Recently, Fintech giant Block has come under scrutiny by federal prosecutors from the Southern District of New York. Allegations of significant compliance failures involving its main business units — Square and Cash App have arisen. Federal prosecutors launched a probe after a former employee disclosed lapses in the company’s transaction monitoring systems. According to sources familiar with the matter, Square processed transactions with entities in nations under US sanctions, such as Cuba, Iran, Russia, and Venezuela. Block facilitated crypto transactions for groups linked to terrorism, without reporting these activities to government agencies as mandated by law.
The former employee claims that Square and Cash App failed to collect and assess customer information adequately. This lack of proper risk assessment hindered the firm’s ability to identify potential compliance breaches. Even after becoming aware of the issues, Block allegedly failed to rectify its procedures. Square did not conduct customer due diligence on international merchant sellers and wrongfully reimbursed funds frozen for sanctions violations. Furthermore, new customers of Square and Cash App were allowed to transact even after triggering sanctions alerts.
An outside consultant found nearly 50 deficiencies in Block’s internal systems for monitoring suspicious activity, rating customer risk, and screening sanctions violations. The company’s senior management and board of directors allegedly knew of these compliance failures. Block failed to collect sufficient information from Square and Cash App customers for risk assessment purposes. Despite claims of having a responsible compliance program, the firm is facing allegations of significant regulatory issues.
Block stated that it has a responsible and extensive compliance program and continually addresses emerging threats and regulatory issues. The company hired an outside consultant to improve its compliance practices and rectify deficiencies. Block voluntarily reported questionable transactions flagged by the former employee to the Office of Foreign Assets Control (OFAC). However, the former employee alleges that the company failed to report thousands of other transactions, raising concerns about the firm’s commitment to regulatory compliance.
The revelations have led to significant internal upheaval within Block, with unexpected board member departures further stirring concerns about the company’s governance and compliance culture. Federal regulators and law enforcement are closely monitoring the situation, as further investigations could lead to substantial penalties and necessitate comprehensive reforms within the company’s operations. The ongoing regulatory issues could have a significant impact on Block’s future business operations and reputation.
Despite the regulatory challenges, Block is known for its extensive work with crypto. The company’s Cash App features support for Bitcoin, and it recently launched the Bitkey hardware wallet. Additionally, Block has a crypto-mining initiative underway, showcasing its commitment to blockchain technology and digital currencies. Despite these innovations, the regulatory issues facing the company may overshadow its advancements in the crypto space.
The regulatory issues facing Fintech giant Block are a cause for concern. The allegations of compliance failures, lack of proper risk assessment, and deficiencies in internal systems raise questions about the company’s commitment to regulatory compliance. As federal prosecutors continue to investigate the matter, Block must take swift and comprehensive action to address these issues and rebuild trust with regulators, customers, and investors.
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