In a significant regulatory action, the US Federal Reserve and the Texas Department of Banking have issued a Cease and Desist Order against United Texas Bank for what they describe as “severe violations” of anti-money laundering (AML) regulations. The order is focused on the bank’s dealings with cryptocurrency firms, signaling growing scrutiny over financial institutions’ compliance with AML protocols when interacting with the rapidly expanding crypto sector.
Allegations of AML Violations
The Cease and Desist Order stems from the discovery of severe lapses in the bank’s adherence to AML regulations. United Texas Bank allegedly failed to implement and maintain adequate internal controls to detect and report suspicious activity in transactions involving cryptocurrency firms. Given the nature of the crypto industry, where the potential for illicit transactions is higher due to the anonymity and global reach of digital assets, this failure has raised alarms within both the Federal Reserve and the Texas Department of Banking.
The alleged violations include:
- Inadequate monitoring of transactions associated with cryptocurrency firms.
- Insufficient reporting of suspicious activities to authorities.
- Lack of proper due diligence when onboarding crypto-related clients, which could have allowed illicit funds to flow through the bank unchecked.
Regulatory Bodies Take Action
The issuance of the Cease and Desist Order marks a serious step in the ongoing efforts of US regulatory bodies to clamp down on non-compliance with financial laws, especially those governing money laundering and terrorist financing. The US Federal Reserve and the Texas Department of Banking are both keen on ensuring that financial institutions, regardless of size, follow strict AML guidelines, particularly when dealing with industries like crypto, where the risks of financial crime are perceived to be higher.
This action demonstrates that regulators are now more focused than ever on enforcing compliance standards in the banking sector, especially as cryptocurrencies continue to integrate into the mainstream financial system.
Consequences of Non-Compliance
The Cease and Desist Order is a formal directive that United Texas Bank must immediately address its compliance shortcomings and implement corrective measures. This includes:
- Enhancing AML programs to ensure the effective monitoring of transactions involving crypto firms.
- Bolstering internal controls
