Fintech giant Block, which encompasses Square and Cash App, is facing intense scrutiny from federal prosecutors in the Southern District of New York. This investigation stems from allegations of significant compliance failures within the company. These compliance failures were brought to light by a former employee who disclosed lapses in the company’s transaction monitoring systems.
According to sources familiar with the matter, the former employee provided internal documents to federal prosecutors that indicated Square processed transactions with entities in nations under US sanctions, such as Cuba, Iran, Russia, and Venezuela. Additionally, there are allegations that Block facilitated crypto transactions for groups linked to terrorism, which were not reported to government agencies as required by law.
Moreover, Square and Cash App allegedly did not collect and assess customer information adequately, leading to improper risk assessment. Even after becoming aware of these breaches, the firm reportedly failed to rectify its procedures. Square failed to conduct customer due diligence on international merchant sellers and wrongfully reimbursed funds frozen for sanctions violations.
Block allegedly allowed new customers of Square and Cash App to continue transactions even after triggering sanctions alerts. The company processed transactions involving entities in sanctioned countries and handled crypto transactions for terrorist groups, using credit cards, cash, and Bitcoin. These transactions were not reported to the US government, and deficiencies in internal systems were uncovered by an outside consultant.
In response to these allegations, Block stated that it has a robust compliance program and addresses emerging threats and regulatory issues continually. The company hired an outside consultant to address the deficiencies and voluntarily reported questionable transactions to the Office of Foreign Assets Control. However, the former employee claims that thousands of other transactions were not reported.
The revelations have caused internal upheaval within Block, with unexpected board member departures raising concerns about the company’s governance and compliance culture. Federal regulators and law enforcement are closely monitoring the situation, and further investigations could result in substantial penalties and the need for comprehensive reforms within the company’s operations.
Despite these compliance challenges, Block is known for its work in traditional payments and crypto. The company’s Cash App supports Bitcoin, and it recently launched the Bitkey hardware wallet. Additionally, Block has a crypto-mining initiative in progress, showcasing its commitment to the digital currency space.
The allegations against Fintech giant Block are serious and require thorough investigation and remediation. The company’s compliance failures have raised red flags with federal prosecutors, and the internal turmoil within the organization underscores the need for a strong governance and compliance culture. Moving forward, Block must address these issues proactively to regain trust and credibility in the fintech industry.
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