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Block Facing Federal Prosecution Over Compliance Failures
Fintech giant Block is currently under intense scrutiny by federal prosecutors from the Southern District of New York. The prosecutors are investigating allegations of significant compliance failures within Block’s main business units which include Square and Cash App. These allegations were reported by NBC News on May 1st.
Allegations of Compliance Failures
The probe was launched following disclosures made by a former employee who highlighted numerous lapses in the company’s transaction monitoring systems. The former employee provided internal documents to federal prosecutors indicating that Square, a business unit of Block, processed transactions with entities in nations that are under US sanctions such as Cuba, Iran, Russia, and Venezuela.
The documents also alleged that Block facilitated multiple crypto transactions for groups linked to terrorism without reporting these activities to government agencies as mandated by law. The former employee claimed that Block failed to collect and assess customer information adequately, which impeded proper risk assessment procedures.
Multiple Failures Uncovered
Furthermore, Square was found to have failed to conduct customer due diligence on international merchant sellers and wrongfully reimbursed funds that were frozen due to sanctions violations. The company also allowed new customers to transact even after triggering sanctions alerts.
In addition to these issues, Block allegedly handled transactions involving entities in sanctioned countries and facilitated crypto transactions for terrorist groups. The company reportedly did not report these transactions to the US government as required and failed to correct these practices even after being made aware of the breaches.
Internal Upheaval and Response
A spokesperson for Block defended the company, stating that it has a robust compliance program in place and consistently addresses regulatory issues. Block also mentioned that the decision to hire an outside consultant reflects its commitment to compliance.
The company 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 no administrative action would be taken against Block. However, the former employee alleges that thousands of other transactions went unreported.
These revelations have caused significant internal upheaval within Block, with unexpected departures of board members raising concerns about governance and compliance practices within the company. Federal regulators and law enforcement continue to closely monitor the situation, with potential penalties and the need for comprehensive reforms looming.
Conclusion
In addition to traditional payment services, Block is heavily involved in the world of cryptocurrency. With its Cash App supporting Bitcoin and the recent launch of the Bitkey hardware wallet, the company’s crypto-mining initiative underscores its commitment to innovation in the digital asset space.
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