Government of the United States Virgin Islands v. JPMorgan Chase Bank, N.A., No. 122-cv-10904 (S.D.N.Y. 2022)/263-07.pdf

EXHIBIT 60 FILED UNDER SEAL Case 1:22-cv-10904-JSR Document 263-7 Filed 08/07/23 Page 1 of 13 Case 1:22-cv-10904-JSR Document 263-7 Filed 08/07/23 Page 2 of 13 GOVERNMENT OF THE UNITED STATES VIRGIN ISLANDS, Plainti ff, V. JPMORGAN CHASE BANK, N.A., Defendant/Third-Paity Pla intiff. JPMORGAN CHASE BA NK, N.A., Third-Paity Plaintiff, V. JAMES EDWARD STALEY, Third-Paity Defendant. UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK Case No. 22-cv-10904-JSR EXPERT REPORT OF TERESA A. PESCE ON BEHALF OF JPMORGAN CHASE BANK, N.A. JUNE 23, 2023 Case 1:22-cv-10904-JSR Document 263-7 Filed 08/07/23 Page 3 of 13 19. JPMC reviewed Epstein's cash transactions. When the Bank inquired, a reasonable explanati on for the activity was provided; indeed, large cash transactions were listed on Epstein-related Know Your Customer (KYC) fonns as anticipated activity. 6 Rather than conceal Epstein's cash activity as alleged by the USVI, between 2002 and 2013, JPMC filed approximately 150 C mTency Transaction Reports (CTRs) with the government on his large cash transactions consistent with its obligations. 7 CTRs, which must be filed on all cuffency transactions over $ 10,000, are a tool used by law enforcement in in vestigations . 20. The USVI alleges that Epstein strnctured cash transactions. 8 Strncturing consists of conducting a transaction or series of transactions just below the CTR threshold to avoid CTRs in connection with the activity in Epstein's accounts. 21. C. The USV/'s Claims Relate to a Small Portion of Epstein's Activity 22. The USVI claims that JPMC should have known Epstein was engaged in illegal conduct because the vast majority of his account activity consisted of payments to women and cash withdrawals. 10 This oversimplifies Epstein's transactional activity. The overall Epstein relationship was complex. For example, a revi ew of Epstein's activity shows that 6 See, e.g., D ue Diligence Report for Hyperion Air, JPM-SDNYLIT-00036300 at 00036306 (expected cash withdrawals at $ 10,000 to $ 50,000 per month and checks paid at $10,000 to $50,000 per month) . 7 CTRs, like SARs, are filed with FinCEN, the Financial Criminal Enforcement Network, which is an agency within the US Treasm-y Departmen t. 8 USVI Com laint, 67. 9 6 Case 1:22-cv-10904-JSR Document 263-7 Filed 08/07/23 Page 4 of 13 transactions through his accounts exceeded $445 million between 2011 and the close of the relationship. 11 Of that, approximately $2.9 million, or 0.7% of Epstein's trnnsactional activity, involved payments to individuals, 47% of which were to individuals with names traditionally recognized as male. 12 Payments to individuals with names trnditionally recognized as female made up a ve1y small fraction of Epstein's complex transactional histoi y. 13 Cash withdrawals totaled approximately $900,00~nly 0.2% of the overall activity. 14 These percentages are consistent with Epstein's earlier activity. Based on available transactional data, 15 Epstein's overall activity from September 2007 through Januruy 20 11 exceeded $450 million. 16 Approximately $3.5 million or 0.8% of these transactions were made up of payments to individuals-65% to individuals with names traditionally recognized as male-while approximately $1.2 million or 0.3% were in cash . 17 23. The USVI further claims that JPMC should have known that Epstein was engaged in illegal conduct because Epstein's account activity included payments to women with Eastern European surname s. JPMC would not have been ale1ied to Epstein's payments to women with Eastern European surnames in the ordina1y course of transaction monitoring. Consistent with industry stan dru·ds, and in compliance with their obligations under the BSA, JPMC deployed automated transaction monitoring systems to revi ew transactions. These systems were progrrunmed with predefined scen ru·ios or typologies potentially indicative of money laundering activity. Neither the ethnicity of a payee ( even if that were discernable by a smnrune) nor the gender of a payee would ever be such a scenru·io. In addition to types of activity, scenru·ios included dollar thresholds. The system would 11 See Appendix D at D-1. 12 See id. at D-1, D-2. 13 Id. at D-1, D-3. 14 Id. at D-1, D-3. 15 I understand that due to data retention policies, available transactional records are limited for earlier periods. However, analysts were able to extract transactional data from multiple sources including account statements. As a result, we analyzed transactional data produced in this matter from September 2007 (the first period with complete transactional data for Epstein' s DDA account ending in x0438) through December 2013 (the year JPMC exited Epstein) . In addition, we analyzed bank statements and wire transfer detail produced in this matter when info1mation regarding the beneficiary of checks and wires was not present in the transactional data produced in this matt er. 16 See Appendix E at E-1. 17 See id. at E- 1, E-2, E-3. 7 Case 1:22-cv-10904-JSR Document 263-7 Filed 08/07/23 Page 5 of 13 generate an ale1i for review only if a transaction both matched the scenario and exceeded th e designated dollar threshold. 24. Systems were not generally tuned to ale1i on small dollar t ransactions. 18 A bank such as JPMC can process trillions of dollars' wo1i h of transactions in a single day. 19 The number of ale1is that would be generated at low dollar thresholds would inundate banks with useless infon nation. Systems were tun ed to minimize false-positive ale1is. Even well-tun ed transaction monitoring systems produced far more unproductive alerts than th ose eventually leading to investigation and SAR filing . Most of Epstein's payments to women were in small dollar amounts. They would not have generated ale1is, and thus analysts wou ld not have reviewed this activity. 25. Ale1 is were not reviewed at the time a payment was processed. Batches of ale1i s are generated for analysts to review sometime after the underlying transactions are completed. They then undergo review and investigation before a bank decides whether to fi le a SAR. Banks do not ord inarily stop transactions for suspicious activity, nor do they provide r eal-time infonnation to law enforcement. D. Banks were Not Monitoring Trans actions for Human Trafficking 26. Consistent with contemporaneous regulato1y requirements and expectations, banks monitored transactions for money laundering and teITorist financing . 20 Epstein's transactions were n ot indicative of either. SAR fonns in effect during most of the Epstein relations hip contained a small number of check boxes for the type of activity repo1ied. Boxes covered money la undering, teITorist financing, an d several fraud-related offenses. When FinCEN amend ed the SAR fo1m in 2012, a much longer list of offenses was added; human trafficking was not among them . FinCEN a nnually publishes a repo1i on the number of, and trends in types of, SARs filed in a given calendar year. Based on 18 An exception would be monitoring for strnctured cash activity. 19 See JP Morgan, Eve1y Transaction Speaks Volumes, https://www.jpmorgan.com/payments#:~ :text=And%20offering%20seamless%20ways%20to.170%20countries%20 and%20120%20ctmencies. 20 As noted above, banks separately monitor for fraud. Fraud, like money laundering, is a financial crime. 8 Case 1:22-cv-10904-JSR Document 263-7 Filed 08/07/23 Page 6 of 13 Bank for decades. He was well-established as a financial and tax advisor to wealthy clients. 143 His wealth was publicly reported. During the life of the relationship, there was no credible evidence that his funds were t he proceeds of illegal activity and t hus that he was laundering m oney. 144 Importantly, there ar e no, nor were there ever, alle