Before Its Demise, Signature Bank Faced Criminal Investigation Pressure

One of the banks that crashed late last week, causing financial chaos, may have been subject to a criminal investigation before regulators took it.

The Securities and Exchange Commission (SEC), as well as federal prosecutors, were investigating the work of the financial firm with cryptocurrency clients. Although cryptocurrency has seen a decline in value over the past months, it has been controversial due to its unregulated nature.

Bloomberg reports that New York’s Signature Bank is under investigation for money laundering.

The people claimed that Justice Department investigators were in Washington and Manhattan looking into whether New York’s bank had taken sufficient steps to detect money laundering by clients. This included scrutinizing accounts openings and monitoring transactions for criminality. Two people claimed that the Securities and Exchange Commission was also looking into the matter, but they asked not to be identified because it is confidential.

The investigation has not been opened against the bank or its employees. It is unclear when and if the probes into Signature Bank were opened. Also, it is not clear if the probes had an effect on Sunday’s decision by state regulators. States regulators claim they lost faith in management following the failure to provide consistent and reliable data from Signature Bank.

Since then, the FDIC began looking for a buyer.

There have been warnings that criminals could use crypto to launder money due to its unregulated nature. To minimize the risks associated with crypto, bank regulators have been urging banks to avoid handling it. Silvergate Capital Corp, another financial institution, also went bust last week. It also dealt heavily in crypto.

Silvergate was also under investigation for its ties with Sam Bankman-Fried’s FTX exchange and Alameda Research. It is not accused of any wrongdoing, just Signature Bank.

The probe began in the last few weeks and focuses on one of the most important questions surrounding the FTX crisis: What did Bankman-Fried’s banks and intermediaries know about the scheme that US officials called a long-running fraud scheme to defraud customers and investors?

According to Silvergate, Alameda opened a bank account in 2018 before the creation of FTX. According to Silvergate, the bank said that it is currently reviewing transactions involving accounts linked with FTX or Alameda. It also stated that it did due diligence during the onboarding process as well as through ongoing monitoring. The Federal Reserve, the bank’s banking regulator, will examine the firm annually and also conduct independent audits.

Silvergate was a bank that could be trusted by crypto companies. It also provided services to this industry early on. It developed systems that allowed real-time fiat currency transfers between customers who had deposits at the bank. The firm was well-known among crypto enthusiasts and former prosecutors as being strict about following US laws.

Although most financial institutions believe the crisis surrounding Signature, Silicon Valley Bank, and First Republic Bank has been contained, it is evident that the crypto- and tech sectors are becoming more volatile in today’s economic environment. This already unstable space is being further impacted by the push to regulate digital currency.