According to reports, federal prosecutors in the United States are conducting an investigation into Block, Inc., a fintech company owned by Jack Dorsey. This investigation comes after documents allegedly exposing persistent and extensive compliance violations at the firm’s payment subsidiaries, Square and Cash App, were leaked by a whistleblower.
Two sources with knowledge of the situation told NBC News on Wednesday that the company founded by Twitter co-creator allegedly processed crypto transactions associated with sanctioned countries and terrorist organizations due to inadequate checks.
Block under the government’s eye
Prosecutors from the Southern District of New York were presented with documents, during the course of the discussions, by the former employee. These documents purport to demonstrate that Square and Cash App customers are not provided with adequate information to assess their risks.
Furthermore, the documents indicate that Square facilitated thousands of transactions involving countries subject to economic sanctions, while Block handled several crypto transactions on behalf of terrorist organizations.
The former employee stated that the majority of the transactions discussed with prosecutors, including dollar transfers, credit card transactions, and Bitcoin, were not reported to the government as required.
The expose’ notes that when Block was informed of the breaches, it failed to remedy company processes. The report was backed by the former employee who spoke to prosecutors and NBC News.
The former employees provided NBC News with approximately 100 pages of documents detailing transactions involving entities in countries subject to U.S. sanctions restrictions—Cuba, Iran, Russia, and Venezuela. These transactions date to as recently as last year. The majority of the transactions involved minor dollar amounts.
From the ground up, everything in the compliance section was flawed [..] It is led by people who should not be in charge of a regulated compliance program.
Whistleblower to NBC
In addition, the correspondence trace supports claims that Block continued to facilitate transactions involving sanctioned entities long after it became aware of their misuse of its services.
What is Block’s stand on all this?
According to former Securities and Exchange Commission attorney Edward Siedle, who is representing the whistleblower, the documents indicate that compliance violations were “It’s my understanding from the documents that compliance lapses were known to Block leadership and the board in recent years.”
A Block spokeswoman reiterated the firm’s dedication to upholding a strong compliance procedure in response to these claims. They underlined Block’s dedication to modifying its compliance procedures in response to new risks and shifting regulatory frameworks. She said,
Block has a responsible and comprehensive compliance program and we regularly adapt our practices to address emerging threats and an evolving sanctions regulatory environment. Our compliance program includes systems, tools and processes for sanctions screening, as well as investigating and reporting on sanctions issues in accordance with our legal obligations.
Block’s Representative
NBC was unable to obtain direct responses from the fintech company regarding a number of its compliance failures. Block stated in a statement that its external counsel, consultants, and in-house legal team are “advicing” on the matter and suggesting suitable remediation. The company further stated that it routinely screens all of its merchants for sanctions.
Regulatory clampdown takes course in the crypto community
The purported investigation into Block, Inc. coincides with an upsurge of legal proceedings against crypto companies in the United States.
On April 30, Changpeng Zhao, the founder of Binance, received a four-month prison sentence subsequent to his guilty plea for neglecting to uphold a legally compliant anti-money laundering program at the cryptocurrency exchange.
The co-founders of Samourai Wallet, a Bitcoin wallet and crypto mixer, were apprehended on allegations of money laundering on April 24. Later, the court heard their not-guilty pleas, and they were released on a $1 million bond.
In a lawsuit filed on April 25, Consensys, an Ethereum development firm, accused the SEC of orchestrating a campaign to “seize control over the future of crypto” through enforcement actions designed to classify Ether as a security.
Consensys disclosed that it had obtained a Wells notice from the SEC on April 10, a notification that frequently precedes enforcement proceedings.
