Crypto-Friendly United Texas Bank Hit With Fed Order Over AML Violations

Key Takeaways

• The Federal Reserve issued a cease and desist notice to the crypto-friendly United Texas Bank.
• The bank has been accused of lax AML policies when dealing with crypto firms.
• The bank has 90 days to prepare a response on how it would strengthen its AML policies.

United Texas Bank, a small lender with a growing presence in the crypto market, has become the latest to draw fire from federal regulators.

On Wednesday, Sept. 4, the Federal Reserve cracked down  on the bank, issuing a cease-and-desist order and accusing it of violating anti-money laundering (AML) laws.

United Texas Bank Accused of Violating Bank Secrecy Act

In a sternly worded notice made public on Wednesday, the Federal Reserve accused the United Texas Bank of violating the Bank Secrecy Act, a legislation aimed at detecting and preventing the flow of illicit funds through the financial system.

While the notice did not delve into specifics, it cited significant deficiencies in the bank’s risk management and compliance practices related to its dealings with crypto customers.

The Fed’s order, the result of an investigation conducted in May, also faulted the bank’s corporate governance framework and the oversight of its senior management and board of directors.

In its notice, the agency stated that its examination had uncovered problems with the bank’s compliance with applicable laws, rules, and regulations related to anti-money laundering.

“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.”

Under the terms of the notice, United Texas Bank has 90 days to prepare a comprehensive plan outlining the steps it will take to address its AML shortcomings.

The plan, which must be approved by the Fed, is to be implemented over the coming months to ensure the bank’s dealings with cryptocurrency customers meet federal standards.

The enforcement action against United Texas Bank marks the second time in recent weeks that federal regulators have taken such a step against a crypto-friendly bank.

In mid-August, the Federal Reserve issued a similar notice to Customers Bank, a Pennsylvania-based lender that has also been active in the crypto space.

Operation Chokepoint 2.0 Playing Out?

A growing drumbeat of concern is spreading through the crypto community  as a string of high-profile regulatory actions against crypto-friendly banks has reignited talk of a concerted effort by the Biden administration to stifle the industry’s growth in the United States.

To some, the enforcement actions, including the latest against the United Texas Bank, smack of a replay of “Operation Chokepoint ,” a series of clampdowns by the Obama administration on banks serving industries deemed high-risk, including payday lenders and online gambling sites.

Although the Trump administration had vowed to end the program , the Treasury Department had faced criticism for its handling of the shutdowns, with some accusing the agency of overstepping its authority.

Today, the cryptocurrency community is again raising alarms about what some are calling “Operation Chokepoint 2.0,” an alleged effort by the Biden administration to selectively target and cripple banks that dare to serve the cryptocurrency industry.

Proponents of the theory point to a string of regulatory actions against crypto-friendly banks, including the demise of Silvergate and Signature Banks in 2023. The collapse of these banks sent shockwaves through the industry, leaving many cryptocurrency companies scrambling to find alternative banking services.

Finding Crypto-Friendly Banks Has Become Hard

Finding banks willing to serve the cryptocurrency community has become a high-stakes gamble. A few banks that have dared to venture into this space have found themselves caught in a vortex of regulatory hurdles and Federal Reserve pressure.

United Texas Bank, which took a bold step in serving crypto clients, is now also staring down the barrel of regulatory scrutiny.

If the Fed deems the bank’s anti-money laundering measures insufficient, it risks being forced to sever ties with its cryptocurrency clients.

As the noose appears to tighten around the crypto industry’s neck, some wonder whether the theory of “Operation Chokepoint 2.0” is more than a paranoid fantasy.

About the Author

Prashant Jha

Prashant Jha is a crypto-journalist focused on the US and UK markets, his interests lie in blockchain technology and crypto adoption across emerging economies.

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