The giant Wall Street firm, which served as Madoff's primary banker, acknowledged that it failed to alert authorities to suspicious activity in Madoff's accounts as required under federal law.
Prosecutors with the U.S. attorney's office for the Southern District of New York agreed to defer a criminal prosecution in exchange for the monetary penalty, which will be forwarded to victims of the Ponzi scheme.
JPMorgan admitted violating two U.S. laws: failing to maintain an effective anti-money laundering program and failing to file a suspicious activity report.
In addition, JPMorgan agreed to fully cooperate with the Justice Department's ongoing investigation and to release any claims it may have to recover money lost in the Madoff scheme.
The agreement comes five years after Madoff's arrest rocked Wall Street and investors worldwide. He acknowledged stealing billions of dollars from investors, falsely claiming for decades that he used their money to make enormous gains in the financial markets. Instead, he used new investor money to make payments to earlier investors while making very few trades.
In court documents, Justice Department prosecutors accused JPMorgan of failing to notify U.S. authorities about its suspicion that Madoff was deceiving investors, even though it made such a claim to British regulators.
In October 2008, JPMorgan notified the United Kingdom Serious Organized Agency that it had come to believe that Madoff's claims of consistent profits were "so consistently and significantly ahead of [his] peers year-on-year ... as to appear to be too good to be true, meaning that it probably is."
JPMorgan spokesman Joseph Evangelisti said in a statement that the bank did not knowingly facilitate Madoff's scheme.
"We recognize we could have done a better job pulling together various pieces of information and concerns about Madoff from different parts of the bank over time," Evangelisti said. "Madoff's scheme was an unprecedented and widespread fraud that deceived thousands, including us, and caused many people to suffer substantial losses.
"We believe the lessons we have learned will make us a stronger company."