Tag Archives: Compliance

OCC Enters Consent Order Against ‘Digital Bank’

The Office of the Comptroller of the Currency or OCC regulates federally chartered banks. Digital banks, AKA crypto vunder-kids, would like to get a bank charter for a number of reasons.

One reason is that they want access to the international banking network. Another is to show that they are all grown up.

But if you want to play with the big kids, you need to act like a big kid and in the cryptocurrency scam/racket (sorry, end of editorial), that is hard.

Enter Anchorage Digital Bank. Based in South Dakota, this was a conversion of Anchorage Trust Company. In January 2021, the OCC issued conditional approval of the conversion. As part of that, the OCC approved their operating agreement.

My guess is that this was a ‘canary in the coal mine’ and this month, the canary died.

The OCC entered a 25 page consent decree against the bank, which they did not dispute. The OCC is explaining, loud and clear, if you want to be part of the banking system, the rules that apply to every other bank, apply to you.

Okay, so what did they do wrong?

Remember that the main purpose of cryptocurrency is to hide stuff. Also to speculate, but mostly to keep the government out of their customer’s business. Even the Swiss discovered that there are limits to that and they, over the last 10 years, have begun to play nicer with the feds.

Note: to get a better picture of how hard it is for the government to stop hackers from using cryptocurrency to evade law enforcement, read this article from the Washington Post that describes North Korea’s efforts to wash the $600 million in crypto they stole last month. So far, they have washed about $100 million of it. If Anchorage Digital wants to play with the big kids, this is what they have to wrap their arms around.

Without repeating the entire consent decree, there are two major areas, not surprising, that the OCC is upset with. One is the Bank Secrecy Act, which requires banks to report suspicious activity. Aren’t most cryptocurrency transactions suspicious? That is hard to do. Second is anti-money-laundering. This requires banks to actually know who is conducting business. Like IDs and Corporate Resolutions. All that stuff that actual banks have done for years. Together these are known as BSA/AML.

Among the actions they have to complete are creating a compliance committee of outside directors within 15 days. That is no small task, given their business model. Who wants that liability? Those members have to be approved by the OCC. Then they need to create a plan of action with milestones and get that approved by the OCC. Finally, the committee has to report to both the board and directly to the OCC periodically (like quarterly) on their progress.

The consent degree is a bit geeky but easy to read and if you want to know the future of crypto currency banks and exchanges, this is kind of a road map. If you don’t follow this roadmap, the feds are pretty likely to shut you down. Maybe even throw a few people in jail as a signal to the others.

I found it a great read.

Credit: OCC