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Federal Probe into Block's Bitcoin Transactions

US federal prosecutors are looking into the inner operations of Block, a financial tech company started by Twitter co-founder Jack Dorsey. They’ve spoken with an ex-employee who claims that there have been ongoing, substantial failures to comply with regulations within Block’s two primary sectors, Square and Cash App, according to anonymous sources.

Whistleblower exposes financial misconduct at Block

The ex-staffer handed over to the prosecutors in New York some paperwork. This paperwork, they claim, shows three concerning things happening at Square and Cash App, both owned by Block.

Initially, these firms don’t gather enough customer data to assess potential risks. Secondly, Square has processed numerous transactions with countries under economic sanctions. Finally, Block has managed several cryptocurrency transactions tied to terrorist organizations.

The former employee stated that many dealings, including credit card payments, dollar transfers, and Bitcoin transactions, were not reported to the government as legally required. Despite being informed of these failures, Block did not make the necessary changes to their procedures, according to the former employee’s account to prosecutors and NBC News.

They also shared about 100 pages of documents with NBC News. These records show transactions, often for small dollar amounts, in countries that the U.S. has sanctions against – including Cuba, Iran, Russia, and Venezuela – as recent as last year.

An additional source, familiar with Block’s internal workings, confirmed the whistleblower’s claims. To protect them from possible backlash, NBC News has kept their identity hidden. The Southern District of New York has chosen not to comment.

Block faces allegations of compliance failures

Edward Siedle, a former Securities and Exchange Commission lawyer and current legal representative for an ex-Block employee, stated that Block management was aware of significant compliance issues.

The situation came to light when a former employee gave essential documents to federal prosecutors. This happened after other whistleblowers had already pointed out compliance issues at Block’s Cash App.

A Block representative relayed the firm’s commitment to maintaining an extensive and responsive compliance program. This comprehensive undertaking comprises a variety of systems and tools designed for sanctions screening.

Moreover, it facilitates diligent examination and reporting on sanctions issues, adhering stringently to regulatory obligations. Block places paramount importance on the safety and security of its ecosystem, the spokesperson emphasized.

Despite the whistleblower’s allegations, Block confidently stated that they had already reported the questionable transactions to the Office of Foreign Assets Control (OFAC). A ‘no-action letter’ from OFAC, which means no further action was needed, seemed to confirm Block’s upfront approach.

emerging threats and an evolving sanctions regulatory environment.

Block, a spokesperson for

Documents reveal that Square, another division of Block, failed to adequately screen its international customers, improperly restoring funds that were restricted due to sanctions violations. Other compliance issues were discovered at both Square and Cash App, such as allowing new users who set off sanction warnings to conduct transactions.

The papers also hint at a high chance of rule-breaking at Cash App. However, Block insists that they manage this risk well, and it primarily comes from U.S. customers.

The whistleblower noted that an external consultant found about 50 flaws in Block’s systems for monitoring unusual activities.

Although Block accepted these issues, they stated the report overstated the problems. The company underlined its ongoing commitment to fixing any identified problems and to regular checks for sanctions as part of its compliance program.

Recent issues resulted in Block’s board of directors being notified, leading to the surprising exits of two directors. Lawrence Summers, a former US treasury secretary, left the board in February. In April, director Sharon Rothstein chose not to seek re-election at the company’s annual June meeting.

Board shake-up amid compliance concerns

Board members of Block, Summers, and Rothstein, are leaving due to personal and professional reasons. Summers was on the audit committee, which was supervised by former Goldman Sachs executive, Lord Paul Deighton. Neither Summers nor Deighton were available to comment on the matter.

In the past, Block had issues with Lithuania’s financial regulators over Verse Payments Lithuania UAB, the European version of Cash App. Verse was penalized for breaking anti-money laundering and anti-terrorism financing laws. After this, Block closed down Verse because it wasn’t growing or making enough profit.

Many adults in the U.S. use payment apps like Cash App. However, these apps can be risky, and they can be used for illegal things like money laundering.

Cash App operates with the help of external banks such as Sutton Bank. An earlier complaint points out that Cash App doesn’t have a foolproof way of identifying its customers.

On March 29, Sutton Bank resolved an agreement with the Federal Deposit Insurance Corp (FDIC). This agreement addressed the same concerns raised by the whistleblowers.

It particularly focused on issues with Sutton’s connections with third-party businesses like Cash App and called for better money-laundering prevention and stronger customer identification. However, according to Block, this agreement with Sutton Bank likely won’t affect Cash App’s ongoing business dealings with the bank.