Global financial services firm State Street will pay a $115 million criminal penalty and enter into a deferred prosecution agreement with the Department of Justice to resolve its overcharging mutual funds and other registered investment company clients for expenses related to its custody of client assets.

According to State Street’s admissions, for 17 years—from 1998 to 2015—bank executives conspired to add secret markups to “out-of-pocket” (OOP) expenses charged to the bank’s clients, which State Street tacked on to the cost of sending secured financial messages through the Society for Worldwide Interbank Financial Telecommunication network.

“These markups were charged on top of fees that the clients had agreed to pay the bank and despite written agreements that caused clients to believe the expenses would be passed through to them without a mark-up,” the Justice Department stated.

State Street executives took steps to conceal the mark-ups from clients, including by not disclosing certain details on invoices and by misleading clients when they inquired about what they were being charged for OOP-related activities, according to the Justice Department.

Through these actions, State Street defrauded its clients out of more than $290 million, the Justice Department stated.

Under the terms of the deferred prosecution agreement, in addition to the $115 million penalty, State Street agreed to continue to cooperate with the U.S. Attorney’s Office in any ongoing investigations and prosecutions relating to the conduct. It also agreed to enhance its compliance program and retain an independent corporate compliance monitor for two years.

The Justice Department said it considered numerous factors in reaching the settlement, “including that State Street voluntarily disclosed the misconduct, fully cooperated with the investigation, and agreed to fully reimburse the victims of the misconduct for amounts they were overcharged.”

Remedial measures: Among the enhancements State Street made to its compliance program were terminating employees responsible for the misconduct; enhancing governance and oversight related to the accuracy of customer invoicing; enhancing controls to monitor and test costs for expenses to be billed to customers; developing new standard fee schedules to clarify the company’s invoicing methodologies; and taking additional steps to ensure consequences to both individuals and business units for misconduct.

The Justice Department said it also considered State Street paid disgorgement, prejudgment interest, and a civil penalty totaling approximately $89 million in a related settlement with the Securities and Exchange Commission in 2019. State Street has also paid civil penalties to state regulators in the amount of $8.6 million.