JP Morgan Chase has “tentatively agreed” to pay $2 billion to settle allegations that it failed to inform US authorities of suspicious activity from Bernard Madoff, the Financial Times reported, citing people familiar with negotiations between the bank and the US Department of Justice.

JP Morgan Chase has “tentatively agreed” to pay $2 billion to settle allegations that it did not tell US authorities about “suspicious activity” from Bernard Madoff, the Financial Times reported, citing individuals familiar with negotiations between the bank and the US Department of Justice.

The settlement could be next week and is expected to include a “deferred prosecution agreement” for criminal allegations, which the FT noted is a “severe and rare step against a financial institution.”

According to the FT, JP Morgan filed a “suspicious activity” report with UK authorities in 2008 - but the bank did not take a similar step in the US. JP Morgan reportedly knew about Madoff's fraud as early as 1997.

“One source said JP Morgan employees in New York, through internal communications at the bank, expressed confusion about details of Madoff's activity and his fund's returns, but the bank decided not to file a suspicious activity report with US regulators, despite the fact that its London office had filed a similar report with UK authorities,” Reuters said in its news report on the matter. 

Madoff’s $20 billion Ponzi scheme is considered to be the largest financial fraud in US history, for which he is serving a 150-year prison sentence. 

The bank declined to comment on the matter when contacted by this publication. 

Jamie Dimon, chief executive of JP Morgan, reportedly signaled during a New York conference this week that the bank would “pay up” to resolve the Madoff matter. This is despite the fact that it has regarded such claims as “meritless” for five years, the FT said.

“Settling the Madoff action would further deplete a giant $23bn legal war chest that JP Morgan assembled to deal with its unprecedented wave of legal troubles,” it added.

As reported by this publication, last month JP Morgan agreed on a $13 billion settlement with the US Justice Department over the mis-selling of mortgage securities in the period leading up to the credit crunch (view here).