January 11, 2013

NEW YORK -- U.S. regulators are likely to order JPMorgan Chase & Co to correct lapses in how it polices suspect money flows, in an action expected as soon as Friday, people familiar with the situation said.

The order would be the latest action that U.S. regulators have taken this year to force banks to tighten their anti money- laundering systems, which are supposed to flag suspect transactions from sanctioned countries or those from customers with ties to drug trafficking or terrorism.

The action would be in the form of a cease-and-desist order, which regulators use to force banks to improve compliance weaknesses, the sources said.

The Office of the Comptroller of the Currency and the Federal Reserve are expected to issue the order.

JPMorgan will probably not have to pay a monetary penalty, according to one person familiar with the situation.

The Treasury Department's anti money-laundering unit, the Financial Crimes Enforcement Network, also could take a separate action against the bank.

A JPMorgan spokeswoman declined to comment.

The status of the inquiry could change, and the timing of the action could extend to next week or later.

The JPMorgan inquiry dates back several months, according to people familiar with the probe. Under the order, the bank is expected to be required to bolster systems it uses to monitor risk and transactions.

Regulators enforcing U.S. anti money-laundering laws are required to issue cease-and-desist orders when they find a bank is violating the Bank Secrecy Act by not keeping up with the surveillance program the law requires. What happens after that, however, varies according to the severity of the bank's violations.

The terms of a cease-and-desist order, in some cases, can require a bank to review its prior transactions to determine whether it missed any suspicious activity it should have reported to regulators. If a high-enough number of unreported suspicious transactions are found, the regulators may decide to issue a civil money penalty.

While no immediate action is expected from U.S. prosecutors, the OCC typically informs the Justice Department when it undertakes inquiries of this sort, a former comptroller of the currency said.

"I would think that if the agency gets to the point of issuing a cease-and-desist order that they've already been in touch with the Justice Department," said John D. Hawke. Now a partner at Arnold and Porter in Washington, he said he had no knowledge of the specific case.

A DOJ spokesman did not immediately respond to a request for comment.

Britain-based bank Standard Chartered Plc agreed to pay a total of $667 million to U.S. and state regulators to resolve anti-money laundering probes, while HSBC Holdings Plc , also headquartered in Britain, agreed in December to pay $1.9 billion to settle a U.S. inquiry.

In April, the Comptroller of the Currency identified major lapses in compliance systems at U.S. bank Citigroup Inc, which did not pay a monetary penalty.

(Reporting by Carrick Mollenkamp and Emily Flitter of Reuters, and Brett Wolf of the Compliance Complete service Thomson Reuters Accelus; Additional reporting by Aruna Viswanatha; Editing by Lisa Von Ahn)

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