Washington DC sues Bank of America in tax case

WASHINGTON, Oct 31 (Reuters) - Washington, D.C., filed a $105 million suit against Bank of America (BAC.N) on Friday that alleges the bank failed to notify the city about fraudulent checks that were part of an embezzlement scheme.

The city is demanding a jury trial in the Superior Court of the District of Columbia, according to the complaint.

"To date, at least 116 fraudulent tax refund checks worth more than $34 million have been identified as having been laundered through Defendant Bank," it said.

The city is alleging that bank employees cut checks for phony refunds that they deposited at Bank of America branches in the district and Maryland, offering gifts and cash to various tellers and employees for helping in the scheme.

"Some of these fraudulent tax refund checks were cashed despite the fact that the payee's name on the check did not match the account holder's name on the bank account," the complaint said.

Even with these obvious irregularities, Bank of America did not notify the city about the deposits, it said. Further, the bank also failed to inform the city it had fired employee Walter Jones because of concerns about his consistent role in cashing the checks.

Jones has pleaded guilty to conspiracy to commit money laundering.

The city is seeking three times the amount of money it says was laundered, as well as punitive damages.

Bank of America Spokeswoman Shirley Norton said it could not comment on the suit, as it has not reviewed the complaint. But the bank "worked very closely with the authorities" in the investigation of the scheme, she said.

The scheme was uncovered when another bank, SunTrust (STI.N), informed federal authorities in 2007 that it had received a suspicious check for a large sum, leading federal authorities to raid the homes of city employee Harriette Walters and others.

Walters and her niece Jayrece Turnbull have since pleaded guilty in U.S. District Court for the District of Columbia to conspiracy to defraud the city.

District Chief Financial Officer Natwar Gandhi is seeking to fire 14 employees in the Office of Tax and Revenue who the U.S. attorney's office has identified as receiving checks from Walters. (Reporting by Lisa Lambert; Editing by Tim Dobbyn)