Federal prosecutors are investigating compliance lapses at financial technology firm Block, which was launched by Twitter co-founder Jack Dorsey. A former employee provided prosecutors with documents that show insufficient information collection from customers at Block’s units, Square and Cash App. The documents also reveal transactions involving countries subject to economic sanctions, as well as cryptocurrency transactions for terrorist groups. Many of these transactions were not reported to the government as required. The former employee alleges that company processes were not corrected when breaches were identified.
The former employee and another source with knowledge of Block’s monitoring programs described widespread compliance issues within the company. Documents provided to NBC News detailed transactions with entities in sanctioned countries, failures to conduct customer due diligence, and deficiencies in monitoring suspicious activities and screening for sanctions violations. The former employee reported findings from an outside consultant hired by Block, which identified almost 50 deficiencies in the monitoring systems. Block defended its compliance program, stating that it includes systems, tools, and processes for sanctions screening, as well as investigating and reporting on sanctions issues in accordance with regulatory obligations.
Cash App, a popular mobile payment platform owned by Block, allows users to send and receive money, buy stocks, and purchase Bitcoin. The company stated that it has a responsible and extensive compliance program, and it regularly updates its practices to meet emerging threats. However, the former employee disputed the company’s claim that thousands of transactions were voluntarily reported to the Office of Foreign Assets Control (OFAC), which enforces economic sanctions. The investigation has also revealed compliance issues at Square, a financial services platform used by millions of merchants.
In recent months, Block has experienced the unexpected departures of two directors, Lawrence Summers and Sharon Rothstein. Summers, a former U.S. treasury secretary, resigned from the board in February, while Rothstein announced she would not stand for re-election at the company’s annual meeting in June. The company stated that their departures were not due to disagreements on operations, policies, or practices. Both directors were informed of extensive compliance lapses within the company, according to the former employee. Block has previously encountered regulatory difficulties, including fines for violations of money laundering and terrorism financing laws.
Cash App utilizes external banking partners to conduct various services, including Sutton Bank, which issues prepaid Visa debit cards for users. The FDIC recently settled a consent order with Sutton Bank, citing “unsafe or unsound banking practices and violations of law or regulation” related to the Bank Secrecy Act. The order required Sutton to enhance its anti-money laundering and terrorism financing program and ensure compliance with customer identification requirements. While the order did not specifically name Cash App, Sutton is its largest third-party partner. Sutton Bank stated that the consent order settled longstanding issues concerning anti-money laundering controls prior to the bank’s restructuring of its program in 2023. Block indicated that the consent order was unlikely to impact its ongoing business relationship with Sutton Bank.
