow JPMorgan to put the cases behind it. As JPMorgan continues to post record profits, the cases are a distraction that the bank is aiming to resolve in rapid succession. JPMorgan Settlement Documents