We recently had a case of identity theft, where an individual walked into a branch and withdrew a cashier's check from our customer's account using a fake ID. I know there are rules around placing stop payments when a cashier's check has been lost/stolen/destroyed, but is it allowable under the UCC to place a stop payment if we know the funds were fraudulently withdrawn?

No.

You can refuse to cash the check if the identity thief is foolish enough to bring it in to one of your offices and attempt to cash it.. But, as Randy efficiently offered above, you can't stop payment on it. If it is presented for payment by a holder in due course -- which means almost anyone other than the ID thief that started this mess -- you have to cash it if the holder can provide the normal ID documentation you require.

More likely, the check will show up in a cash letter after being deposited somewhere else, or cashed by a check cashing business. Again, you'll have to honor it.

Reimburse your customer's account; if appropriate, file a SAR; contact law enforcement.

What about under UCC Section 47-3-411? Refusal to Pay Cashier's Check

It references when an instrument is obtained from the bank by fraud.

https://law.justia.com/codes/tennessee/2021/title-47/chapter-3/part-4/section-47-3-411/

The TN UCC is different than the actual UCC, but I believe that only covers expenses and consequential damages.