- Key insight: The White House's executive order stops short of requiring banks to verify citizenship, instead directing agencies to issue guidance on indicators of suspicious activity involving undocumented workers.
- Expert Quote: "At first glance, we're skeptical that the order will be highly impactful, but it could end up burdening banks with more compliance work and bureaucracy." Ian Katz, Managing Director, Capital Alpha
- Forward look: The order requires Treasury to release guidance on red flags within 60 days, federal regulators to issue credit risk guidance within 60 days, and Treasury to propose Bank Secrecy Act changes within 90 days and a joint proposal on reforming customer identification rules within 180 days of the May 19, 2026 order.
President Donald Trump on Tuesday evening issued an executive order directing financial regulators and banks to scrutinize activity involving undocumented immigrant workers as part of banks' anti-money laundering regulatory regime.
The order, entitled "Restoring Integrity to America's Financial System," instructs the Treasury Department, bank regulators and the Consumer Financial Protection Bureau to issue guidance to banks on "red flags" to identify the informal work arrangements upon which undocumented workers may rely.
According to the Institute on Taxation and Economic Policy, undocumented immigrants paid a combined nearly $100 billion in federal, state and local taxes in 2022. The administration says these arrangements can facilitate money laundering, tax evasion or heightened loan default risk if people without papers lose wages due to the ongoing immigration crackdown.
"Employers who violate immigration law may underreport wages, use mismatched or invalid Social Security numbers and taxpayer identification numbers, or fail to properly withhold or remit payroll taxes," the order stated. "Such schemes can create vulnerabilities within our financial system by obscuring income sources, distorting credit underwriting, and facilitating underground economic activity."
While the order expands banks' obligations in supporting the administration's immigration policies, the order stops short of requiring firms to verify each customer's citizenship status, a move that was reportedly being considered and that
For months, regulatory experts expressed concern over reports that the administration was considering requiring financial institutions to collect citizenship documentation from customers. Following the reports, Comptroller of the Currency Jonathan Gould
Bank and credit union advocates have responded with cautious relief to the order's more limited scope, but they continued to push for ensuring any citizenship-related regulation doesn't impose major compliance costs on firms. How aggressively regulatory agencies decide to translate the order will matter for the burden banks ultimately face, as the order directs agencies to issue guidance later this year.
The Independent Community Bankers of America said that they appreciated the order's recognition of the significant existing compliance obligations banks face, and urged the administration to avoid collection requirements that could push consumers out of the banking system.
"Today's executive order recognizes the rigorous know-your-customer and due diligence requirements that community banks meet under the Bank Secrecy Act," ICBA President and CEO Rebeca Romero Rainey said in a statement. "As ICBA has repeatedly said in meetings with Treasury Department officials and federal banking regulators ahead of the release of today's EO, policymakers must avoid information collection requirements that impose substantial burdens on community banks, undermine their ability to meet the needs of local communities, and drive American citizens out of the regulated banking system."
Some civil liberties advocates argued the order unjustly expands the surveillance state. Cato Institute researcher Nicholas Anthony said that while the order ultimately released was an improvement from the rumored citizenship verification proposal, he likened the initiative to the war on drugs and the expansions in national security surveillance following the September 11, 2001 terrorist attacks.
"We've seen this playbook before. The war on drugs and the war on terror were used to create expansive surveillance regimes. Now it seems to be the war on immigration," Anthony said in a statement. "This EO might be better than the original proposal to have banks check citizenship status. So President Trump should be commended for walking it back. However, the better move would be for him to walk away from the Bank Secrecy Act entirely. That's something the Founders would be proud of."
Credit Union advocates also applauded the administration for seemingly heeding industry concerns about compliance burden in the final order, cautiously urging the administration to funnel any new obligations through a notice-and-comment window to receive industry feedback.
"We appreciate President Trump's approach to ensure compliance burdens do not weigh heavily on credit unions as it considers ways to verify account holder identities," said America's Credit Unions President and CEO Scott Simpson in a statement. "We have engaged the administration on this issue, highlighting the high regulatory standards credit unions are held to, and encouraged policymakers to pursue these efforts through an official rulemaking process."
Capital Alpha Partners policy analyst Ian Katz in a policy note said that the order isn't "nearly as severe" as the industry originally feared.
"The fear was that banks would be told to go through their rolls of customers and request all sorts of documentation," he wrote in a note. "To be clear, foreigners are allowed to have bank accounts in the United States, and in some parts of the country, they play a huge part in the economy. … It would be hard to imagine South Florida's economy without the participation of foreigners with U.S. bank accounts."
The order instead directs banks to follow forthcoming guidance on suspicious activity involving undocumented immigrants and their employers, but the additional regulatory burden is yet to be determined.
"At first glance, we're skeptical that the order will be highly impactful, but it could end up burdening banks with more compliance work and bureaucracy," Katz said. "Whether it will help reduce illegal activity, we don't know."
Jonathan Gould, speaking to a crowd at the Semafor Banking on the Future conference, said he thought the order represents the consensus view that illegal activity should be stopped to the maximum extent practicable without overly burdening U.S. financial institutions.
"I think the president's executive order is a common sense set of reforms that give us the tools that we need and preserve bank flexibility around how they establish the identities — that is, how they know their customers," Gould
