On March 13, 2025, the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, which aims to establish a regulatory framework for payment stablecoins, passed the United States Committee on Banking, Housing, and Urban Affairs with a bipartisan 18-6 vote, paving the way for Congressional approval. The bill was introduced and sponsored by Senator Bill Hagerty (R-Tenn.) and has earned the support of Senator Tim Scott (R-SC), Senator Kristen Gillibrand (D-NY) and Senator Cynthia Lummis (R-Wyo.). Senator Warren (D-Mass) requested that the Act include treating stablecoin issuers as “financial institutions” under the Bank Secrecy Act.

The GENIUS Act seeks to regulate payment stablecoins by limiting US stablecoin business to “permitted stablecoin issuers” who are subject to state and federal licensing and oversight, reserve requirements, and prompt redemption.  Stablecoin custodians are also subject to regulation.  For purposes of clarity, the draft GENIUS Act specifies that stablecoins are not to be treated as securities.

Currently, the top two stablecoins are Tether with a market capitalization of approximately 143 billion and USDC with a market capitalization of 59 billion, each of which is designed to be linked on a 1:1 basis with the USD. Stablecoins like Tether and USDC allow owners to purchase digital assets like Bitcoin or Ethereum without involving banks to move dollars on and off of exchanges. Circle, which sponsors USDC, is regulated in Bermuda, France, Singapore and the UK, as well as licensed as a money transmitter in 49 states. Tether is based in the Caribbean and is registered with FinCEN as a Money Service Business.  According to reports, Tether is not regulated on the state level. 

The draft GENIUS Act provides that a “permitted payment stablecoin issuer shall be treated as a financial institution for purposes of the Bank Secrecy Act” (“BSA”). However, issuers of stablecoins are already deemed to be BSA financial institutions.  Current 13 USC 5312(a)(2) defines “financial institution” to include “A licensed sender of money or any other person who engages as a business in the transmission of funds, including any person who engages as a business in an informal money transfer system or any network of people who engage as a business in facilitating the transfer of money domestically or internationally outside of the conventional financial institutions system.” In 2019, FinCEN Guidance FIN-2019-G001, made it relatively clear that stablecoin issuers were money service businesses and hence financial institutions. (See related blog posts here and here.)  As a result, it appears that both Tether and USDC are already treated as financial institutions for AML purposes and the specific inclusion in the GENIUS Act should be unnecessary.  We suspect that Senator Warren was concerned that FinCEN’s interpretation of the BSA could be challenged under Loper Bright, which removed the concept of Chevron deference and the inclusion of specific congressional intent to include stablecoin issuers as financial institutions added certainty.   

Overall, from an anti-money laundering perspective, the GENIUS Act is unlikely to have a major impact on issuers who were already subject to regulation as a financial institution. 

Next Steps

The future of the GENIUS Act remains uncertain. Proponents of the GENIUS Act stress the importance of regulatory clarity in the crypto space. Circle’s chief strategy officer (an issuer of U.S. stablecoin) lauded the bill and stated that it “provides a pathway for the U.S. to lead rather than be led.” Critics of the bill, however, worry that the passage of the GENIUS Act as is could destabilize banking, increase anti-social access to funds and increase risk overall.

Ballard Spahr will continue to monitor the bill’s progress, which will need bipartisan support to pass in the Senate.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. Please click here to find out about Ballard Spahr’s Anti-Money Laundering Team.

On March 7, 2025, the Office of the Comptroller of the Currency (“OCC”) released Interpretive Letter 1183, marking a pivotal change in regulatory guidance for national banks and federal savings associations engaging in cryptocurrency activities. This recent directive, issued under Acting Comptroller Rodney Hood, rescinds the requirements set by Interpretive Letter 1179 from November 2021. The updated guidance reaffirms the permissibility of certain crypto-related activities while eliminating the need for prior supervisory non-objection.

Background

Interpretive Letter 1183 marks a significant regulatory update under Acting Comptroller Rodney Hood, who assumed his role earlier this year. This letter aims to standardize how banks engage with digital assets, removing the constraints imposed by previous guidance. The rescinded directive from former Acting Comptroller Michael Hsu required banks to seek supervisory approval before participating in crypto activities—a process that was often seen as a barrier to innovation and growth in the sector.

In contrast, the new guidance focuses on reducing regulatory burdens and fostering transparency, thereby encouraging responsible innovation within the banking industry. The OCC continues to support activities outlined in earlier interpretive letters, such as crypto asset custody (IL 1170), stablecoin reserves (IL 1172), and blockchain payment facilitation (IL 1174), initially introduced under former Comptroller Brian Brooks.

Understanding the Interpretive Letters

The OCC’s interpretive letters serve as legal clarification for national banks, delineating the scope of permissible activities concerning digital assets. These letters play a central role in shaping the regulatory landscape, offering clarity on the integration of traditional banking operations with emerging cryptocurrency technologies. Each letter addresses specific aspects of crypto involvement, reflecting the evolving understanding and acceptance of digital finance within the regulatory framework:

• IL 1170 (July 2020): This letter was a milestone, officially allowing banks to offer crypto asset custody services. It enabled banks to securely store digital assets for their customers, integrating cryptocurrency management into mainstream banking services.
• IL 1172 (September 2020): Focused on stablecoins, this letter permits banks to hold deposits as reserves for these digital currencies. It acknowledges the growing role of stablecoins in financial transactions, providing a regulated pathway for banks to engage with this asset class under specific conditions, such as compliance with anti-money laundering protocols.
• IL 1174 (January 2021): This letter authorized banks to utilize distributed ledger technology, facilitating payment activities involving stablecoins. It highlights the potential of blockchain technologies to enhance payment systems, allowing banks to act as nodes on verification networks, thereby increasing efficiency and transparency in financial transactions.
• IL 1179 (November 2021): Introduced under the Biden administration, this letter required banks to obtain a supervisory non-objection before engaging in cryptocurrency activities. This regulatory step aimed to ensure adequate risk management but posed a hurdle for institutions eager to innovate in the crypto space.
• IL 1183 (March 2025): The latest letter rescinds IL 1179, removing the non-objection requirement and reaffirming the permissibility of activities outlined in previous letters. It reflects the OCC’s confidence in banks’ risk management capabilities, promoting a streamlined approach to integrating digital asset services while maintaining safety and soundness standards.

Through these interpretive letters, the OCC provides a structured approach for banks to navigate the complexities of digital assets, ensuring that innovation can proceed within a safe and regulated environment.

Evolving Policies

Alongside Interpretive Letter 1183, the OCC has retracted its support for joint statements on crypto-asset risks issued in collaboration with the Federal Reserve and FDIC earlier this year. These statements highlighted the potential risks posed by crypto markets to banking stability, particularly after high-profile incidents like the FTX collapse. The withdrawal signifies a shift in the OCC’s approach, focusing on integrating digital assets within traditional banking frameworks while maintaining safety and soundness.

Looking ahead, the updated guidance may pave the way for banks to re-enter the crypto sector, potentially through partnerships with established service providers. However, the industry anticipates further regulatory adjustments from the Federal Reserve and FDIC to establish a comprehensive framework for crypto banking services.

Conclusion

The OCC’s latest interpretive letter marks a transition in the regulatory landscape for banks dealing with digital assets. By re-affirming and broadening the scope of permissible activities, the letter indicates a growing acceptance of cryptocurrencies within the banking sector, setting the stage for future developments. As banks explore these opportunities, they must continue to uphold robust risk management practices to ensure the safety and soundness of their operations.

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We have written previously about the new administration’s significant shifts in its approach to criminal enforcement and prosecution of money laundering cases.  Specifically, we wrote about shifts at the U.S. Department of Justice (DOJ) as seen in United States Attorney General Pamela Bondi’s February 5, 2025 memorandum outlining the ways in which the DOJ will aim to eliminate cartels.  With respect to money laundering, the memo establishes that DOJ will “prioritize investigations, prosecutions, and asset forfeiture actions that target activities” of cartels.  Later in the month, on February 20, 2025, the U.S. Department of State designated six Mexico-based drug cartels Foreign Terrorist Organizations and Specially Designated Global Terrorists.  Now, the U.S. Department of Treasury has joined in.  On March 11, 2025, Treasury’s Financial Crimes Enforcement Network (“FinCEN”) announced its issuance of a Geographic Targeting Order (GTO) that strongly signals its own efforts to combat cartel activity by requiring more information about cash transactions from money services business along the Mexican border.  

FinCEN’s GTO requiring all money services businesses (MSBs) – check cashing companies, currency transmitters and foreign exchange dealers, among other financial services businesses – located in 30 ZIP codes across the southwest border in California and Texas to file Currency Transaction Reports (CTRs) with FinCEN at a $200 threshold in connection with cash transactions.  Aligning with DOJ’s priorities with what Treasury Secretary Scott Bessent called a “whole-of-government approach,” FinCEN announced that the purpose of the GTO was to “further combat the illicit activities and money laundering of Mexico-based cartels and other criminal actors along the southwest border of the United States.”  Secretary Bessent continued that the “issuance of this GTO underscores [the United State’s] deep concern with the significant risk to the U.S. financial system of the cartels, drug traffickers, and other criminal actors along the Southwest border.”

Federal law requires financial institutions to report currency (cash) transactions over $10,000 conducted by, or on behalf of, one person, as well as multiple currency transactions that aggregate to be over $10,000 in a single day.  These transactions are reported on CTRs.  To this end, financial institutions must obtain personal identification about the individual conducting the transaction such as a Social Security number as well as a driver’s license or other government issued document.  With the new GTO, FinCEN significantly lowers the $10,000 dollar threshold, requiring MSBs along the southwest border to flag cash transactions at only $200.  Of note too is the fact that the GTO does not change Suspicious Activity Report-filing obligations but states that FinCEN “encourages the voluntary filing of [Suspicious Activity Reports] where appropriate to report transactions conducted to evade the $200 reporting threshold imposed . . . .”

The GTO takes effect on April 14, 2025 and will remain in effect for 180 days.  The GTO, of course, may be renewed. 

What does this means for financial institutions?

• MSBs that operate in the impacted areas along the southwest border should consider the impact on customer-facing functions.  Customer-facing employees will need to be trained on the new limits.  The MSBs may even need to increase staffing to the extent that completing CTRs for more customers simply takes more time. 

• MSBs should also consider the impact on non-customer facing employees.  MSBs’ compliance teams will want to take steps such as assessing resources needed to comply with the order and manage what may be a significant increase in the number of CTRs completed by customer-facing employees and reviewing and updating their compliance procedures.  Given the new priorities of both DOJ and FinCEN and its focus on combatting illicit finance by drug cartels and other illicit actors along the southwest border, MSB compliance teams should prepare for additional scrutiny of their current CTR and SAR-filing procedures and likely increased law enforcement outreach in the form of requests for SAR-supporting materials, grand jury subpoenas, and less formal inquiries.

• Banks that have MSBs as customers should consider what changes, if any, they should make to the policies and procedures in their own anti-money laundering programs.

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Recent developments in the world of crypto have come at a rapid pace to open 2025 not only signaling but, in some instances, explicitly declaring the Trump Administration’s intent to significantly relax or eliminate regulation and enforcement in the crypto markets.  On January 23, 2025, President Trump signed an executive order with the goal of “providing regulatory clarity and certainty” declaring a new approach to crypto regulation and enforcement. On February 4, the head of a task force created by the US Securities and Exchange Commission (SEC) outlined items the task force planned to address and criticized the prior administration’s policies on crypto. On February 21, 2025, the SEC closed its investigations into Opensea and Robinhood without taking further action and dismissed claims against Coinbase.  Then, on February 27, 2025, the SEC announced that memecoins no longer would be considered securities subject to SEC oversight.  

Yet, while the new administration has declared its intent to take a far more hands-off approach to cryptocurrency regulation and enforcement, it is possible all such efforts are not necessarily dead.  On February 24, 2025, OKX pled guilty to one count of operating an unlicensed money business agreeing to enormous fines. The administration’s apparent efforts to limit regulation of the cryptocurrency markets would appear to put to rest the prior Congress’s efforts to legislate cryptocurrency enforcement between the SEC and CFTC.  Meanwhile, private litigation continues against crypto exchanges and issuers indicating that even though federal enforcement may become much more relaxed, civil litigants may become something of a check on the industry.

1.            The Executive Order

President Trump issued an executive order concerning crypto on January 23, 2025.  The Executive Order established an inter-agency task force, referred to as the President’s Working Group on Digital Asset Markets (the “Working Group”). The Working Group is chaired by David Sacks (the “Chair”), who Trump deemed to be the administration’s “Crypto and AI Czar.” 

The Working Group is required to report to the president with its findings, as follows:

• Within 30 days of the date of the Order, the Working Group must identify all regulations, guidance documents, orders, or other items that affect the digital assets.
• Within 60 days of the date of the Order, each agency must submit recommendations with respect to whether each identified regulation, guidance document, order, or other item should be rescinded or modified, or, for items other than regulations, adopted in a regulation.
• Within 180 days of the date of the Order, the Working Group shall submit a report to Assistant to the President for National Economic Policy with regulatory and legislative proposals that advance the policies established in this order. The report will propose a Federal regulatory framework governing the issuance and operation of digital assets, including stable coins in the United States, a likely departure from the prior administration.  Additionally, the report will consider legislative provisions concerning market structure, oversight, consumer protection and risk management.

2.            The SEC Task Force

    On January 21, 2025, two days before President Trump signed the Executive Order, the SEC created its own Crypto Task Force (the “Task Force”). The Task Force is “dedicated to developing a comprehensive and clear regulatory framework for crypto assets” and chaired by Hester Peirce (a Trump appointed Commissioner to the SEC).   Pierce criticized the SEC’s past practice of relying primarily on enforcement actions to regulate crypto retroactively.  Therefore, “[t]he Task Force’s focus will be to help the Commission draw clear regulatory lines, provide realistic paths to registration, craft sensible disclosure frameworks and deploy enforcement resources judiciously.”

            On February 4, 2025, Commissioner Peirce issued a statement listing items the Task Force is currently working on:

• Security Status: The Task Force is examining the different types of crypto assets and their status as securities.
• Scoping Out: the Task Force is identifying areas that fall outside of the SEC’s jurisdiction and is inviting requests for no-action letters to help clarify jurisdiction.
• Coin and Token Offerings:  The Task Force is considering recommending temporary prospective and retroactive relief for coin or token offerings if certain information is provided and there is consent to the SEC’s anti-fraud jurisdiction. Such tokens would be deemed non-securities.
• Registered Offerings: The Task Force is considering a streamlined path to token registration.
• Special Purpose Dealer: The Task Force is exploring updates to the special-purpose broker dealer no action statement to more effectively address broker-dealers that custody crypto asset securities alongside crypto assets that are not securities.
• Custody Solutions for Investment Advisors:  The Task Force is looking to provide an appropriate custodial framework for advisors. 
• Crypto-Lending and Staking: The Task Force hopes to provide clarity on whether crypto-lending and staking programs are covered by securities law.
• Crypto Exchange-Traded Products: The Task Force will work to clarify the approach used when considering SRO applications to list new products.  
• Clearing Agencies and Transfer Agents:  The Task Force hopes to improve the intersection of crypto, clearing agency and transfer rules.
• Cross-Border Sandbox: The Task Force understands many crypto projects are international and will consider ways to facilitate cross-border experimentation.

3.            The SEC Ends Investigations, Dismisses Charges and Shares its Views that Meme Coins Are Not Securities.

Seemingly in line with the SEC’s criticism of past enforcement actions, the SEC recently ended investigations into Robinhood’s crypto business and into OpenSea without taking further action.  On February 21, 2025, the SEC informed Robinhood Crypto that it would not move forward with an enforcement action. The Form 8-K disclosing the Well’s notice that Robinhood received in May of 2024, which alleged violations of Sections 15(a) and 17 of the Securities Exchange Act of 1934, can be found here.  Also on February 21, 2025, the Co-founder of Opensea, the world’s largest market place for non-fungible tokens announced the SEC was closing its investigation without categorizing NFTs as securities. 

Additionally, on February 21, 2025, Coinbase, America’s largest crypto exchange, announced that the SEC agreed in principle to dismiss charges against Coinbase. The lawsuit against Coinbase was filed in 2023 and accused Coinbase of operating as an unregistered securities exchange, broker, and clearing agency.  More information about the Coinbase dismissal can be found here.

In line with ending the above enforcement actions, on February 27, 2025, the SEC announced that “neither meme coin purchasers nor holders are protected by the federal securities law” because meme coins “do not involve the offer and sale of securities under the federal securities law.” Therefore, “persons who participate in the offer and sale of meme coins do not need to register their transactions with the Commission under the Securities Act of 1933.”

4.            OKX Pleads Guilty.

Despite the flurry of closed investigations, on February 24, 2025, one of the largest derivatives and spot crypto exchanges pled guilty to one count of operating an unlicensed money transmitting business and agreed to forfeit over $420.3 million and pay an additional fine of more than $84.4 million.  The Complaint filed against OKX can be found here.

Prosecutors faulted OKX for allowing U.S. investors to trade on the exchange, which did not have adequate anti-money laundering policies and procedures, despite its official ban against U.S. customers.  

Under OKX’s plea agreement, OKX’s United States affiliate—OKCoin USA, Inc. can continue to conduct business with U.S. investors.  OKX’s cooperation with the investigation reduced its fine range, and OKX is not subject to a monitor’s supervision. 

5.            Next Steps

When issuing a statement regarding the OKX plea, U.S. Attorney Matthew Podolsky warned financial institutions that there will be “consequences for financial institutions that avail themselves of the U.S. markets but violate the law by allowing criminal activity to continue.”  When looked at in combination with the dismissal of the lawsuit against Coinbase and completion of investigations of Robinhood and Opensea, it appears that the Commission will continue to prosecute anti-money laundering matters and anti-fraud generally, but may reduce cases for failure to register as a broker, dealer or exchange until regulatory clarity is achieved. 

Notwithstanding a decline in enforcement, private class action should remain robust. For example, on January 14, 2024, OKX was named in a class action suit that alleged OKX allowed criminals to launder stolen funds.  Plaintiff Alister Watt noted that a “material portion” of his stolen crypto ended up in an OKX account, and that OKX and certain affiliates failed to apply the necessary anti-money laundering procedures and, therefore, should be liable.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. Please click here to find out about Ballard Spahr’s Anti-Money Laundering Team.

Does it matter if a law is valid if the Government refuses to enforce it?  For months, we have watched (and blogged on) courts grappling with the constitutionality and enforceability of the Corporate Transparency Act (“CTA”).  While, as we have blogged most recently here, courts have produced mixed returns on the validity of the CTA, the Department of the Treasury (“Treasury”) has now significantly mooted those questions.  On March 2, Treasury announced in a Press Release that it will not enforce significant provisions of the the CTA.  

Hold on Current Enforcement

The Press Release is short and states, in pertinent part, that the Treasury Department “will it not enforce any penalties or fines associated with the beneficial ownership information reporting rule under the existing regulatory deadlines.” The Department’s decision does not remove the CTA from the laws of the United States. It still means that reporting companies have to comply with their BOI filing obligations, as put forth in the regulations; but there will be no penalties or fines should a report be filed late, not updated on time, etc. The tumultuous litigation developments leave entities subject to the CTA in constant flux: one week, the CTA is stayed nation-wide, another week the deadlines are back in force but extended. In the absence of a fine or penalty for non-compliance with the CTA, reporting companies will undoubtedly ask their advisors as to whether or not to file BOI reports as they become due.  Operationally, is it better to file the BOI report and be “on the safe side” (but having to expend resources) or are the risks tolerable if the entity foregoes to expend the efforts and does not submit the appropriate BOI report in a timely manner?  Of course, the CTA is still good law.  So, the question is, effectively, is it more efficient to just break the law if there will be no penalties – for now. 

Future Enforcement and Rule Change

The Press Release also signals how the new administration would like to reshape the CTA.  According to the Press Release, the Department of the Treasury “will further not enforce any penalties or fines against U.S. citizens or domestic reporting companies or their beneficial owners after the forthcoming rule changes take effect either” and “will further be issuing a proposed rulemaking that will narrow the scope of the rule to foreign reporting companies only.”

A potentially narrower application scope begs the question how the executive department can follow the Congressional goal of the CTA:  increasing accountability in entities operating within or organized in the United States to combat money laundering, fraud, corruption, tax crimes, and other civil and criminal violations, nationally and internationally. In its final rule on the BOI reporting regime, FinCEN estimated about 71,000 foreign entities “operating in the United States that may be subject to BOI reporting requirements” in 2024, with about 10,900 new foreign entities subject to reporting per year after 2024. Limiting “the scope of the rule to foreign reporting companies only” would unquestionably result in the non-availability of a massive amount of BOI to law enforcement and agencies.

The government’s reasoning for these next steps is that they are, “in the interest of supporting hard-working American taxpayers and small businesses and ensuring that the rule is appropriately tailored to advance the public interest.” The CTA has been criticized as being too burdensome on small entities and that FinCEN has considerably underestimated the amount of time required to accurately complete a BOI report. It remains to be seen how the new proposed rule alleviates and address concerns on small businesses – and whether it imposes an obligation on smaller entities at all. 

Perhaps the promised rule changes will address these questions.  You will hear here if they do.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. Please click here to find out about Ballard Spahr’s Anti-Money Laundering Team.

On February 20, 2025, the Office of the Comptroller of the Currency (“OCC”) announced that they had entered into a formal agreement with Patriot Bank, National Association (“Patriot Bank”), following a comprehensive examination that identified several regulatory deficiencies and unsafe banking practices.

Key Takeaways

• OCC Agreement: Patriot Bank has entered into a formal agreement with the OCC after an examination identified regulatory deficiencies, marking a critical moment for the bank to realign with federal standards.
• Regulatory Focus: The agreement emphasizes strategic and capital planning, requiring the bank to develop comprehensive plans to strengthen financial oversight and risk management.
• BSA/AML Compliance: Enhancements in Bank Secrecy Act/Anti-Money Laundering (“BSA/AML”) compliance are mandated, including action plans for customer due diligence and monitoring of third-party risks.
• Increased Scrutiny: The enforcement action reflects a broader trend of heightened regulatory scrutiny across the financial sector, cautioning banks to proactively strengthen compliance frameworks and governance.

Regulatory Findings and Areas of Concern

The OCC’s examination of Patriot Bank highlighted several areas where the bank did not meet regulatory expectations. Key concerns included strategic and capital planning, BSA/AML risk management, oversight of payment activities, credit administration, and concentration risk management. These findings point to critical vulnerabilities within the bank’s operational framework that, if left unaddressed, could compromise its stability and integrity.

Patriot Bank has agreed to the following measures as part of its compliance with the OCC:

• Establish a compliance committee with at least three members to ensure adherence to the OCC agreement.
• Submit an initial report detailing progress on corrective actions and goals within 30 days, followed by quarterly updates.
• Achieve and maintain a common equity tier 1 capital ratio of at least 10% by February 25, 2025.
• Submit a written strategic plan outlining objectives related to risk profile, earnings performance, growth, and operational development.

Strategic and Capital Planning

A central focus of the OCC agreement is strategic and capital planning. The examination revealed that Patriot Bank’s existing frameworks in these areas were inadequate for managing long-term risks and ensuring financial resilience. As part of the agreement, the bank is required to develop and submit comprehensive strategic and capital plans. These plans must detail approaches to strengthening financial oversight, improving risk management, and ensuring sustainable growth. A compliance committee will oversee adherence to the agreement, ensuring that the bank’s strategic objectives align with regulatory expectations.

Enhancing BSA/AML Compliance

BSA/AML compliance emerged as a significant concern in the OCC’s findings. To address these issues, the agreement mandates that Patriot Bank develop a detailed action plan focusing on customer due diligence, suspicious activity monitoring, and third-party risk oversight. Key components include:

• BSA/AML Action Plan: A comprehensive plan outlining remedial actions to achieve compliance with BSA regulations.
• Customer Identification Program (“CIP”): An enhanced CIP for reloadable prepaid card accounts to ensure appropriate collection and analysis of customer information.
• Program Manager Due Diligence: A strategy to manage BSA/AML risks associated with third-party prepaid card program managers, ensuring compliance with licensing requirements.
• Suspicious Activity Review Program: A program to ensure timely identification and reporting of suspicious activities, particularly fraud-related activities associated with prepaid cards.

These measures aim to fortify the bank’s defenses against money laundering and other illicit financial activities, ensuring compliance with federal regulations.

Risk Management and Oversight

The agreement requires the bank to establish a robust risk management framework for new products and services. This includes developing a model risk management program to effectively oversee third-party models. The focus is on ensuring that all new offerings are thoroughly assessed for potential risks and that appropriate mitigation strategies are in place. Additionally, the bank must enhance its oversight of payment activities, credit administration, and concentration risk management. By strengthening these areas, Patriot Bank aims to mitigate potential risks associated with its loan portfolio and payment operations.

Prepaid Card Program Provisions

A notable aspect of the agreement is the inclusion of specific provisions related to the bank’s prepaid card programs. The OCC’s requirements highlight the need for thorough due diligence and monitoring of program managers. The agreement stipulates that program managers must register with the Financial Crimes Enforcement Network, if applicable, ensuring compliance with state and local licensing requirements. This provision underscores the importance of maintaining oversight and control over third-party arrangements, particularly in scenarios where the bank may not have primary oversight of prepaid access programs.

Board Accountability and Governance

The bank’s board of directors is held accountable for ensuring compliance with the agreement. The board must implement corrective actions and maintain effective governance and oversight to address the deficiencies identified by the OCC. This accountability framework is designed to ensure that the bank’s leadership is actively engaged in overseeing the implementation of the agreement and driving the necessary changes to improve operational integrity.

Implications for the Financial Sector

The OCC’s enforcement action against Patriot Bank highlights a broader trend of heightened regulatory scrutiny on financial institutions. This underscores the critical importance of robust governance, risk management, and compliance frameworks, particularly in areas like money laundering regulations. Banks of all sizes are urged to proactively strengthen their compliance measures, invest in advanced monitoring technologies, and conduct thorough due diligence and ongoing monitoring of third-party partners. Effective allocation of resources is essential to meet these evolving regulatory demands and maintain a strong reputation within the financial sector.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. Please click here to find out about Ballard Spahr’s Anti-Money Laundering Team.

Developments concerning the enforceability and enforcement of the CTA came at a rapid clip this week.  As things stand, the government may enforce the CTA pending a Texas court appeal in Smith v. U.S. Department of the Treasury. FinCEN indicated its intent to enforce the CTA but provided reporting companies with a revised deadline to submit the required reports. We have previously blogged about the litigation here and here.

Maine Court Upholds CTA

On February 14, 2025, the United States District Court for the District of Maine ruled that the Corporate Transparency Act (“CTA”) is constitutional under the Commerce Clause of the U.S. Constitution. In Boyle v. Bessent, the plaintiff challenged Congress’s authority to enact the CTA and sought injunctive relief preventing its enforcement. No. 2:24-cv-00081-SDN (D. Me. Feb. 14, 2025). Plaintiff is a resident of Maine with ownership interests in multiple LLCs that own real estate. The government argued that it had authority for the CTA under separate clauses of the Constitution, including the Commerce Clause, the power to lay and collect taxes, and under the Necessary and Proper Clause. Lastly, the government argued that authority comes from both Congressional and Presidential authority to regulate foreign affairs and address national security. The Court held that the CTA is constitutional under the Commerce Clause, stating that the:

CTA regulates economic or commercial activity-the prerequisite to considering whether or not such activity substantially affects interstate commerce in the aggregate. The existence of a corporate entity is “in any sense of the phrase, economic activity.”

This holding is in stark contrast to other cases, in which courts found the CTA does not regulate activities that affect interstate commerce, or channels or instrumentalities of interstate commerce.

A Brief Recap of CTA Litigation

Decisions on the Constitutionality and enforceability of the CTA have varied widely across the country.  For instance, the Northern District of Alabama found the CTA to be unconstitutional under Congress’ foreign affairs and national security powers, the Commerce Clause, and Congress’ taxing powers and enjoined the government from enforcing the CTA. See Nat’l Small Bus. United v. Yellen, 721 F. Supp. 3d 1260 (N.D. Ala. 2024). This decision is on appeal. Meanwhile, several district courts have refrained from preliminarily enjoining the CTA, reasoning that plaintiffs were not likely to succeed, in part, on the merits of a Commerce Clause violation. See Cmty. Ass’ns Inst. v. Yellen, No. 24-cv-1597, 2024 WL 4571412 (E.D. Va. Oct. 24, 2024); Firestone v. Yellen, No. 24-cv-1034, 2024 WL 4250192 (D. Or. Sept. 20, 2024).

In two separate cases in the Eastern District of Texas, the Court preliminarily enjoined the government from enforcing the CTA and stayed the compliance date. The first is Tex. Top Cop Shop, Inc. v. Garland, No. 24-cv-478, 2024 WL 4953814 (E.D. Tex. Dec. 3, 2024), amended and superseded, 2024 WL 5049220 (Dec. 5, 2024). Subsequently, the government appealed and a Fifth Circuit motions panel stayed the nationwide injunction. Tex. Top Cop Shop, Inc. v. Garland, No. 24-40792, 2024 WL 5203138 (5th Cir., Dec. 23, 2024). On January 23, 2025, the U.S. Supreme Court stayed the Eastern District of Texas’ order pending appeal in the Fifth Circuit. McHenry v. Tex. Top Cop Shop, Inc., No. 24A653, 2025 WL 272062 (U.S. Jan. 23, 2025).

The second case filed in the Eastern District of Texas preliminarily enjoined the CTA is Smith v. U.S. Dep’t of the Treasury, No. 6:24-cv-00336, 2025 WL 41924 (E.D. Tex. Jan. 7, 2025). The government appealed the district court’s order and filed a motion to stay pending appeal. The government’s motion indicated that if the district court order is stayed, FinCEN intends to extend the reporting deadline for all reporting companies for 30 days from the date the stay is granted. In addition, FinCEN would assess during a 30-day period whether further modifications should be made to the beneficial ownership information (“BOI”) regulations for “lower-risk” entities and prioritize reporting for entities that pose the most risk to national security.

Texas Judge Allows CTA Enforcement Pending Treasury’s Appeal

On February 18^th, the Texas Judge in Smith granted the government’s motion to stay the order pending appeal. This lifts the preliminary injunction that temporarily halted enforcement of the CTA.

As a reminder, FinCEN has posted several alerts in light of the various orders. FinCEN updated the alert regarding the ongoing litigation in Smith to provide that the updated deadline for most, but not all, reporting companies will be March 21, 2025. For reporting companies that were provided a deadline later than March 2025, for example reporting companies that qualify for disaster relief, they may file by the April 2025 deadline. Furthermore, the updated alert currently states that “during this 30-day period FinCEN will assess its options to further modify deadlines, while prioritizing reporting for those entities that pose the most significant national security risks.

President Trump signed an Executive Order in January ordering all departments and agencies to halt the proposal or issuance of any rule to the Office of the Federal Register until an administration-appointed agency head reviews the proposal. It is unclear whether this Executive Order affects FinCEN’s review of the BOI regulations carrying out the CTA. The U.S. Department of Treasury is under the leadership of an administration-appointed agency head; however, the previous Secretary of the Treasury appointed FinCEN Director Gacki.

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