Block, owner of Cash App and Square, is reportedly facing a Department of Justice investigation.
Federal prosecutors are in discussions with an ex-employee about allegations of widespread compliance failures at Cash App and Square going back years, NBC News reported Wednesday (May 1), citing unnamed sources.
“From the ground up, everything in the compliance section was flawed,” the former employee said, per the report. “It is led by people who should not be in charge of a regulated compliance program.”
The former employee has given prosecutors documents that they say show that Cash App, a mobile payments platform, and Square, a merchant financial services platform, do not collect sufficient information from customers to assess their risks, according to the report.
Other documents show Square processed transactions involving countries subject to economic sanctions and that Block processed cryptocurrency transactions for terror groups, the report said.
Block did not immediately reply to PYMNTS’ request for comment. The NBC News report included a statement from the company saying it has a “responsible and extensive compliance program” that is routinely adapted “to meet emerging threats and an evolving sanctions regulatory environment.”
Wednesday’s news follows another NBC News report from February that regulators were investigating allegations from two whistleblowers regarding Cash App. They claimed the company and the entities providing transaction services to its users did not perform adequate due diligence on customers.
The whistleblowers also alleged Cash App had “no effective procedure” to establish the identity of its customers. Cash App responded by saying it conducts due diligence on customers, employing “several hundred people who support Cash App’s know your customer/due diligence, anti-money laundering and related compliance functions, and augment that workforce with supplemental staffing and resources.”
Speaking with PYMNTS last week about the state of the FinTech space after the first quarter of the year, Thredd CEO Jim McCarthy stressed the importance of risk management and compliance in an environment marked by strict regulatory oversight, especially in areas like anti-money laundering and know your customer/know your business protocols.
“There’s a real focus on risk and compliance, and that is necessary,” he said. “It’s hygiene. But there was a lot of fast growth across banking and FinTech without a focus on that.”
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