JPMorgan Settlement Agreement

This Settlement Agreement ("Agreement") is entered into between the United States acting through the United States Department of Justice ("Department of Justice"), along with the States of California, Delaware, and Illinois, and the Commonwealth of Massachusetts, acting through their respective Attorneys General (collectively, "the States"), and JPMorgan Chase Co. ("JPMorgan"). The United States, the States and PMorgan are collectively referred to herein as "the Parties." RECITALS A. The Department of Justice conducted investigations of the packaging, marketing, sale and issuance of residential mortgage--backed securities by JPMorgan, The Bear Stearns Companies, Inc. ("Bear Stearns") and Washington Mutual Bank ("Washington Mutual") between 2005 and 2008. Based on those investigations, the United States believes that there is an evidentiary basis to compromise potential legal claims by the United States against PMorgan, Bear Stearns, and Washington Mutual, for violation of federal laws in connection with the packaging, marketing, sale and issuance of RMBS. B. The States, based on their independent investigations of the same conduct and time period, believe that there is an evidentiary basis to compromise potential legal claims by California, Delaware, Illinois and Massachusetts against JPMorgan, Bear Stearns and Washington Mutual, for state law violations in connection with the packaging, marketing, sale and issuance of RMBS. C. JPMorgan and Bear Stearns have resolved claims brought by the State of New York alleging violations of New York law in connection with the packaging, marketing, sale and issuance of RMBS by Bear Stearns. The terms of the resolution of those claims are memorialized in a separate agreement, attached hereto as Exhibit A. D. JPMorgan, Bear Stearns and Washington Mutual have resolved claims brought by the Federal Housing Finance Agency as conservator of Fannie Mae and Freddie Mac, alleging violations of federal and state laws in connection with private--label RMBS issued, underwritten, and/or sold by JPMorgan, Bear Stearns and Washington Mutual and purchased by Fannie Mae and Freddie Mac. The terms of the resolution of those claims are memorialized in a separate agreement, attached hereto as Exhibit B. E. PMorgan, Bear Stearns and Washington Mutual have resolved claims brought by the National Credit Union Administration Board, as Liquidating Agent of U.S. Central Federal Credit Union, Western Corporate Federal Credit Union, Southwest Corporate Federal Credit Union, Members United Corporate Federal Credit Union and Constitution Corporate Federal Credit Union (collectively, the "Credit Unions," and the National Credit Union Administration Board as liquidating agent for each Credit Union and the Credit Unions collectively, the alleging violations of federal and state securities laws in connection with private-label RMBS issued, underwritten, and/or sold by JPMorgan, Bear Stearns and Washington Mutual and purchased by the Credit Unions. The terms of the resolution of those claims are memorialized in a separate agreement, attached hereto as Exhibit C. F. JPMorgan, Bear Stearns and Washington Mutual have resolved claims, potential and filed, by the Federal Deposit Insurance Corporation as receiver for Strategic Capital Bank, Citizens National Bank, Colonial Bank, Guaranty Bank, Irwin Union Bank and Trust Company, and United Western Bank alleging violations of federal and state securities laws in connection with private--label RMBS issued, underwritten, and/or sold by PMorgan, Bear Stearns and Washington Mutual and purchased by Strategic Capital Bank, Citizens National Bank, Colonial Bank, Guaranty Bank, Irwin Union Bank and Trust Company, and United Western Bank. The terms of the resolution of those claims are memorialized in a separate agreement, attached hereto as Exhibit D. G. As a term of this Agreement, JPl\/Iorgan acknowledges the facts set out in the Statement of Facts set forth in Annex 1, attached and hereby incorporated. H. In consideration of the mutual promises and obligations of this Agreement, the Parties agree and covenant as follows: TERMS AND CONDITIONS 1. Pg JPMorgan shall pay a total amount of $9,000,000,000.00 to resolve pending and potential legal claims in connection with the packaging, marketing, sale and issuance of RMBS by PMorgan, Bear Stearns and Washington Mutual ("Settlement Amount"). As set out below, $2 billion ofthat amount will be deposited in the United States Treasury and the remainder is paid to resolve the claims FDIC, FHFA (as conservator of Fannie Mae and Freddie Mac), the States and New York, pursuant to the subsequent provisions ofthis Paragraph 1. A. Within fifteen business days of receiving written payment processing instructions from the Department of Justice, Office of the Associate Attorney General, JPI\/Iorgan shall pay $3,932,989,690.73 ofthe Settlement Amount by electronic funds transfer to the Department of Justice. i. $2,000,000,000.00 ofthe Settlement Amount, and no other amount, is a civil monetary penalty recovered pursuant to FIRREA, I2 U.S.C. ?1833a. 3 It will be deposited in the General Fund of the United States Treasury; ii. $1 ,4l 7,525,773.20, and no other amount, is paid by JPMorgan in settlement of the claims of NCUA identified in Recital Paragraph E, pursuant to the settlement agreement attached hereto as Exhibit C, the terms of which are not altered or affected by this Agreement; and $5l5,463,9l 7.53, and no other amount, is paid by JPMorgan in settlement ofthe claims of FDIC identified in Recital Paragraph F, pursuant to the settlement agreement attached hereto as Exhibit D, the terms of which are not altered or affected by this Agreement. B. $4,000,000,000.00, and no other amount, is paid by JPMorgan to Fannie Mae and Freddie Mac, pursuant to the agreement with FHFA attached hereto as Exhibit B. C. $298,973,005.98, and no other amount, will be paid by JPMorgan to the State of California pursuant to Paragraph 6, below, and the terms of written payment instructions from the State of California, Office ofthe Attorney General. Payment shall be made by electronic funds transfer within fifteen business days of receiving written payment processing instructions from the State of California, Office of the Attorney General. D. $19,725,255.40, and no other amount, will be paid by JPl\/Iorgan to the State of Delaware pursuant to Paragraph 7, below, and the terms of written payment instructions from the State of Delaware, Office of the Attorney General. Payment shall be made by electronic funds transfer within fifteen business days of receiving written payment processing instructions from the State of Delaware, Office of the Attorney General. E. $l00,9l 1,813.41, and no other amount, will be paid by JPMorgan to the State of Illinois pursuant to Paragraph 8, below, and the terms of written payment instructions from the State of Illinois, Office of the Attorney General. Payment shall be made by electronic funds transfer within fifteen business days of receiving written payment processing instructions from the State Office ofthe Attorney General. F. $34,400,000.00, and no other amount, will be paid by JPMorgan to the Commonwealth of Massachusetts pursuant to Paragraph 9, below, and the terms of written payment instructions from the Commonwealth of Massachusetts, Office of the Attorney General. Payment shall be made by electronic funds transfer within fifteen business days of receiving written payment processing instructions from the Commonwealth of Massachusetts, Office ofthe Attorney General. G. $6l3,000,234.48, and no other amount, will be paid by JPMorgan to the State of New York pursuant to the agreement attached hereto as Exhibit A. Payment shall be made by electronic funds transfer within fifteen business days of receiving written payment processing instructions from the State of New York, Office of the Attorney General. 2. Consumer Relief. In addition, in consideration ofthe releases in Paragraph 5, below, JPMorgan shall provide $4 billion worth of consumer relief as set forth in Annex 2, attached and hereby incorporated as a term of this Agreement, to remediate harms allegedly resulting from unlawful conduct ofJPMorgan, Bear Stearns and Washington Mutual. The value of consumer relief provided shall be calculated and enforced pursuant to the terms of Annex 2. An independent monitor will be appointed to determine whether JPMorgan has satisfied the obligations contained in this Paragraph (such monitor to be the current monitor for the National Mortgage Settlement, hereinafter the "Monitor"), and any costs associated with said Monitor shall be borne by JPl\/Iorgan. "Covered Conduct" as used herein is defined as the creation, pooling, structuring, packaging, marketing, underwriting, sale or issuance by JPMorgan, Bear Stearns or Washington Mutual ofthe RMBS issued prior to January 1, 2009, identified in Annex 3, attached and hereby incorporated. Covered Conduct includes representations or non- disclosures to RMBS investors about the underlying residential mortgage loans, where the representation or non-disclosure involves information about or obtained during the process of originating, acquiring, securitizing or servicing residential mortgage loans included in the RMBS identified in Annex 3. Covered Conduct does not include: conduct relating to the origination of residential mortgages, except representations or non~disclosures to investors in the RMBS listed in Annex 3 about origination of, or about information obtained in the course of originating, such loans; (ii) origination conduct unrelated to securitization, such as soliciting, aiding or abetting borrower fraud; representations or non-disclosures made in connection with collateralized debt obligations, other derivative securities, or the trading of RMBS, except to the extent that the representations or non-disclosures are in the offering materials for the underlying RMBS listed in Annex 3; or (iv) the servicing of residential mortgage loans, except representations or non-disclosures to investors in the RMBS listed in Annex 3 about servicing, or information obtained in the course of servicing, such loans. 4. Cooperation. Until the date upon which all investigations and any prosecution arising out ofthe Covered Conduct are concluded by the Department oflustice, whether or not they are concluded within the term ofthis Agreement, JPMorgan shall, subject to applicable laws or regulations: cooperate fully with the Department oflustice (including the Federal Bureau of Investigation) and any other law enforcement agency designated by the Department of Justice regarding matters arising out ofthe Covered Conduct; assist the Department oflustice in any investigation or prosecution arising out ofthe Covered Conduct by providing logistical and technical support for any meeting, interview, grand jury proceeding, or any trial or other court proceeding; use its best efforts to secure the attendance and truthful statements or testimony of any officer, director, agent, or employee of any of the entities released in Paragraph 5 at any meeting or interview or before the grand jury or at any trial or other court proceeding regarding matters arising out of the Covered Conduct; and provide the Department ofJustice, upon request, all non-privileged information, documents, records, or other tangible evidence regarding matters arising out ofthe Covered Conduct about which the Department of Justice or any designated law enforcement agency inquires. 5. Releases by the United States. Subject to the exceptions in Paragraph 1 ("Excluded Claims"), and conditioned upon JPMorgan's full payment ofthe Settlement Amount (ofwhich $2 billion will be paid as a civil monetary penalty pursuant to FIRREA, 12 USC. ?l833a), and PMorgan's agreement, by executing this Agreement, to satisfy the terms in Paragraph 2 ("Consumer Relief") and Paragraph 4 ("Cooperation"), the United States fully and finally releases PMorgan and any current or former subsidiary, affiliated entity, and any of their respective successors and assigns; fully and finally releases the successor to Bear Stearns and any current or former subsidiary, affiliated entity, and any of their respective successors and assigns; and fully and finally releases the entities that were owned by Washington Mutual as of September 25, 2008 and any current or former subsidiary, affiliated entity, and any oftheir respective successors and assigns (collectively, the "Released Entities"), to the extent that JPMorgan has, is subject to or retains any liability for the Covered Conduct associated with any of the Released Entities, from any civil claim the United States has for the Covered Conduct under FIRREA, 18 U.S.C. ?1833a; the False Claims Act, 31 U.S.C. 3729, er seq.; the Program Fraud Civil Remedies Act, 31 U.S.C. 3801, et seq.; the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. 1961, ei seq.; the Injunctions Against Fraud Act, 18 U.S.C. ?1345; common law theories of negligence, payment by mistake, unjust enrichment, money had and received, breach of fiduciary duty, breach of contract, misrepresentation, deceit, fraud, and aiding and abetting any ofthe foregoing; or that the Civil Division ofthe Department ofJustice has actual and present authority to assert and compromise pursuant to 28 C.F.R. ?0.45. -ner 1 Subject to the exceptions in Paragraph 1 1 (Excluded Claims), and conditioned solely upon JPMorgan's full payment ofthe Settlement Amount (of which $298,973,005.98 million will be paid to the Office ofthe California Attorney General, in accordance with written payment instructions from the California Attorney General, to remediate harms to the State of California, pursuant to California Government Code 12650-12656 and 12658, allegedly resulting from unlawful conduct of the Released Entities), the California Attorney General fully and finally releases the Released Entities from any civil or administrative claim for the Covered Conduct that the California Attorney General has authority to bring, including but not limited to: California Corporate Securities Law of 1968, Cal. Corporations Code ?25000 et seq., California Government Code ??12658 and 12660 and California Government Code ??l2650-12656, common law theories of negligence, payment by mistake, unjust enrichment, money had and received, breach of fiduciary duty, breach of contract, misrepresentation, deceit, fraud and aiding and abetting any ofthe foregoing. The California Attorney General executes this release in her official capacity and releases only cla.ims that the California Attorney General has the authority to release for the Covered Conduct. The California Attorney General agrees that no portion of the funds in this paragraph is received as a civil penalty or fine, including, but not limited to any civil penalty or fine imposed under California Government Code ?l265 l. The California Attorney General and PMorgan acknowledge that they have been advised by their attorneys of the contents and effect of Section 1542 of the California Civil Code ("Section 1542") and hereby expressly waive with respect to this Agreement any and all provisions, rights and benefits conferred by Section 1542. Subject to the exceptions in Paragraph 11 (Excluded Claims), and conditioned solely upon JPMorgan's full payment ofthe Settlement Amount (of which $1 9,725,255.40 million will be paid to the State of Delaware, in accordance with written payment instructions from the State of Delaware, to remediate harms to the State allegedly resulting from unlawful conduct of the Released Entities), the Deiaware Department of Justice fully and finally releases the Released Entities from any civil or administrative claim for the Covered Conduct that it has authority to bring, including but not limited to 6 Del. C. Chapter 12 (the Delaware False Claims and Reporting Act), 6 Del. C. 251 et seq. (the Delaware Consumer Fraud Act), 6 Del. C. Chapter 73 (the Delaware Securities Act), and common law theories of negligence, payment by mistake, unjust enrichment, money had and received, breach offiduciary duty, breach of contract, misrepresentation, deceit, fraud and aiding and abetting any of the foregoing. The State of Deiaware agrees that no portion of the funds in this paragraph is received as a civil penalty or fine, including, but not limited to, any civil 'penalty or fine imposed under 6 Del. C. ?l201 or ?2522. 8. Releases bv the State of Illinois. Subject to the exceptions in Paragraph 1 1 (Excluded Claims), and conditioned solely upon JPMorgan's full payment ofthe Settlement Amount (of which $100,911,813/ll million will be paid to the State in accordance with written payment instructions from the State of Illinois, Office of the Attorney General, to remediate harms to the State allegedly resulting from unlawful conduct ofthe Released Entities), the Attorney General ofthe State of fully and finally releases the Released Entities from any civil or administrative claim for the Covered Conduct, including but not limited to: Illinois Securities Law of 1953, 815 111. Comp. Stat. 5/1 at sec}; and common law theories ofnegligence, payment by mistake, unjust enrichment, money had and received, breach offiduciary duty, breach of contract, misrepresentation, deceit, fraud and aiding and abetting any of the foregoing. The State of Illinois agrees that no portion ofthe funds in this paragraph is received as a civil penalty or fine. 9. Releases bv the Commonwealth of Massachusetts. Subject to the exceptions in Paragraph 1 1 (Excluded Claims), and conditioned solely upon JPMorgan's full payment ofthe Settlement Amount (ofwhich $34,400,000.00 million will be paid to the Commonwealth of Massachusetts, in accordance with written payment instructions from the Commonwealth of Massachusetts, to remediate harms to the Commonwealth allegedly resulting from unlawful conduct of the Released Entities), the Attorney General ofthe Commonwealth of Massachusetts fully and finally reieases the Released Entities from any civil claim for the Covered Conduct that she has authority to bring, including but not limited to c. 93A, and common law theories ofnegligence, payment by mistake, unjust enrichment, money had and received, breach of 10 fiduciary duty, breach of contract, misrepresentation, deceit, fraud and aiding and abetting any of the foregoing. The payment to the Commonwealth ofMassachusetts sha.ll be made to a trustee chosen by the Commonwealth, which shall hold the monies and distribute them as directed by the Massachusetts Office of the Attorney General for consumer relief, compensation to the Commonwealth and its entities, and, pursuant to M.G.L. c. 12 implementation ofthis Agreement and related purposes. Funds or portions of the funds remaining in the trust after 90 days, at the discretion ofthe Massachusetts Office ofthe Attorney General, may be transferred to the Treasury. The Commonwealth of Massachusetts agrees that no portion ofthe funds in this paragraph is received as a civil penalty or fine. 10. Releases bv NCUA. FHFALFDIC and the State of New York, The releases of claims by NCUA, FHFA, FDIC and the State of New York are contained in separate settlement agreements with JPMorgan, attached as Exhibits A, B, and D. Any release of claims by NCUA, FHFA, FDIC or the State of New York is governed solely by those separate settlement agreements. 1. g?lgim?, Notwithstanding the releases in Paragraph 5-10 ofthis Agreement, or any other term(s) of this Agreement, the following claims are specifically reserved and not released by this Agreement: a. Any criminal liability; b. Any liability of any individual; c. Any liability arising under Title 26, U.S. Code (the Internal Revenue Code); d. Any liability to or claims of NCUA, FHFA, FDIC (in its capacity as a corporation, receiver, or conservator), or the State of New York, except as expressly set forth in 11 the separate agreements with those entities; Any claim related to compliance with the National Mortgage Settlement or to compliance with the related agreements reached between the settling banks and individual states; Any liability to or claims ofthe United States of America, the Department of Housing and Urban Development/Federal Housing Administration, the Department of Veterans Affairs, or Fannie Mae or Freddie Mac relating to whole loans insured, guaranteed, or purchased by the Department of Housing and Urban Development/Federal Housing Administration, the Department of Veterans Affairs, or Fannie Mae or Freddie Mac, except claims based on or arising from the securitizations of any such loans in the RMBS listed in Annex 3; . Any administrative liability, including the suspension and debarment rights of any federal agency; . Any liability based upon obligations created by this Settlement Agreement; Any liability for the claims or conduct alleged in the following qui ram actions, and no setoff related to amounts paid under this Agreement shall be applied to any recovery in connection with any ofthese actions: United States ex rel. Owens v. Goldman Sachs, No. l:l 3-cv--0l373--JBS- KMW (ii) United States ex rel. Adams, et al. v. Wells Fargo Bank, et al., No. l-cv- O0535 (D. Nev.); I2 Uni'ted States ex rel. v. Hastings v. Wells Fargo Bank, et al., No. 12-cv- 03624 (C.D. Cal.); (iv) United States ex. Rel. Szymoniak v. American Home Mortgage Servicing et al., No. (D.S.C.), and United States ex rel. Szymoniak v. ACE Securities Corp. et al., No. l3~cv-464 JFA (V) United States ex rel. [Sealed] v. [Sealed], as disclosed to JPMorgan; and (vi) United States ex rel. [Sealed] v. [Sealed], as disclosed to JPMorgan; j. Claims raised in The People ofthe State ofCal#ornia v. JPMorgan Chase Co., et al., Case No. BC 508466, Superior Court ofthe State of California for the County of Los Angeles; k. Claims raised in Commonwealth of Massachusetts v. Bank of America, et al., Civ. No. 1-4363 Massachusetts Suffolk Superior Court); and l. Any claims relating to the alleged manipulation ofthe London Interbank Offered Rate or other currency benchmarks. I2. by an. JPMorgan and any current or former affiliated entity and any of their respective successors and assigns fully and finally release the United States and the States, and their officers, agents, employees, and servants, from any claims (including attorney's fees, costs, and expenses of every kind and however denominated) that JPMorgan has asserted, could have asserted, or may assert in the future against the United States and the States, and their officers, agents, employees, and servants, related to the Covered Conduct and the investigation and civil prosecution to date thereof. 13. Waiver of Potential FDIC Indemnification Claims bv JPMorgan. .lPl\/Iorgan hereby 13 irrevocably waives any right that it otherwise might have to seek (and in any event agrees that it shall not seek) any form ofindemnification, reimbursement or contribution from the FDIC in any capacity, including the FDIC in its Corporate Capacity or the FDIC as Receiver of Washington Mutual Bank, for any payment that is a portion of the Settlement Amount set forth in Paragraph 1 of this Agreement or of the Consumer Relief set forth in Paragraph 2 of this Agreement (total $13 billion), including payments to the United States, the States, FHFA, NCUA, FDIC, and New York pursuant to this Agreement. l4. Waiver of Potential Defenses bv JPMor3an. PMorgan and any current or former affiliated entity (to the extent that PMorgan retains liability for the Covered Conduct associated with such affiliated entity) and any oftheir respective successors and assigns waive and shall not assert any defenses may have to any criminal prosecution or administrative action relating to the Covered Conduct that may be based in whole or in part on a contention that, under the Double Jeopardy Clause in the Fifth Amendment of the Constitution, or under the Excessive Fines Clause in the Eighth Amendment ofthe Constitution, this Agreement bars a remedy sought in such criminal prosecution or administrative action. 15. Unallowable Costs Defined. All costs (as defined in the Federal Acquisition Regulation, 48 C.F.R. 31.205-47) incurred by or on behalf of JPMorgan, and its present or former officers, directors, employees, shareholders, and agents in connection with: a. the matters covered by this Agreement; b. the United States' audit(s) and civil investigation(s) ofthe matters covered by this Agreement; c. JPMorgan's investigation, defense, and corrective actions undertaken in 14 response to the United States' audit(s) and civil and any criminal investigation(s) in connection with the matters covered by this Agreement (including attorney's fees); d. the negotiation and performance ofthis Agreement; and e. the payment PMorgan makes to the United States pursuant to this Agreement, are unallowable costs for government contracting purposes (hereinafter referred to as "Unallowable Costs"). 16. Future Treatment of Unallowable Costs. Unallowable Costs will be separately determined and accounted for by JPMorgan, and JPl\/Iorgan shall not charge such Unallowable Costs directly or indirectly to any contract with the United States. 17. This Agreement is governed by the laws of the United States. The Parties agree that the exclusivejurisdiction and venue for any dispute relating to this Agreement is the U.S. District Court for the Eastern District of California. 18. The Parties acknowledge that this Agreement is made without any trial or adjudication or finding of any issue of fact or law, and is not a final order of any court or governmental authority. 19. Each Party shall bear its own legal and other costs incurred in connection with this matter, including the preparation and performance ofthis Agreement. 20. Each Party and signatory to this Agreement represents that it freely and voluntarily enters into this Agreement without any degree of duress or compulsion. 21. Nothing in this Agreement in any way alters the terms ofthe NMS, or JPMorgan's 15 obligations under the NMS. 22. Nothing in this Agreement constitutes an agreement by the United States concerning the characterization ofthe Settlement Amount for purposes ofthe Internal Revenue laws, Title 26 ofthe United States Code. 23. For purposes ofconstruing this Agreement. this Agreement shall be deemed to have been drafted by all Parties and shall not, therefore, be construed against any Party for that reason in any dispute. 24. This Agreement constitutes the complete agreement between the Parties. This Agreement may not be amended except by written consent of the Parties. 25. The undersigned counsel represent and warrant that they are fully authorized to execute this Agreement on behalf of the persons and entities indicated below. 26. This Agreement may be executed in counterparts, each of which constitutes an original and all of which constitute one and the same Agreement. 27. This Agreement is binding on JPMorgan's successors, transferees, heirs, and assigns. 28. All Parties consent to the disclosure to the public ofthis Agreement, and information about this Agreement, by the United States, the States, and the entities whose separate settlement agreements are referenced herein and attached as exhibits to this Agreement. 29. This Agreement is effective on the date of signature of the last signatory to the Agreement. Facsimiles of signatures and signatures provided by portable document format shall constitute acceptable, binding signatures for purposes ofthis Agreement. For the United States: (fave, 14/? WWI Associate Attorney General U.S. Department of ustiee 950 Avenue, NW Washington, D.C. 20530 Phone: (202) 514-9500 For .IPMorgan (IE2;-asc: (Stephen M. Cutler General Cfnunsci Chase C0. 270 Park Avemu: New Ycirk, New York. 3013} 7 Phone: (2 3 3) Shawn L. Nelias LLP 125 Bmad Street New Yuri>>: HKIG4 2 I 5137"" R. Tunis: LLP 555 131:}: Street. NW. Washizxgton. Faicsirxzilct 83--8] 18 For the Califomia Department of Justice: KAW D. California Attorney General California Department oflustice 455 Golden Gate, Suite 1 1000 San Francisco, CA 94102 Phone: (415) 703-5500 For the State of Delaware: JQSEPH - BIDEN, Attorney Genera} for the State of Delaware Delaware Department of Justice Carve} State Office Buiiding 820 N. French Street Wilmington, DE 19801 Phone: (302) 577-8338 .- -7 2' I {:15 . For the State of Illinois: /21: Wk LISA MADIGAN Attorney General State of Illinois 500 South Second Street Springfield, IL 62706 Phone: (217)782-1090 /7 -- the Commonwealth of Massachusetts: Office of the Aitorney General Attorney Ge11era1Ma1'1;11a Coakley y: GLENN KAPLAN Assistant Attorney General One Asllburton Place Boston, MA 02108 Phone: (617) 7272200 #2014-001 UNITED STATES OF AMERICA DEPARTMENT OF THE TREASURY COMPTROLLER OF THE CURRENCY In the Matter of: CONSENT ORDER FOR THE ASSESSMENT OF A CIVIL MONEY PENALTY the citation of additional violations of law and regulation. The Bank has been notified of the findings of these examinations. The Bank, by and through its duly elected and acting Boards of Directors, has executed a "Stipulation and Consent to the Issuance of a Consent Order for the Assessment of a Civil Money Penalty," dated January 7, 2014, that is accepted by the Comptroller ("Stipulation"). By this Stipulation, which is incorporated herein by reference, the Bank has consented to the issuance of this Consent Order for the Assessment of a Civil Money Penalty ("Consent Order") by the Comptroller. On January 6, 2014, the Bank entered into a Deferred Prosecution Agreement with the United States Attorney's Office for the Southern District of New York. In the DPA, the Bank admitted to certain facts conceming the failure to file a Suspicious Activity Report in the United States on Bernard L. Madoff Investment Securities, LLC ("Madoff"). ARTICLE I FINDINGS The Comptroller finds the following: The Comptroller incorporates the following findings from Article I of the January 2013 Order: (1) The OCC's examination findings establish that the Bank has deficiencies in its compliance program. These deficiencies have resulted in the failure to correct a previously reported problem and a compliance program violation under 12 U.S.C. 1818(s) and its implementing regulation, 12 C.F.R. 21.21 (BSA Compliance Program). In addition, the Bank has violated 12 C.F.R. 21.11 (Suspicious Activity Report Filings). (2) The Bank has failed to adopt and implement a compliance program that adequately covers the required program elements due to an inadequate system of internal controls and ineffective independent testing. The Bank did not develop adequate due diligence on customers, particularly in the Commercial and Business Banking Unit, a repeat problem, and failed to file all necessary SARs related to suspicious customer activity. (3) The Bank failed to correct previously identified systemic weaknesses in the adequacy of customer due diligence and the effectiveness of monitoring in light of the customers' cash activity and business type, constituting a deficiency in its compliance program and resulting in a violation of 12 U.S.C. 1818(s)(3)(B). (4) Some of the critical deficiencies in the elements of the Bank's compliance program, resulting in a violation of 12 U.S.C. 1818(s)(3)(A) and 12 C.F.R. 21.21, include the following: The Bank has an inadequate system of internal controls and independent testing. The Bank has less than satisfactory risk assessment processes that do not provide an adequate foundation for management's efforts to identify, manage, and control risk. The Bank has systemic deficiencies in its transaction monitoring systems, due diligence processes, risk management, and quality assurance programs. The Bank does not have enterprise-wide policies and procedures to ensure that foreign branch suspicious activity involving customers of other bank branches is effectively communicated to other affected branch locations and applicable AML operations staff. The Bank also does not have enterprise-wide policies and procedures to ensure that on a risk basis, customer transactions at foreign branch locations can be assessed, aggregated, and monitored. The Bank has significant shortcomings in SAR decision-making protocols and an ineffective method for ensuring that referrals and alerts are properly documented, tracked, and resolved. (5) The Bank failed to identify significant volumes of suspicious activity and file the required SARs concerning suspicious customer activities, in violation of 12 C.F.R. 21.11. In some of these cases, the Bank self-identified the issues and is engaged in remediation. (6) The Bank's internal controls, including filtering processes and independent testing, with respect to Office of Foreign Asset Control compliance are inadequate. The Comptroller further finds, for purposes of this Consent Order: (7) The Bank has not established adequate and due diligence programs for its foreign branches, offices, or affiliates in violation of 31 U.S.C. 5318(i) (implementing Section 312 ofthe USA PATRIOT Act, Pub. L. No. 107-56, 312(a), 115 Stat. 272, 312 (2001)), and 12 C.F.R. This violation includes the Bank's failure to conduct suspicious activity monitoring of transactions between the Bank and certain of the Bank's affiliates. (8) The Bank did not establish and implement an adequate program for correspondent banking and remote deposit capture and international cash letter products or adequate internal controls, including the Bank's due diligence programs, in the correspondent banking and areas. Inadequate controls resulted in certain special accommodation clients in the Bank that operated outside of the normal AML monitoring and OFAC screening controls. For these reasons, the Bank is in violation of 31 U.S.C. 5318(i), 12 U.S.C. 1818(s), 12 C.F.R. and 31 C.F.R. and These failures also caused the Bank to fail to file SARs and to do so timely in violation of 12 C.F.R. 21.11(c) and (9) The Bank has failed to correct previously reported problems in several areas, including Asia Private Banking, and with respect to one of its correspondent bank relationships, resulting in additional violations of 12 U.S.C. 1818(s). (10) The Bank's SAR filing processes and procedures for SAR filing in the areas of Chase Auto Finance and Student Lending were inadequate, and the Bank further failed in certain instances to file SARs related to suspected fraud by employees, resulting in violations of 12 C.F.R. (11) Between 2006 and 2008, the Bank created, sold and made a secondary market for structured products that provided customers access to Madoff' investment strategy through several "feeder funds." Prior to Bernard L. Madoff' arrest, the Bank developed concerns about Madoff and a distributor of Madoff-linked investments created by the Bank. These concerns caused the Bank's London branch to file a suspicious activity report with the United Kingdom's Serious Organised Crime Agency on October 29, 2008. Aware that Madoff was a client of the Bank in the U.S., U.K.-based Bank employees conveyed these concerns to U.S.-based Bank employees. Despite the fact that these concerns caused the Bank to file a suspicious activity report in the U.K., the Bank did not file a SAR in the U.S. based on these concerns. The failure to file a SAR on this activity and to do so timely is significant and a violation of 12 C.F.R. 21.11(c) and (12) The Bank maintained a correspondent banking relationship with a Puerto-Rican- chartered affiliate of a Venezuelan bank. Although the Bank filed SARs relating to this correspondent account, the Bank did not investigate additional suspicious activity, totaling over $2 billion, pertaining to counterparties that flowed through the account at the Bank. The failure to file SARs on this activity and to do so timely is significant and in violation of 12 C.F.R. 21.11(c) and (13) From 2004 to 2010, the Bank failed to adequately monitor, investigate and file SARs on approximately $450 million of suspicious bulk cash transactions in an account at the Bank for another of its correspondents. The failure to file SARs on this activity and to do so timely is significant and in violation of 12 C.F.R. 21.11(c) and (14) From February 2013 to March 2013, the Bank failed to adequately monitor and file a supplemental SAR on ongoing activity relating to $471,680 in suspicious transactions in an account at the Bank for a third correspondent. The failure to file SARs on this activity and to do so timely is significant and in violation of 12 C.F.R. 21.11(c) and ARTICLE II ORDER FOR A CIVIL MONEY PENALTY Pursuant to the authority vested in him by the Federal Deposit Insurance Act, 12 U.S.C. 1818(i), the Comptroller orders, and the Bank consents to, the following: (1) The Bank shall make payment of a civil money penalty in the total amount of three hundred and fifty million dollars which shall be paid upon the execution of this Consent Order: If a check is the selected method of payment, the check shall be made payable to the Treasurer of the United States and shall be delivered to: Comptroller of the Currency, P.O. Box 979012, St. Louis, Missouri 63 197-9000. If a wire transfer is the selected method of payment, it shall be sent in accordance with instructions provided by the Comptroller. The docket number of this case (AA-EC-13-109) shall be entered on the payment document or wire confirmation and a photocopy of the payment document or confirmation of the wire transfer shall be sent immediately, by overnight delivery, to the Director of Enforcement and Compliance, Office of the Comptroller of the Currency, 400 7th Street, S.W., Washington, D.C. 20219. (2) This Consent Order shall be enforceable to the same extent and in the same manner as an effective and outstanding order that has been issued and has become final pursuant to 12 U.S.C. 1818(h) and (1). ARTICLE OTHER PROVISIONS (1) This Consent Order is intended to be, and shall be construed to be, a final order issued pursuant to 12 U.S.C. 1818(i)(2), and expressly does not form, and may not be construed to form, a contract binding on the Comptroller or the United States. (2) This Consent Order constitutes a settlement of the civil money penalty proceeding against the Bank contemplated by the Comptroller, based on the violations of law and regulation described in the Comptroller's Findings set forth in Article I of this Consent Order. The OCC releases and discharges the Bank from all potential liability for a civil money penalty that has been or might have been asserted by the Comptroller based solely on the violations of law and regulation as described in the referenced findings, to the extent known to the Comptroller as of the effective date of the Consent Order. Provided, however, that nothing in the Stipulation or this Consent Order shall prevent the Comptroller from instituting enforcement actions against the Bank or any of its institution-affiliated parties, including, without limitation, assessment of civil money penalties, based on any other findings, including, but not limited to, findings related to required look backs or reviews conducted by or on behalf of the Bank. The violations of law and regulation described in Article I of this Consent Order may be utilized by the Comptroller in other future enforcement actions against the Bank or its institution-affiliated parties, including, without limitation, to establish a pattern or practice of violations or unsafe and unsound practices, or the continuation of a pattern or practice of violations or unsafe or unsound practices. Nothing in this Consent Order shall preclude or affect any right of the Comptroller to determine and ensure compliance with the terms and provisions of the Stipulation or this Consent Order. (3) The terms of this Consent Order, including this paragraph, are not subject to amendment or modification by any extraneous expression, prior agreements, or prior arrangements between the parties, whether oral or written. IT IS SO ORDERED, this 7th day of January 2014. Morris R. Morgan Deputy Comptroller Large Bank Supervision UNITED STATES OF AMERICA DEPARTMENT OF THE TREASURY COMPTROLLER OF THE CURRENCY In the Matter of: STIPULATION AND CONSENT TO THE ISSUANCE OF A CONSENT ORDER FOR THE ASSESSMENT OF A CIVIL MONEY PENALTY a Civil Money Penalty ("Stipulation"), that is accepted by the Comptroller, through his duly authorized representative. In consideration of the above premises, it is stipulated by the Bank that: ARTICLE I JURISDICTION (1) The Bank is a national banking association chartered and examined by the Comptroller pursuant to the National Bank Act of 1864, as amended, 12 U.S.C. 1 et seq. (2) The Comptroller is "the appropriate Federal banking agency" regarding the Bank pursuant to 12 U.S.C. l8l3(q) and l8l8(i). (3) The Bank is an "insured depository institution" within the meaning of 12 U.S.C. l8l8(i). ARTICLE II CONSENT (1) The Bank consents and agrees to issuance of the accompanying Consent Order for the Assessment of a Civil Money Penalty ("Consent Order") by the Comptroller. (2) The terms and provisions of the Consent Order apply to JPMorgan Chase Bank, N.A., Columbus, Ohio; JPMorgan Bank and Trust Company, N.A., San Francisco, California; and Chase Bank USA, N.A., Wilmington, Delaware; and all their subsidiaries, even though those subsidiaries are not named as parties to the Consent Order. (3) The Bank consents and agrees that the Consent Order shall be deemed an "order issued with the consent of the depository institution" pursuant to 12 U.S.C. l8l8(h)(2), and 2 consents and agrees that the Consent Order shall become effective upon its execution by the Comptroller through his authorized representative, and shall be fully enforceable by the Comptroller pursuant to 12 U.S.C. l8l8(i). (4) Notwithstanding the absence of mutuality of obligation, or of consideration, or of a contract, the Comptroller may enforce any of the commitments or obligations herein undertaken by the Bank under his supervisory powers, including 12 U.S.C. l8l8(i), and not as a matter of contract law. The Bank expressly acknowledges that neither the Bank nor the Comptroller has any intention to enter into a contract. (5) The Bank expressly acknowledges that no separate promise or inducement of any kind has been made by the Comptroller, or by his agents or employees, to cause or induce the Bank to consent to the issuance of the Consent Order and/or execute this Stipulation. (6) The Bank expressly acknowledges that no officer or employee of the Comptroller has statutory or other authority to bind the United States, the United States Treasury Department, the Comptroller, or any other federal bank regulatory agency or entity, or any officer or employee of any of those entities to a contract affecting the Comptroller's exercise of his supervisory responsibilities. (7) The Consent Order constitutes a settlement of the CMP proceeding against the Bank contemplated by the Comptroller, based on the violations of law and regulation described in the Comptroller's Findings set forth in Article I of the Consent Order. The OCC releases and discharges the Bank from all potential liability for a CMP that has been or might have been asserted by the Comptroller based solely on the violations of law and regulation as described in the referenced findings, to the extent known to the Comptroller as of the effective date of the Consent Order. Provided, however, that nothing in this Stipulation or the Consent Order shall 3 prevent the Comptroller from instituting enforcement actions against the Bank or any of its institution-affiliated parties, including, without limitation, assessment of CMPs, based on any other findings, including, but not limited to, findings related to required look backs or reviews conducted by or on behalf of the bank. The violations of law and regulation described in Article I of the Consent Order may be utilized by the Comptroller in other future enforcement actions against the Bank or its institution-affiliated parties, including, without limitation, to establish a pattern or practice of violations or unsafe and unsound practices, or the continuation of a pattern or practice of violations or unsafe or unsound practices. Nothing in the Consent Order shall preclude or affect any right of the Comptroller to determine and ensure compliance with the terms and provisions of this Stipulation, the Consent Order, or the prior OCC Consent Cease and Desist Order issued on January 14, 2013 ("January 2013 Order"). ARTICLE WAIVERS (1) The Bank, by executing this Stipulation and consenting to the Consent Order, waives: Any and all rights to the issuance of a Notice of Charges pursuant to 12 U.S.C. l8l8(i); Any and all procedural rights available in connection with the issuance of the Consent Order; Any and all rights to a hearing and a final agency decision pursuant to 12 U.S.C. 1818(i) and 12 C.F.R. Part 19; (D Any and all rights to seek any type of administrative or judicial review of the Consent Order; Any and all claims for fees, costs or expenses against the Comptroller, or any of his agents or employees, related in any way to this enforcement matter or the Consent Order, whether arising under common law or under the terms of any statute, including, but not limited to, the Equal Access to Justice Act, 5 U.S.C. 504 and 28 U.S.C. 2412; Any and all rights to assert this proceeding, this Stipulation, consent to the issuance of the Consent Order, and/or the issuance of the Consent Order, as the basis for a claim of double jeopardy in any pending or future proceeding brought by the United States Department of Justice or any other governmental entity, and Any and all rights to challenge or contest the validity of the Consent Order. ARTICLE IV CLOSING The provisions of this Stipulation and the Consent Order shall not inhibit, estop, bar, or otherwise prevent the Comptroller from taking any other action affecting the Bank if, at any time, he deems it appropriate to do so to fulfill the responsibilities placed upon him by the several laws of the United States of America. Nothing in this Stipulation or the Consent Order shall preclude any proceedings brought by the Comptroller to enforce the terms of the Consent Order or the January 2013 Order, 5 and nothing in this Stipulation or the Consent Order constitutes, nor shall the Bank contend that it constitutes, a release, discharge, compromise, settlement, dismissal, or resolution of any actions, or in any way affects any actions that may be or have been brought by any other representative of the United States or an agency thereof, including, without limitation, the United States Department of Justice. (3) The terms of this Stipulation and the Consent Order are not subject to amendment or modification by any extraneous expression, prior agreements or prior arrangements between the parties, whether oral or written. IN TESTIMONY WHEREOF, the undersigned, as the duly elected and acting Board of Directors of JPMorgan Chase Bank, N.A., Columbus, OH, have hereunto set their hands on behalf of the Bank. January 7, 2014 James S. Crown Date January 7, 2014 Laban P. Jackson, Jr. Date January 7, 2014 Marianne Lake Date January 7, 2014 William C. Weldon Date January 7, 2014 Matthew E. Zames Date IN TESTIMONY WHEREOF, the undersigned, as the duly elected and acting Board of Directors of JPMorgan Bank and Trust Company, N.A., San Francisco, CA, have hereunto set their hands on behalf of the Bank. Januag 7, 2014 Brent L. Barton Date Januag 7,2014 John J. Hyland Date Januag 7,2014 Kelly A. Mathieson Date Januag 7,2014 Jennifer A. Piepszak Date Januag 7,2014 Daniel J. Riner Date IN TESTIMONY WHEREOF, the undersigned, as the duly elected and acting Board of Directors of Chase Bank USA, N.A., Wilmington, DE, have hereunto set their hands on behalf of the Bank. January 7, 2014 Raymond Fischer Date January 7, 2014 Catherine M. Hogan Date January 7, 2014 Matthew Kane Date January 7, 2014 James K. Paterson Date January 7, 2014 Samuel Todd Maclin Date January 7, 2014 Eileen M. Serra Date January 7, 2014 John C. Marion Date Accepted by: THE COMPTROLLER OF THE CURRENCY January 7, 2014 BY3 Morris R. Morgan Date Deputy Comptroller Large Bank Supervision