The fintech giant Block is currently facing intense scrutiny from federal prosecutors in the Southern District of New York due to allegations of significant compliance failures within its main business units, including Square and Cash App. This investigation comes after a former employee came forward with details of numerous 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 revealed Square had processed transactions with entities in countries under US sanctions such as Cuba, Iran, Russia, and Venezuela. Moreover, the documents alleged that Block facilitated multiple crypto transactions for groups linked to terrorism without properly reporting them to the relevant government agencies.
The former employee also highlighted that Square and Cash App had failed to collect and evaluate customer information adequately, which hindered the proper assessment of risk. Despite becoming aware of these compliance breaches, the company allegedly failed to rectify its procedures in a timely manner.
An outside consultant identified nearly 50 deficiencies in Block’s internal systems used for monitoring suspicious activities, rating customer risk, and screening sanctions violations. In response, Block claimed to have a responsible and extensive compliance program, continuously addressing emerging threats and regulatory issues. The company also hired an outside consultant to demonstrate its commitment to compliance and downplayed the significance of the deficiencies.
While Block stated it voluntarily reported questionable transactions flagged by the former employee to the Office of Foreign Assets Control (OFAC), the former employee alleged that thousands of other transactions were not reported. This discrepancy has raised concerns about the company’s compliance culture and governance, resulting in unexpected board member departures.
The revelations of compliance failures have caused internal upheaval within Block, prompting federal regulators and law enforcement to closely monitor the situation. Further investigations could potentially lead to substantial penalties and necessitate comprehensive reforms within the company’s operations to ensure future compliance.
Aside from traditional payments, Block is renowned for its involvement in the crypto industry. The company’s Cash App supports Bitcoin, and it recently introduced the Bitkey hardware wallet. Additionally, Block has an active crypto-mining initiative.
Block’s current predicament underscores the importance of robust compliance measures within fintech companies to prevent violations of regulations and sanctions. The investigation serves as a stark reminder of the consequences of inadequate compliance practices and highlights the need for continuous monitoring and improvement in this critical area of financial services.
