US Fed Issues Cease-and-Desist Order to Crypto-Friendly United Texas Bank Over AML Violations
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Highlights:
- The US Federal Reserve ordered United Texas Bank to cease crypto operations due to AML rule violations.
- United Texas Bank must address governance and AML shortfalls.
- Enforcement surge fuels “Operation Chokepoint 2.0” speculation.
On Sept. 4, the Federal Reserve issued a cease-and-desist order to the crypto-friendly United Texas Bank in Dallas. This action addresses “significant deficiencies” in the bank’s risk management systems and its dealings with its crypto clients. The Fed said it had examined United Texas Bank in May 2023 and found shortfalls in its governance and oversight by the board of directors and senior management.
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The Fed wrote:
“The Examination identified significant deficiencies related to foreign correspondent banking and virtual currency customers, specifically risk management and compliance with applicable laws, rules, and regulations relating to anti-money laundering including the Bank Secrecy Act.”
The recent notice does not detail how the bank failed to comply with AML regulations concerning crypto firms. However, the bank’s leadership has agreed to the notice to avoid formal proceedings.
Agreement with the Fed and Future Compliance
The order requires the bank’s board of directors to submit a written plan detailing in 90 days how it will “strengthen board oversight of the Bank’s compliance with the BSA/AML Requirements,” as well as a plan to revise its “customer due diligence program,” among other necessary changes. According to its latest quarterly report, United Texas Bank has 75 employees and manages approximately $1 billion in assets.
US Fed slaps Texas bank with cease-and-desist order for servicing crypto firmshttps://t.co/aD9fOmqZmW
— DL News (@DLNewsInfo) September 4, 2024
Recently, Customers Bank faced a similar issue. The Fed mandated that the bank, known for its crypto-friendly policies, enhance its compliance with AML laws and meet Bank Secrecy Act standards. The bank must also improve its risk management for digital assets. After identifying significant shortcomings, the Fed required Customers Bank to submit detailed plans for improvement.
Enforcement Surge Sparks “Operation Chokepoint 2.0” Speculation
The recent surge in enforcement actions has sparked renewed claims that the government is deliberately preventing banks from working with the crypto industry. Some call this move “Operation Chokepoint 2.0,” speculating it signals a broader, coordinated crackdown on crypto services.
In a post on X on Wednesday, Dan Spuller, head of affairs at the crypto advocacy group Blockchain Association, remarked that the cease and desist order issued against United Texas Bank represents a continuation of “Operation Chokepoint.”
🚨 @FederalReserve Enforcement Action: A Cease and Desist Order for United Texas Bank in Dallas as Operation #Chokepoint 2.0 Continues
— Dan Spuller (@DanSpuller) September 4, 2024
Increasingly stringent regulatory oversight is making banks more cautious. The shutdowns of crypto-friendly institutions such as Signature and Silvergate have underscored the risks linked to crypto businesses. Agencies such as the Federal Reserve and the FDIC are now implementing stricter compliance measures, especially in the areas of anti-money laundering and the Bank Secrecy Act. This heightened scrutiny is driven by concerns over money laundering, fraud, and the unpredictable nature of crypto, which pose substantial financial and legal risks for banks.
As the US Federal Reserve targets various crypto custody solution providers, analysts are questioning why regulators, including the SEC, are dissuading federally regulated banks from providing custodial services. In contrast, international regulators are taking a different approach. For example, Swiss Bank ZKB has recently introduced its trading and crypto custody services for BTC and ETH.
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