The Blockchain Association is seeking more information about the Federal Reserve’s latest cease and desist order against United Texas Bank as part of a broader investigation into the U.S. government’s so-called Operation Choke Point 2.0.
An investigation by the central bank identified “significant deficiencies” in risk management and compliance with anti-money laundering laws, including the Bank Secrecy Act, according to a filing Wednesday.
These alleged deficiencies related to “foreign correspondent banking customers and virtual currencies,” the Federal Reserve noted.
United Texas Bank did not immediately respond to a request for comment.
Learn more: Operation Choke Point 2.0: Is the United States Going After Cryptocurrencies?
“It’s no secret that there is a coordinated effort to stifle the digital asset industry’s access to the traditional banking system,” Laura Sanders, policy advisor at the Blockchain Association, told Blockworks. “We are investigating yesterday’s troubling news, which unfortunately may be a continuation of the same story: a deliberate targeting of banks that serve digital asset customers.”
The Federal Reserve’s order against United Texas Bank caught the attention of Custodia Bank founder Caitlin Long, who wrote in an article on X: “Another crypto bank, another enforcement action.”
Last year, the Federal Reserve Board rejected Custodia’s application to become a member of the Federal Reserve System, noting that the bank’s move toward crypto “presented significant security and soundness risks.”
“Regulators have such broad mandates around oversight and compliance that they can basically selectively enforce them against whoever they want,” Gabor Gurbacs, former head of crypto strategy at VanEck, said in response to Long’s post. “That seems wrong.”
Last month, the Federal Reserve Bank of Philadelphia called out similar “significant deficiencies” in anti-money laundering at Customers Bank and its parent company, citing services provided by Customers to customers who hold “digital assets,” including the ability for those customers to make tokenized payments through a distributed ledger technology system to other customers of the bank.
In response, Customers Bank appointed Allen Love as its chief compliance and anti-money laundering officer to work on “strengthening Bank Secrecy Act and anti-money laundering protocols for the company’s digital asset business.”
The order against United Texas Bank came the same day the Commodity Futures Trading Commission alleged that Uniswap “unlawfully offered leveraged or margined retail commodity trading in digital assets through a decentralized digital asset trading protocol.”
Uniswap must pay $175,000 to settle charges. CFTC Commissioner Summer Mersinger said in a dissenting opinion that the Uniswap case “exhibits all the hallmarks of what we know as regulation by enforcement.”
Learn more: CFTC Commissioners Disagree Over Uniswap Rules
“Using the hammer of law enforcement against these DeFi protocols might result in short-term ‘wins’,” Mersinger added. “But in the long run… it will only create problems.”
Elsewhere: The SEC has accused crypto hedge fund Galois Capital, which has ceased operations, of failing to properly safeguard its clients’ assets. Galois has agreed to pay $225,000, to be distributed to the fund’s “harmed investors.”
Blockchain Association Executive Director Kristin Smith spoke to X to call Galois’ accusations a taxpayer-funded “dupe” aimed at permanently killing the U.S. crypto industry.
Industry watchers are waiting to see whether a new presidential administration could provide regulatory clarity for crypto businesses.
While Donald Trump has made several promises as part of his campaign to become a pro-crypto president, Democratic candidate Kamala Harris has so far been less vocal on the subject.
Learn more: Former SEC Adviser: Trump, Harris Expected to Make Further Remarks on Cryptocurrencies
“The digital asset industry has created tens of thousands of jobs in the United States, and these legitimate businesses need bank accounts to pay their employees, suppliers, and taxes,” Sanders said. “The Blockchain Association will continue its investigation into Operation Choke Point 2.0 and shed light on all findings.”
An edited version of this article first appeared in the daily newsletter On the Margin. here so as not to miss tomorrow’s edition.
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