Swindler Bernard Madoff enters the Manhattan federal court house in New York, March 12, 2009. REUTERS/Shannon Stapleton

Federal prosecutors in New York are pushing for a guilty plea from JPMorgan Chase for allegedly turning a blind eye to Bernard Madoff's Ponzi scheme, according to two law enforcement officials. They have informed their superiors in the Justice Department that they strongly oppose any settlement with the banking giant unless one of its subsidiaries pleads guilty to at least a single criminal charge.

JPMorgan Chase (NYSE:JM) had offered to settle the potential case regarding the work for Madoff in exchange for no formal criminal charges being brought against it. But top aides to Preet Bharara, the U.S. attorney for the Southern District of New York, as well as several senior career prosecutors in the Justice Department’s Criminal Division, have been adamant that such a deal is unacceptable, according to the sources.

It is highly unusual for such a major bank to be pressured by prosecutors to admit criminal guilt. That pressure reflects the seriousness of what prosecutors consider senior JPMorgan officials to have done: Sources close to the investigation say investigators learned from the bank’s own internal, confidential records that even though senior JPMorgan executives suspected Madoff was running a Ponzi scheme, they never informed federal regulators of their suspicions, as is required by federal law.

Such a warning might have tipped off regulators -- and more importantly, investors -- years earlier. Said one federal law enforcement official: “If they had stricter controls in place, if they had stricter money-laundering standards, if they simply informed regulators of their suspicions … perhaps someone in government would have given Madoff a look, and shut him down earlier.” Billions of investors' dollars might very well have been saved.

The position taken by prosecutors who work for Bharara and others in the Criminal Division in Washington may once again pit them against the highest levels of the Justice Department, who have long argued that some banks that were once "too big to fail" are also too big to face criminal charges due to the potential impact on the economy. The long-running debate over the proper punishment for these misdeeds has long stymied the aides in the U.S. Attorney’s Office in New York. “It does feel a lot like Groundhog Day,” said one government official involved in the matter. This time, however, they have greater optimism that they — and to their mind, the public — will prevail.

Lanny Breuer, who headed the Criminal Division until March and was in charge of prosecuting Wall Street crimes, has said decisions as to which banks to charge were based on “sober predictions that a company or bank might fail if we indict, that innocent employees could lose their jobs, that entire industries may be affected, and even that global markets will feel the effects.” His boss, Attorney General Eric Holder, has echoed those comments: "The impact on the stability of the financial markets around the world is something we take into consideration.”

Bharara has at times appeared to openly signal defiance of that doctrine: “I don’t think anyone is too big to indict — no one is too big to jail,” he declared in a July 2013 speech. Prosecutors who work for Bharara and others in D.C. hope he will now powerfully advocate their position that JPMorgan must not escape criminal charges for its involvement with Madoff.

One reason many career federal law enforcement officials say they would be outraged if JPMorgan gets off lightly is the nature of the information uncovered in the investigation of the firm’s involvement with Madoff. Madoff ran the largest Ponzi scheme in American history. He stole billions of dollars from unsuspecting investors. He is currently serving a 150-year prison term.

The bank where Madoff kept his stolen funds for two decades was JPMorgan. There was no evidence uncovered during the federal investigation that JPMorgan Chase or any of its employees knowingly aided and abetted the Ponzi scheme. What JPMorgan is in trouble for with federal authorities is not reporting its suspicions about Madoff to federal regulators. That seems like a minor offense, more a technical violation of law than something very serious. Indeed, that was the initial response of regulators as they first combed through the records, according to people close to the investigation.

But one federal law enforcement official explained to me the reasons why attitudes changed and what they discovered was a crime: Had the bank reported its suspicions about Madoff to regulators, as the law required, they might possibly have investigated him, shut him down, and prevented additional billions of dollars from being defrauded from investors.

Another aspect of the investigation revolved around whether JPMorgan violated federal money-laundering statutes as Madoff moved billions through his accounts at the bank without detection, sources say. It is unclear, however, whether prosecutors would insist that that be part of a guilty plea by the bank’s subsidiary.

But it hasn't been decided whether to charge a JPMorgan subsidiary or demand a guilty plea as part of a settlement with the bank, sources close to the matter say.

“There has been a revolt of sorts taking place of late…,” said a senior Justice Department official. “Some of us — though not everyone — want there to be more pleas, admissions of guilt. But it is an ongoing argument, and one in which it is unclear which side has won, and will be for some time.” Bharara, as the U.S. attorney for Manhattan, has increasingly aligned himself with the prosecutors in the Criminal Division pressing for stiffer penalties.

In preliminary discussions with the Justice Department to settle the case, JPMorgan offered to enter a deferred prosecution agreement to settle potential charges of wrongdoing related to its time as Madoff’s bank. Under such an agreement, the bank would pay a substantial fine, promise not to engage in such practices in the future, and also agree to let an outside monitor make sure it continues to comply with the law. In the meantime, any potential criminal charges would be deferred, and then would not be brought at all, if the bank were found to have complied with the law in the interim period. Crucially, JPMorgan would not have been required to make a formal admission of criminal wrongdoing.

The fact that corporations that enter deferred prosecution agreements do not plead guilty to a crime has drawn criticism from reformers, members of Congress, and even prosecutors and FBI agents. Bharara himself has been one critic of such settlements being overused without admissions of criminal wrongdoing.

Breuer said the department sometimes did not criminally prosecute large banks, financial institutions and Wall Street firms because they and financial regulators feared that such criminal charges might cause the firm to go out of business and put many innocent employees, who had nothing to do with the fraud, out of work. Breuer also argued that prosecuting large banks and financial institutions might significantly harm the economy at the time the nation is still trying to recover from the recession.

Breuer left office in March, providing an opening for Justice Department officials, like Bharara, who have advocated more aggressive investigations of Wall Street.

Attorney General Holder has made comments similar to Breuer's, although of late, he has signaled in other statements that such arguments might no longer hold as much sway with him personally, the Justice Department and the Obama administration — seemingly responding to criticism from both inside and outside the department.

There have been reasons for optimism.

JPMorgan recently agreed to pay a record $13 billion in fines and restitution for the role it played in the subprime mortgage crisis, which in part caused the 2008 financial crisis. In negotiations with the Justice Department to settle that matter, CEO Jamie Dimon, and the bank’s attorneys, similarly argued that criminal charges might so severely damage the bank that innocent employees could lose their jobs and the economy would be damaged as a result.

During personal negotiations with Holder regarding JPMorgan’s role in the subprime meltdown, Dimon repeatedly refused to settle with the government without a promise that there would be no criminal prosecution of the bank. Holder refused. Dimon and JPMorgan then agreed to pay more than $13 billion in fines and restitution to the government to settle the civil portions of the Justice Department’s and regulators’ case, but a criminal investigation by the Justice Department continues.

For its investigation of JPMorgan’s work for Madoff, Bharara’s office consulted with the Office of the Comptroller of the Currency to determine whether criminal charges against JPMorgan Chase would cause serious harm to the economy, according to people close to the investigation. The OCC responded that it did not oppose such criminal charges, the same sources said.

The Wall Street Journal reported on its website Thursday night that the comptroller had told the Justice Department that criminal charges against JPMorgan Chase could trigger a review of the bank’s charter. The Journal reported that during a Sept. 6 meeting with the Justice Department, the OCC said it would be required to conduct a hearing on possibly revoking a bank’s charter in the event of such a criminal conviction.

Not long ago, the possibility that criminal charges against a bank the size of JPMorgan Chase might have triggered a review of its charter or lead to layoffs probably would have caused the department to forgo criminal charges.

Before retiring, Breuer, then DOJ’s Criminal Division chief, explained why he overrode the recommendations of career prosecutors to indict some on Wall Street:

"To be clear, the decision of whether to indict a corporation, defer prosecution, or decline altogether is not one that I, or anyone in the Criminal Division, take lightly. We are frequently on the receiving end of presentations from defense counsel, CEOs and economists who argue that the collateral consequences of an indictment would be devastating for their client. In my conference room, over the years, I have heard sober predictions that a company or bank might fail if we indict, that innocent employees could lose their jobs, that entire industries may be affected, and even that global markets will feel the effects. Sometimes – though, let me stress, not always – these presentations are compelling. In reaching every charging decision, we must take into account the effect of an indictment on innocent employees and shareholders. … In large multinational companies, the jobs of tens of thousands of employees can be at stake. And, in some cases, the health of an industry or the markets is a real factor. Those are the kinds of considerations in white-collar-crime cases that literally keep me up at night, and which must play a role in responsible enforcement."

Last December, the international bank HSBC agreed to plead guilty to civil charges of money laundering, paying a then-record $1.92 billion in fines and restitution. The bank was found to have laundered billions of dollars to people and corporations trying to evade taxes, rouge nations like Iran, the Mexican drug cartels, and even terrorists.

In doing so, the Justice Department ignored the calls of many of its own career prosecutors for criminal charges against the bank, saying it feared that charges against such a large financial institution might destabilize the entire global financial system.

That same month, the Justice Department took a tougher stance against UBS, the big Swiss bank, for having manipulated world interest rates. A subsidiary of the bank had to plead guilty as part of a settlement. Still, there was some criticism of the Justice Department for not taking stronger action.

During a press conference to announce the UBS settlement, Breuer said: “In the world today of large institutions where much of the financial world is based on confidence, one of the things we want to ensure … [is] that jobs are not lost, that there is not some world economic event that is disproportionate to the resolution we want.”

Holder then stepped in and quickly added: "The impact on the stability of the financial markets around the world is something we take into consideration. We reach out to experts outside of the Justice Department to talk about what are the consequences of actions that we might take."