Fed orders United Texas Bank to halt crypto services over AML concerns

The Federal Reserve issued a cease and desist order to United Texas Bank (UTB) on Aug. 29, directing it to stop offering crypto services.

The order follows an examination concluded by the Federal Reserve Bank of Dallas and the Texas Department of Banking in May 2023, which identified alleged deficiencies in the bank’s corporate governance, oversight, and compliance with anti-money laundering (AML) regulations.

Moreover, the financial authorities revealed issues related to foreign correspondent banking and virtual currency customers. Specifically, the bank’s risk management and compliance with the Bank Secrecy Act (BSA) and AML requirements were found to be inadequate.

In response to these findings, the crypto-friendly bank must submit several plans to comply within 60 to 90 days, as authorities have demanded.

Within 90 days, considering Aug. 29 as the starting date, UTB’s board of directors must present a plan that shows compliance with BSA and AML rules.

On a shorter deadline of 60 days, the bank must cover a broader set of requirements, such as strengthening board oversight of BSA and AML policies compliance, a corporate governance plan addressing third-party report recommendations, and a revised BSA/AML compliance program.

Furthermore, UTB must also devise an enhanced customer due diligence program, an improved suspicious activity monitoring and reporting system, and a plan to enhance compliance with Office of Foreign Assets Control (OFAC) regulations within 60 days.

Notably, the bank must also submit quarterly progress reports detailing its actions to comply with the orders. The order added that UTB has already begun taking measures to strengthen its BSA/AML compliance program and lower its risk profile since the examination.

On Aug. 8, the Fed also hit the Pennsylvania-based and crypto-friendly institution Customers Bank with an enforcement action prompted by similar reasons that triggered the cease and desist order directed at UTB.

A day after the Fed published the enforcement action, Gemini’s co-founder criticized the crackdown, claiming that the episode confirmed that “Operation Choke Point 2.0” was still active.

Operation Choke Point 2.0, as explained by U.S. Senator Bill Hagerty to Bitcoin Magazine in September 2023, is believed to be a coordinated effort led by U.S. President Joe Biden‘s administration that uses its financial watchdog to constrain the crypto industry in the country.

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