Federal prosecutors are currently investigating Block, formerly known as Square, over "compliance issues" related to its handling of customer information and transactions. The inquiry follows allegations and the release of internal documents suggesting that Block, co-founded by Jack Dorsey, has facilitated fraudulent activities and failed to adhere to regulatory standards.

The investigation gained momentum after a report titled "Block: How Inflated User Metrics and “Frictionless” Fraud Facilitation Enabled Insiders To Cash Out Over $1 Billion" was published by Hindenburg Research in March 2023. The report accused Block of engaging in practices that facilitate consumer and government fraud, circumventing regulation, dressing up predatory loans, and presenting misleading user metrics to investors.

Recently, a former Block employee provided documents to authorities that shed light on several alleged compliance failures within the company. According to NBC, which cited two persons with "direct knowledge," the documents revealed inadequate collection of customer information, transactions with sanctioned countries like Cuba, Iran, Russia, and Venezuela, and the processing of "multiple cryptocurrency transactions for terrorist groups." These activities were purportedly not reported as required by law, and the company failed to rectify the issues despite being aware of them.

Edward Siedle, a former Securities and Exchange Commission lawyer representing the whistleblower, told NBC, “It’s my understanding from the documents that compliance lapses were known to Block leadership and the board in recent years.”

Block's mobile payment platform, Cash App, has also been implicated in the investigation. Two other whistleblowers previously alleged compliance failures with the app, which facilitates instant money transfers and Bitcoin transactions. Despite the allegations, Block maintains that it has a robust and responsible compliance program. In a statement to NBC, Block said, “Block has a responsible and extensive compliance program and we regularly adapt our practices to meet emerging threats and an evolving sanctions regulatory environment.”

In addition to Cash App, federal prosecutors are examining Square, another segment of Block's operations that caters to millions of merchants. Documents provided to prosecutors, reviewed by NBC News, allege that Square failed in basic customer due diligence and mishandled funds related to sanctions violations. They also suggest that new customers could transact during sanctions alerts before a proper resolution was made, pointing to potential gaps in the sanctions keyword screening process.

Furthermore, it has been asserted that Cash App's design may increase compliance risks, with a document stating that stored balances are typically depleted before reviews can take place, "limiting the platform's ability to block or reject funds."

The recent departure of board members Lawrence Summers and Sharon Rothstein has coincided with the unfolding of these events, although the reasons for their departures have not been explicitly linked to the investigation.

NBC Article