Signature Bank Was the Subject of a Criminal Investigation Prior to the Firm’s Demise

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Last Updated on March 15, 2023 by Bitfinsider

According to individuals familiar with the situation, US authorities were probing Signature Bank’s work with cryptocurrency customers before regulators abruptly seized the lender this past weekend.

According to the people, Justice Department agents in Washington and Manhattan were looking into whether the New York bank took adequate measures to identify potential money laundering by clients, such as scrutinizing people establishing accounts and tracking transactions for indications of criminality. The Securities and Exchange Commission (SEC) was also looking into it, according to two individuals who asked not to be identified because the investigations are private.

Messages requesting comment from the collapsed bank’s surviving businesses and the Federal Deposit Insurance Corporation (FDIC), which seized charge of the company, were not returned. Representatives from the Justice Department, the US Attorney’s Office in Manhattan, and the Securities and Exchange Commission all refused to comment. However, a spokesperson for the agency, which only handles civil cases, referred to a statement from chair Gary Gensler on Sunday (March 12), when authorities made measures to strengthen US lenders and close Signature.

“If we discover violations of federal securities statutes, we will examine and initiate enforcement actions,” the SEC chairman said at the time.

The bank and its employees have not been charged with any misconduct, and the inquiry may conclude without further action. It’s unknown when the Signature Bank investigations began or whether they had any bearing on state authorities’ move to close the bank on Sunday. State authorities have stated that they have lost confidence in management as a result of the bank’s failure to provide “reliable and consistent data.”

Financial regulators and Justice Department officials have repeatedly cautioned that companies dealing with cryptocurrency or similar cash must be diligent in recognizing clients and ensuring that money movements are for legal purposes. Banks, in particular, are required to notify federal officials of any suspicious activities.

“The FBI and our partners remain steadfast in our commitment to keeping cryptocurrency markets — as with any financial market — free from illicit activity,” Michael Driscoll, assistant director in charge of the FBI’s New York field office, warned in January, after the US charged the owner of a crypto exchange.

Regulators have been pressing banks and other regulated firms to withdraw from digital currencies and other assets in order to mitigate possible financial system risks. Signature’s downfall comes on the heels of the demise of Silvergate Capital, which also specialized to the crypto sector, and SVB Financial Group’s Silicon Valley Bank last week.

Following the demise of FTX in November, Signature officials stated that they planned to liquidate up to US$10 billion in deposits from digital asset customers, which constituted more than a fifth of its deposit base at the time. They did, however, intend to retain some.

“We’re not leaving the area,” Eric Howell, the bank’s chief executive officer at the time, stated in December. “We’ll be involved, but we’ll be involved in a much more deliberate manner going forward.”

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