Compliance violations? - Investigations against Jack Dorsey's company Block

Payments company Block, led by Twitter co-founder Jack Dorsey, is currently facing an investigation by the U.S. Attorney's Office for the Southern District of New York. According to a report by NBC News, the investigation is focusing on the Square and Cash app payment services, which were allegedly used to evade sanctions and facilitate fraudulent transactions and other criminal activity.

This is not the first time that Block has had difficulties with supervisory authorities. In the past, however, this mainly concerned Cash App's external banking partners, which provide various services for the company, which is not a bank itself. Serious and systematic violations of the prevention of money laundering and terrorist financing were identified at some banking partners.

This year, however, more and more statements from employees have emerged that relate specifically to the company. Back in February, NBC reported on possible compliance violations at Cash App. According to the report, the company had inadequate controls in place to prevent illegal activities such as money laundering and terrorist financing. Employee concerns were allegedly ignored. However, the company has asserted that it is taking strict action against such activities.

Block has a responsible and comprehensive compliance program, and we regularly adapt our practices to address new threats and an evolving regulatory environment for sanctions. Our compliance program includes systems, tools and processes for reviewing sanctions and investigating and reporting on sanctions issues in accordance with our legal obligations. Continuously improving the security of our ecosystem is a top priority for Block. We have been and remain committed to building on this work and continuing to invest significantly in our compliance program.
_{Block spokesperson in interview}

Despite these statements, the public prosecutor's office began its initial investigation in February.

According to the latest investigation by NBC News, prosecutors are working with former employees of the company. They have now allegedly submitted more than 100 pages of internal documents showing that the company's compliance department performed inadequately and incorrectly. Allegedly, not enough information was collected from Square and Cash App customers for a sufficient risk assessment. The company is also alleged to have ignored sanctions violations, warnings or necessary reviews. For example, "thousands" of questionable transactions (with US dollars, Bitcoin and by credit card) linked to sanctioned countries (Cuba, Iran, Russia and Venezuela) and terrorist organizations were allegedly not reported to the US Office of Foreign Assets Control (OFAC), the agency responsible for enforcing economic sanctions.

Everything in the compliance department was fundamentally flawed. [...] It's run by people who should not be in charge of a regulated compliance program.
_{Anonymous ex-employee of Block in an interview}

According to the anonymous ex-employee's allegations, such lax practices over several years led to widespread compliance violations in the company's two main business units, Square and Cash App. In addition to senior management, Block 's board of directors was also informed of the company's extensive failings, the former employee claimed to prosecutors.

Block, however, denies that it knowingly violated sanctions and emphasizes that sanctions audits are conducted regularly. The company conducts recurring sanctions reviews of all merchants(Square) and users(Cash App) and its program includes the essential components expected by OFAC. Accordingly, Block also assumed that the affected transactions were voluntarily reported to OFAC. Neither Block nor the public prosecutor's office have disclosed any further details on the ongoing investigations and current allegations.

The lack of effective controls could cause serious problems for the company - especially if the management knew about it and failed to correct the shortcomings.

The example of Binance founder Changpeng Zhao (CZ) earlier this week showed that knowingly circumventing sanctions and supporting criminal activity in the US can lead not only to a fine but also to imprisonment. On April 30, a court in Seattle sentenced CZ to four months in prison - Blocktrainer reported.

Edward Siedle, formerly a lawyer for the US Securities and Exchange Commission (SEC), is representing the former Block employee and whistleblower. Siedle participated in the exchange with the prosecution and is convinced that Block 's top management and board knew about the compliance violations.

I understand from the documents that Block management and the Board of Directors were aware of compliance violations in recent years.
_{Edward Siedle}

It remains to be seen whether these serious allegations will be confirmed by the investigation and what consequences this will have for CEO Jack Dorsey.