Whistleblowers Allege Inadequate Customer Due Diligence by Cash App

Federal financial regulators are reportedly investigating allegations made by two whistleblowers regarding Cash App.

The whistleblowers claim that the mobile payment platform and the entities providing transaction services to its users did not perform adequate due diligence on customers, potentially opening the door to money laundering, terrorism financing and other illegal activities, NBC News reported Friday (Feb. 16).

The whistleblowers said Cash App had “no effective procedure” to establish the identity of its customers, according to the report. The complaints filed by the whistleblowers said transactions made through Cash App included dealings with entities under sanction by the Treasury Department’s Office of Foreign Assets Control, operations known for selling personal information and credit card data for illegal purposes, and offshore gambling sites prohibited to U.S. citizens.

In response to an inquiry by NBC News, Cash App provided a statement saying that the company performs 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.”

The whistleblowers have submitted complaints to the Financial Crimes Enforcement Network (FinCEN), the Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC), according to the report.

The allegations made by the whistleblowers come at a time when regulators are increasing scrutiny on anti-money laundering practices, the report said. For example, FinCEN has proposed a new rule that would require investment advisers to adopt systems to prevent money laundering and report suspicious transactions. Similarly, federal prosecutors and the SEC took action against Danske Bank for inadequate transaction monitoring systems.

The whistleblowers’ allegations cover the period from 2016 to 2022 and describe a “shadow financial system beyond the reach of regulators” where due diligence on Cash App’s users was negligent, per the report.

This report comes on the heels of news that Manhattan District Attorney Alvin Bragg wrote to payment apps like Cash App, Venmo and Zelle, asking them to institute greater protections against theft.

Bragg suggested adding a “second and separate password for accessing the app on a smartphone as a default security option,” imposing lower limits on the amount of daily transfers, and requiring wait times and secondary verification of up to a day for large transactions.