The Fintech giant Block is currently facing scrutiny from federal prosecutors in the Southern District of New York due to allegations of significant compliance failures involving its main business units, Square and Cash App. These allegations emerged after a former employee disclosed multiple lapses in the company’s transaction monitoring systems. The former employee provided internal documents to federal prosecutors, indicating that Square processed transactions with entities in nations under US sanctions, including Cuba, Iran, Russia, and Venezuela. Moreover, the documents allege that Block facilitated multiple crypto transactions for groups linked to terrorism without reporting them to government agencies, as mandated by law.
One of the key allegations against Block is that its Square and Cash App platforms failed to collect and assess customer information adequately, which hindered proper risk assessment. The former employee claims that despite being aware of these compliance breaches, the company did not take adequate measures to rectify its procedures. Additionally, Square’s business unit allegedly failed to conduct customer due diligence on international merchant sellers and wrongfully reimbursed funds frozen for sanctions violations. Block reportedly allowed new customers of Square and Cash App to transact even after triggering sanctions alerts, further highlighting the deficiencies in its compliance processes.
The allegations against Block also touch upon its failure to report relevant transactions to the US government as required by law. It is alleged that the company did not correct its practices even after being alerted to these issues. Reports suggest that Block’s senior management and board of directors were aware of these compliance failures. An outside consultant identified nearly 50 deficiencies in Block’s internal systems, used for monitoring suspicious activity, rating customer risk, and screening sanctions violations. These revelations raise concerns about the company’s overall compliance culture and governance practices.
In response to the allegations, a spokesperson for Block stated that the company has a “responsible and extensive compliance program” in place and continually addresses “emerging threats” and regulatory issues. Block also highlighted its decision to hire an outside consultant as a demonstration of its commitment to compliance. The company mentioned that the findings of 50 deficiencies are not unusual in such reviews. Block claimed to have voluntarily reported thousands of questionable transactions to the Office of Foreign Assets Control (OFAC), which issued a no-action letter indicating that it would not pursue administrative action against the firm. However, the former employee alleges that the company failed to report thousands of other transactions, raising further questions about its compliance practices.
The scandal has resulted in significant internal upheaval within Block, with unexpected board member departures adding to concerns about the company’s governance and compliance culture. Federal regulators and law enforcement agencies are closely monitoring the situation, as further investigations could lead to substantial penalties and necessitate comprehensive reforms within the company’s operations. The outcome of these investigations will have a significant impact on the future of Block and its reputation in the fintech industry.
Despite the controversy surrounding its compliance issues, Block is known for its extensive work in the fintech industry, particularly in the realm of cryptocurrency. The company’s Cash App features support for Bitcoin, and it recently launched the Bitkey hardware wallet. Block is also involved in a crypto-mining initiative, showcasing its commitment to innovation in the digital currency space.
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