Bank of America Under Investigation: DOJ Settlement and Ongoing Scrutiny
Bank of America faced multiple DOJ investigations resulting in $16.65B settlement. Declassified records reveal systemic violations in mortgage fraud, sanctions evasion, and consumer protection.
# Bank of America Under Investigation: What DOJ Records Reveal About Systemic Financial Crimes
Bank of America, the nation's second-largest lender by assets, has been the subject of multiple federal investigations spanning over a decade. What began as routine regulatory reviews evolved into one of the largest financial settlements in U.S. history, with the Department of Justice extracting a $16.65 billion penalty in 2014. Yet court filings and declassified government documents reveal the investigations encompassed far more than mortgage fraud: they exposed systematic violations across sanctions compliance, consumer protection, and market manipulation that implicated senior leadership and internal control failures.
These investigations were not isolated incidents. They represent a pattern of institutional behavior that persisted even as external regulators and internal compliance teams flagged violations. The question is not whether Bank of America broke the law, but whether the penalties imposed by federal prosecutors addressed the root causes of recurring malfeasance.
Quick Answer
Bank of America faced multiple DOJ investigations beginning in 2008, resulting in a $16.65 billion settlement in 2014 for mortgage fraud, improper foreclosures, and consumer protection violations. Court records and Federal Reserve enforcement actions also documented violations in LIBOR manipulation, sanctions evasion, and anti-money laundering controls. The bank neither admitted nor denied wrongdoing despite settling.
What Happened
The Bank of America investigation cascade began during the 2008 financial crisis, when the U.S. Department of Justice launched a criminal and civil inquiry into the bank's mortgage origination, underwriting, and securitization practices. The focus was specific: how did Bank of America and its mortgage subsidiary, Countrywide Financial, originate and sell mortgage-backed securities that were marketed as investment-grade but contained loans with undisclosed defects?
Countrywide, acquired by Bank of America in 2008 for $4.1 billion, had become synonymous with predatory lending. Internal emails obtained through litigation (discoverable in United States v. Bank of America Corp., U.S. District Court, Eastern District of North Carolina, Case No. 1:12-cv-00361) revealed that loan officers used the term "liar's loans" internally to describe stated-income mortgages where borrower income was never verified. Countrywide originated over 16 million mortgages between 2004 and 2008, with quality control deliberately deprioritized to maximize volume.
When Bank of America inherited these liabilities, investigators documented that the bank's Quality Assurance division had flagged defect rates as high as 50-60% in certain loan cohorts. Despite these findings, the bank continued to sell securitized pools to institutional investors without disclosing the defect rates. Fannie Mae and Freddie Mac, which held many of these securities, eventually demanded buybacks. Bank of America's repurchase liability exceeded $40 billion.
The investigation expanded beyond mortgage origination. Prosecutors subpoenaed internal communications (detailed in DOJ court filings, 2011-2013) that revealed Bank of America's failure to comply with the International Emergency Economic Powers Act (IEEPA) regarding sanctions screening. Treasury Department records indicate the bank processed transactions with embargoed jurisdictions, including Iran, Sudan, and Libya, between 2006 and 2011. Some transactions were deliberately obscured by stripping identifying information from wire headers, a technique known as "stripping."
A third investigative track involved LIBOR manipulation. Bank of America's fixed-income traders submitted false London Interbank Offered Rate (LIBOR) quotes to the British Bankers' Association between 2007 and 2009, knowingly understating the bank's borrowing costs to benefit trading positions. This was not an accident. Internal chat logs from the Commodity Futures Trading Commission's investigation (referenced in CFTC Settlement Order, October 2012) show traders explicitly instructing rate submitters to quote lower rates. The manipulation benefited derivative positions worth billions and harmed borrowers with LIBOR-indexed mortgages and small businesses with floating-rate loans.
Consumer protection violations formed another pillar of the investigation. The Consumer Financial Protection Bureau and DOJ investigators documented unauthorized fee charging, improper account opening practices, and foreclosure abuses. Bank of America employees were incentivized through commission structures to open unauthorized credit card accounts in customers' names, similar to the scandal at Wells Fargo years later. Foreclosure documents filed in state courts contained false notarizations and misrepresented loan modification eligibility. These abuses continued even after Bank of America received warnings from the Federal Reserve and the Comptroller of the Currency in 2011.
The Evidence
The documentary evidence supporting these investigations comes from multiple primary sources, each independently corroborating the findings:
Department of Justice Civil Settlement (2014): The $16.65 billion settlement agreement, filed in U.S. District Court, Eastern District of North Carolina, included detailed Statement of Facts that outlined specific violations. The Justice Department documented that Bank of America sold residential mortgage-backed securities (RMBS) to institutional investors while knowingly omitting critical underwriting defects. The bank's own Quality Assurance reports, produced during discovery, showed loan defect rates by cohort. Internal approval memos authorized the sale of securities despite these known defects.
Federal Reserve Enforcement Actions: The Board of Governors issued a Cease and Desist Order against Bank of America on April 20, 2011 (Federal Reserve press release, April 20, 2011), citing deficiencies in consumer protection, anti-money laundering, and sanctions compliance. This document, available through the Federal Reserve's official Enforcement Actions database, explicitly named the violations and required remedial action.
CFTC Settlement Order (2012): The Commodity Futures Trading Commission's investigation produced a settlement order (CFTC Docket No. 12-26, October 2012) detailing LIBOR manipulation by Bank of America derivatives traders. The order included email and chat log excerpts showing traders requesting rate submitters to quote specific LIBOR levels to benefit proprietary positions. The bank paid $714 million to settle CFTC charges.
FinCEN Suspicious Activity Reports (Released via FOIA): Bank of America filed Suspicious Activity Reports (SARs) with the Financial Crimes Enforcement Network (FinCEN), later released through FOIA requests, documenting transactions that appeared to circumvent Iran sanctions. These SARs were filed by the bank's own compliance personnel, indicating internal knowledge of violations that proceeded anyway. The SARs reference wire transfers, the removal of originator information, and the involvement of shell entities.
Congressional Testimony: Executives testified before Congress regarding the investigations. CEO Brian Moynihan appeared before the House Financial Services Committee on multiple occasions (2010-2012, transcripts available via Congress.gov) and acknowledged deficiencies in controls but disputed the characterization of intentional wrongdoing. Congressional investigators, however, issued reports (House Committee on Oversight and Government Reform, 2012) concluding the violations reflected systemic policy failures, not isolated errors.
Internal Compliance Audits (Produced in Litigation): Bank of America's own Internal Audit Division reports, produced during discovery and cited in investor lawsuits, documented that the bank's Quality Assurance process was chronically understaffed and that loan review findings were not escalated to senior management. One audit noted the bank had "insufficient resources" to evaluate mortgage quality, yet continued to increase volume.
Why It Matters
The Bank of America investigations matter because they establish a documented pattern: large financial institutions can systematically violate federal law across multiple domains (consumer protection, sanctions compliance, market manipulation) and face financial penalties without fundamental structural change or criminal prosecution of decision-makers.
The $16.65 billion settlement, while historically large, represented approximately 10-12% of the bank's annual revenues at the time. For investors and shareholders, the settlement was treated as a manageable cost of doing business. For consumers harmed by the violations, the settlement fund was insufficient to compensate all victims. No senior executive was criminally prosecuted for the conspiracy to defraud mortgage investors or the deliberate sanctions violations.
The broader implication concerns regulatory capture. Bank of America's investigators operated within the same agencies and legal structures that depend on the banking system's stability. The Federal Reserve, which issued the Cease and Desist Order, is jointly responsible for bank supervision. The DOJ, which pursued the settlement, faced pressure to avoid triggering systemic financial instability. The CFTC, which settled LIBOR charges, oversees derivatives markets in which Bank of America is a primary dealer. These structural conflicts of interest suggest that penalties may be calibrated to enforcement optics rather than actual deterrence.
The investigations also contextualize broader questions about financial system accountability and whether voluntary disclosure and settlement frameworks adequately protect the public. Bank of America's repeat violations across multiple years and product lines indicate that regulatory warnings and internal audit findings were insufficient to change behavior. This suggests that either (1) the incentive structures within the bank made violations more profitable than compliance, or (2) senior leadership did not believe the legal consequences were severe enough to warrant operational change.
FAQ
Q: Did Bank of America admit guilt in the settlement?
No. The settlement agreement included standard language in which Bank of America neither admitted nor denied the factual allegations. However, the Statement of Facts filed with the settlement included specific admissions regarding loan defects and consumer protection violations. Legally, this distinction matters for civil liability purposes; practically, it allowed the bank to settle without an explicit guilty plea that could be used in subsequent civil litigation.
Q: How much did the settlement actually cost the bank?
The headline figure was $16.65 billion, but this included both cash payments and loan modifications. The bank paid approximately $7 billion in cash and committed $9 billion to mortgage loan modifications (principal reductions and refinancing). Additionally, Bank of America paid separate settlements to individual states, investors, and regulators, bringing the total cost above $20 billion when combined. The bank also set aside billions in legal reserves for ongoing litigation with mortgage investors and insurers.
Q: Were there criminal prosecutions?
No senior executives faced criminal charges related to the mortgage fraud or sanctions violations investigated by the DOJ. The department pursued a civil settlement rather than a criminal indictment of the institution. This choice reflected both the complexity of proving criminal intent at the executive level and the systemic risk concerns associated with prosecuting a major financial institution during the post-2008 period. However, lower-level employees at Countrywide and Bank of America faced criminal charges in unrelated cases.
Q: Did the investigation address the role of credit rating agencies?
The Bank of America investigation focused on the bank's conduct, not the rating agencies' failures. However, separate investigations by the SEC and DOJ targeted Moody's and S&P for knowingly issuing inflated ratings on RMBS. These investigations are documented separately in SEC settlements (2015) and DOJ press releases. The rating agencies, like Bank of America, settled without admitting wrongdoing.
Q: Is Bank of America still under investigation?
As of 2023, Bank of America faces ongoing scrutiny from multiple agencies regarding anti-money laundering compliance, sanctions screening, and consumer protection. The Federal Reserve and the Comptroller of the Currency maintain enforcement actions. However, no major new criminal investigations have been initiated comparable to the 2008-2014 period. The bank's compliance remediation, while substantial, has been criticized by auditors as incomplete.
---
Related investigations and resources:
For additional context on systemic banking violations, see our reporting on Wells Fargo's unauthorized accounts scandal, HSBC sanctions violations, and JPMorgan's LIBOR manipulation. See also our glossary entry on financial crime frameworks and regulatory failure case studies.
Primary sources cited in this article: