Jack Dorsey’s fintech company, Block, Inc. (formerly Square), has come under scrutiny from U.S. federal prosecutors over alleged compliance lapses in its cryptocurrency business.
According to reports, prosecutors from the Southern District of New York are investigating Block’s payment arms, Square and Cash App, based on information provided by a former employee turned whistleblower.
TLDR
- U.S. federal prosecutors are investigating Jack Dorsey’s fintech company Block, Inc. (formerly Square) over alleged compliance lapses in its cryptocurrency business.
- A whistleblower provided documents claiming that Block’s Square and Cash App processed thousands of transactions for users from sanctioned countries and terrorist groups, including Bitcoin transactions, without reporting them to the government.
- The allegations suggest that Block’s compliance framework was flawed, and the issues were known to the company’s leadership and board but not addressed.
- The investigation is part of a broader crackdown by U.S. regulators on the cryptocurrency industry, with recent legal actions against companies like Binance and Samourai Wallet.
- Block has responded by stating that it maintains a robust compliance program that is regularly updated to address emerging threats and evolving sanctions regulations.
The whistleblower has provided prosecutors with roughly 100 pages of documents that allegedly show Block processed thousands of transactions for users in countries subject to U.S. economic sanctions, such as Iran, Russia, Cuba, and Venezuela. Additionally, the documents claim that Block facilitated crypto transactions for terrorist groups.
The transactions in question, which included credit card, fiat, and Bitcoin transactions, were mostly in small dollar amounts.
However, the whistleblower alleges that most of these transactions were not reported to the government, as required by law. The former employee claims that Block did not correct its processes when alerted to the alleged breaches of compliance.
According to the whistleblower, the compliance issues within Block’s Square and Cash App units were widespread and long-standing.
“From the ground up, everything in the compliance section was flawed,” the whistleblower told NBC News, adding that the department was “led by people who should not be in charge of a regulated compliance program.”
Edward Siedle, a former Securities and Exchange Commission (SEC) lawyer representing the whistleblower, stated that the documents suggest the compliance breaches were “known to Block leadership and the board in recent years.”
In response to the allegations, a Block spokesperson told NBC News that the company maintains a “responsible and extensive” compliance program that is regularly adapted to address emerging threats and evolving sanctions regulations.
The spokesperson claimed that Block’s compliance program incorporates sophisticated systems, tools, and processes for screening against sanctions, as well as mechanisms for investigating and reporting on sanctions-related matters, all in accordance with the company’s regulatory obligations.
The reported probe into Block’s compliance practices comes amidst a broader crackdown on the cryptocurrency industry by U.S. regulators.
Recent legal actions include the sentencing of Binance founder Changpeng Zhao for failing to maintain a compliant Anti-Money Laundering program, the arrest of Samourai Wallet co-founders on money laundering charges, and Consensys’ lawsuit against the SEC over its alleged campaign to deem Ether as a security.
As the investigation into Block’s compliance practices unfolds, it remains to be seen how the company will address the allegations and whether this probe will lead to further regulatory action in the cryptocurrency space.
Compliance with anti-money laundering (AML) and counter-terrorist financing (CTF) regulations is a critical issue for cryptocurrency businesses, and the allegations against Block highlight the importance of maintaining robust compliance frameworks.
