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JPMorgan’s post-Madoff reforms will be hidden from public

Bernie Madoff
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JPMorgan Chase is portraying its landmark $2 billion settlement over the bank's dealings with Bernard Madoff as an effort to put the scandal behind it. And U.S. prosecutors may be helping in that regard.

The bank admitted last week that for years it had failed to alert authorities about suspicious activity in Madoff's accounts. In exchange for the fines and promised reforms, U.S. Attorney Preet Bharara agreed not to prosecute JPMorgan Chase on two violations of the federal Bank Secrecy Act. The case will be dropped altogether in two years if the bank is fulfilling its part of the bargain.

"The bank has accepted responsibility and agreed to continue reforming its anti-money-laundering practices," Bharara said. Under the arrangement, JPMorgan will submit quarterly progress reports to prosecutors beginning in April.

But—according to a little noticed provision—both sides say they have agreed to keep the contents of the those reports a secret.

"The reports will include confidential information and will not be made public," JPMorgan spokesman Joseph Evangelisti said in an email to CNBC.

In addition, unlike some similar agreements, this deal includes no outside monitoring, giving the U.S. Attorney's office "sole discretion" in determining whether the bank is living up to the deal, according to the agreement. JPMorgan s also under orders by federal regulators to improve its systems.

This agreement is in sharp contrast to a deal approved last year between another bank, HSBC, and Loretta Lynch, the U.S. Attorney for the Eastern District of New York.

HSBC was also accused of two violations of the Bank Secrecy Act, as well as of violating U.S. sanctions against Iran, Libya, Sudan and Burma. Like JPMorgan, HSBC accepted responsibility for its conduct, and agreed to pay nearly $2 billion in penalties and improve its internal controls.

The similarities end there.

HSBC's deferred prosecution agreement lasts five years instead of two, and its compliance is monitored independently by former Manhattan prosecutor and Marsh & McLennan CEO Michael Cherkasky.

Like JPMorgan, HSBC is required to submit quarterly reports to the U.S. Attorney's office, and the reports themselves are confidential. But prosecutors in the HSBC case must file quarterly status reports with the court, which are public.

(Read more: Five years later, Madoff still trying to control the story)

In the HSBC case, Judge John Gleeson of the Eastern District of New York required the public status reports as a condition of the settlement. No such condition was imposed by the judge in the JPMorgan case, P. Kevin Castel in the Southern District of New York.

Both JPMorgan and the U.S. Attorney's office declined to say why no outside monitoring was included in the Madoff settlement.

JPM complicit, agrees to penalties
JPM complicit, agrees to penalties

Justice Department guidelines give prosecutors wide latitude over the structure of deferred prosecution agreements, which are an increasingly common tool to hold corporations accountable for wrongdoing without the collateral damage of criminal charges.

"Under appropriate circumstances, a deferred prosecution or non-prosecution agreement can help restore the integrity of a company's operations and preserve the financial viability of a corporation that has engaged in criminal conduct," according to a provision added in 2008 to the department's United States Attorneys' Manual.

While there is no requirement to appoint an outside monitor, the guidelines state that an "independent third party" can benefit the company, shareholders and the general public by protecting "the integrity of the marketplace."

—By CNBC's Scott Cohn. Follow him on Twitter @ScottCohnCNBC