On 4 September 2024, the Board of Governors of the Federal Reserve System announced enforcement action against the United Texas Bank. The Federal Reserve and the Texas Department of Banking issued a Cease and Desist Order against United Texas Bank, headquartered in Dallas, Texas on 29 August 2024 in relation to foreign correspondent banking and virtual currency customers. The order followed an extensive examination of the bank, which revealed non compliance in the institution’s corporate governance, risk management, and compliance with federal anti-money laundering (AML) laws, as well as the Bank Secrecy Act (BSA). These deficiencies, identified in a review conducted by the Federal Reserve Bank of Dallas and the Texas Department of Banking, required immediate regulatory action to safeguard the financial system.
United Texas Bank is a Texas state-chartered bank and a member of the Federal Reserve System. On 22 May 2023, an examination was conducted by the Federal Reserve Bank of Dallas and the Texas Department of Banking. The examination found lapses in the bank’s compliance with AML/BSA regulations, particularly concerning foreign correspondent banking and virtual currency customers—both areas posing heightened risk for money laundering activities. The examination also revealed inadequacies in the bank’s governance structure. The board of directors and senior management failed to provide sufficient oversight, which allowed these compliance issues to persist. In particular, the bank lacked proper internal controls and risk management practices necessary to ensure compliance with federal regulations aimed at preventing financial crime.
United Texas Bank was found to be in violation of several federal and state regulations, including BSA under Section 31 U.S.C. § 5311, financial institutions must maintain an effective program to detect and prevent money laundering. The bank’s failure to do so constituted a violation of BSA requirements. The bank violated Federal Reserve Regulation/12 C.F.R. sections 208.62 and 208.63, which mandates strict compliance with AML regulations, including the maintenance of proper risk management controls.
The Cease and Desist Order issued to United Texas Bank mandates several corrective actions with specific timeframes for implementation. First, within 90 days, the bank’s board of directors must submit a plan to enhance oversight of its compliance with AML/BSA and OFAC regulations, ensuring that senior management is effectively managing compliance issues and escalating concerns appropriately. Second, within 60 days, the bank must submit a revised corporate governance plan addressing deficiencies in the structure and functioning of the board of directors and its committees, including a management succession strategy for senior executives.
The bank is required to submit a revised BSA/AML compliance program within 60 days, incorporating enhanced internal controls, risk assessment procedures, and regular independent testing. The program must also ensure the bank’s compliance officer has the necessary authority and resources to implement these responsibilities effectively. Within the same timeframe, the bank must revise its customer due diligence procedures to improve the collection of customer information, assign appropriate risk ratings, and conduct periodic account reviews.
The bank is also required to establish a program for monitoring and reporting suspicious activities, ensuring all suspicious transactions are promptly reported to the appropriate authorities. Enhanced compliance procedures for OFAC regulations must be implemented, including improved screening processes, ongoing staff training, and a risk-based approach to OFAC-related risks.
To ensure ongoing compliance, United Texas Bank must submit quarterly progress reports to the Federal Reserve and the Texas Department of Banking, documenting its efforts to meet the requirements of the order. The board of directors is responsible for ensuring that all mandated plans and programs are fully implemented throughout the duration of the order.
(Source: https://www.federalreserve.gov/newsevents/pressreleases/files/enf20240904a2.pdf, https://www.federalreserve.gov/newsevents/pressreleases/enforcement20240904a.htm)
