Federal prosecutors have set their sights on Block, the financial technology company co-founded by Twitter's Jack Dorsey, as allegations of compliance irregularities swirl around its central units, Square and Cash App.
Sources privy to the matter have disclosed that discussions with a former employee have unearthed undisclosed documents shedding light on various compliance deficiencies. These revelations, as reported by NBC News, include accusations of inadequate customer information collection, transactions involving countries under U.S. sanctions, and facilitation of cryptocurrency dealings for terrorist groups. Shockingly, it's alleged that thousands of transactions went unreported to the government, painting a bleak regulatory picture for Block.
"The compliance section was flawed from the ground up," voiced the former employee to NBC News, expressing concern over the leadership overseeing the regulated compliance program.
Despite warnings, Block purportedly failed to address these breaches, according to information shared with prosecutors. The Southern District of New York, where the investigation is unfolding, has refrained from commenting on the ongoing probe. The compliance woes extend to Square, where insufficient due diligence on international merchants and improper handling of funds frozen for sanctions violations were uncovered.
Edward Siedle, a former attorney for the Securities and Exchange Commission (SEC) now advocating for the former employee, conveyed that compliance lapses were allegedly known to Block leadership and the board in recent years.
While Block defended its compliance program, emphasizing voluntary transaction reporting to the Office of Foreign Assets Control (OFAC), specific deficiencies outlined in documents provided to prosecutors remain unaddressed.
Moreover, Block's regulatory hurdles include a settlement between Sutton Bank, a Cash App partner, and the Federal Deposit Insurance Corp. (FDIC) over alleged anti-money laundering regulation breaches. While Sutton Bank resolved issues related to customer identification, Block asserts that the consent order is unlikely to disrupt its ongoing collaboration with the bank.
These allegations surface amidst a backdrop of notable departures from Block's board of directors, including Lawrence Summers, the former U.S. Treasury Secretary, who resigned in February. The departure of Sharon Rothstein in April raises further concerns about corporate governance and oversight.
On the financial front, Block recently announced robust profits from Bitcoin sales via its Cash App platform in Q4 2023. With a staggering 90% increase in gross profit compared to the previous year, Block raked in $66 million from Bitcoin transactions, driven by surging market prices and Bitcoin inventory appreciation. Cash App's success in Bitcoin trading continues to fuel Block's growth, attracting a substantial influx of new customers.
Despite financial success, Block finds itself navigating turbulent regulatory waters, with the outcome of the federal investigation poised to have significant ramifications for the future of the company.
