Block accused of mass compliance failures that saw digi-dollars reach terrorists

Fintech biz Block is reportedly under investigation by US prosecutors over claims by a former employee that lax compliance checks mean its Square and Cash App services may have been used by terrorists – or in countries that US orgs are not permitted to do business.

The ex-staffer apparently left Block – founded by former Twitter boss Jack Dorsey – with around 100 documents that detail compliance failings. Those docs were handed to prosecutors in the Southern District of New York, according to NBC News.

"It's my understanding from the documents that compliance lapses were known to Block leadership and the board in recent years," explained lawyer Edward Siedle, who is representing the leaker and was also in contact with the Feds, according to NBC.

The documents include details of a report made by outside consultants hired to ensure that Block's operation of Square and the Cash App comply with US law. The reviewers found almost 50 issues that need fixing. Block claimed that's not uncommon after reviews of complex systems, and that hiring an independent review team shows that it takes compliance seriously.

"Block has a responsible and extensive compliance program and we regularly adapt our practices to meet emerging threats and an evolving sanctions regulatory environment," a spokesperson told The Register.

"Our compliance program includes systems, tools, and processes for sanctions screening, as well as investigating and reporting on sanctions issues in accordance with our regulatory obligations. Continually improving the safety and security of our ecosystem is a top priority for Block. We have been and remain committed to building upon this work, as well as continuing to invest significantly in our compliance program."

The former worker who dumped the docs reportedly claims that Square approves merchant accounts without proper due diligence on matters such as checking if applicants are connected to sanctioned countries. If a sanctions violation was found, Square allegedly allowed merchants to keep using its services until the issue had been checked. In some cases it even reimbursed merchants from sanctioned nations Russia, Iran, and Cuba.

The Cash App – which allows peer-to-peer payments between individuals in much the same way as Venmo – is designed so poorly that it's very difficult even to check if a transaction is compliant with US laws, one document reportedly claims.

"Due to the nature of the product, customers do not appear to leave stored balances in Cash App very long, so our ability to block a stored balance or reject funds is limited. In virtually all situations, balances have been depleted by the time of review," the doc apparently reveals.

The leaker claims management was alerted to this but didn't fix the issue, despite the possibility that the issues allowed terrorist groups to make multiple cryptocurrency transactions. Thousands of seemingly illegal transactions were not reported to the appropriate government authorities, it's further alleged.

"From the ground up, everything in the compliance section was flawed," the former employee told NBC. "It is led by people who should not be in charge of a regulated compliance program."

Block's stock price fell over eight percent when news of the legal action broke and has only rebounded slightly since. Prosecutors are yet to comment on the matter. ®