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- Federal prosecutors are currently investigating payment processing company Block over non-compliance.
- The investigation centers on Block’s deficiency in collecting user data, Which now enables entities from sanctioned nations to process their transactions using Block’s product.
Federal prosecutors are currently investigating payment processing company Block over non-compliance with such dodging transactions of terrorist groups and sanctioned entities, which got concealed through this messaging app. The investigation, spearheaded by the U.S. Attorney’s Office for the Southern District of New York, centers on Block having to deal with its Square and Cash App departments, according to a report by NBC News.
According to the whistleblower, compliance problems have been going on for years, and many not blacklisted countries have been conducting such transactions using different payment methods, such as cryptocurrencies (e.g., BTC). The whistleblower remarked on a serious problem, namely that the firm’s executive management poorly supervised the company’s compliance section.
The documents, allegedly containing about 100 pages, report transactions processed by Square and Cash App, including those concerning sanctioned countries such as Iran, Russia, Cuba, Venezuela, etc.
Compliance Failures and Allegations
The investigation centers on Block’s deficiency in collecting user data, which has now made it possible for entities from sanctioned nations to process their transactions using Block’s product. Also, it is alleged that the company did not flag the suspicious money transfers to the federal authorities and did not amend the compliance issues after the problem was brought to their attention.
A former Securities and Exchange Commission (SEC) attorney, Edward Siedle, while representing the whistleblower, opined that the violations were known to Block’s top bosses and board members. Whistleblowers have previously pointed out through the February reports Cash App use is being exploited by both sanctions-evading parties and the general criminal fraternity, allegedly because of weak verification procedures for customers’ identities.
These allegations and similar concerns coming from different sources indicate a pattern of issues in compliance with Block’s internal policies. Also, According to a report from Hindenburg Research in March 2023, Block has evaded regulations and had a policy of poor compliance.
Regulatory Scrutiny and Consequences
Block faces further identification issues as its foreign operation—Verse Payments Lithuania UAB, was penalized for violating money laundering and terrorism financing requirements in Europe. The tight regulation has resulted in financial penalties and reputation loss for the company. Block has responded to criticism, claiming it adheres to compliance and regulatory rules and continues to face legal challenges and distrust in the eyes of the public.
The disclosure of Block’s legal difficulties has decreased investor confidence since the company’s stock value has dropped. In reply to the accusations, a spokesperson from Block noted that prudent and robust risk management procedures are in place and updated to deal with new risks and amended sanction regulations.
Broader Legal Action in the Cryptocurrency Sector
Block, Inc.’s investigation, which has been reported recently, happens as part of a broader wave of litigation against cryptocurrency firms in the United States. Changpeng Zhao, the founder of Binance, received a four-month prison term for this lapse of duty; on the other hand, co-founders of Samourai Wallet were arrested and charged with money laundering.
However, Consensys, another Ethereum development company, has challenged the SEC in court, arguing that the Commission has exceeded its mandate with enforcement actions directed at Ether.
