6 months ago
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According to an NBC report, federal prosecutors have initiated an investigation into Block, the financial technology company founded by Twitter co-founder Jack Dorsey, following allegations of compliance failures and links to terrorist networks through alleged crypto transactions.
Notably, a former employee of Block has provided documents to the Southern District of New York, revealing compliance lapses, inadequate customer information collection, and the processing of crypto transactions for sanctioned countries and terrorist groups.
Bitcoin Transactions Linked To Terrorism Revealed
Per the report, the former employee disclosed that Block’s units, Square and Cash App, failed to collect sufficient customer information necessary for assessing risks. Additionally, Square processed thousands of transactions involving countries subject to economic sanctions, such as Cuba, Iran, Russia, and Venezuela.
The documents provided to prosecutors identified numerous “small-dollar transactions” with entities in these sanctioned countries, some as recent as last year. The former employee emphasized that Block leadership and the board were aware of these compliance lapses.
The investigation also revealed that the company founded by Jack Dorsey processed multiple crypto transactions for terrorist organizations, raising significant concerns about the company’s due diligence and compliance practices.
The former employee alleged that most transactions involving Bitcoin, credit cards, and dollar transfers were not reported to the government as required. Block allegedly did not rectify the identified breaches, even after being alerted.
According to the former employee and a second individual familiar with Block’s monitoring programs, the company’s compliance section was deemed “fundamentally flawed.”
Both sources expressed concerns to NBC about the leadership responsible for the regulated compliance program. The former employee, supported by the findings of an outside consultant, identified nearly 50 deficiencies in Block’s systems for monitoring suspicious activity, assessing customer risk, and screening for sanctions violations.
Uncertain Future For Jack Dorsey’s Block
When NBC questioned Block about the ongoing probe, Block defended its compliance program, highlighting its commitment to adapting practices to evolving sanctions regulations and emerging threats.
The company asserted a comprehensive compliance program incorporating systems, tools, and processes for sanctions screening and reporting.
Block claimed that its voluntary self-disclosure to the Office of Foreign Assets Control (OFAC) resulted in a no-action letter indicating the closure of an investigation with no administrative action taken.
Jack Dorsey’s company has faced regulatory challenges in the past. Verse Payments Lithuania UAB, Block’s European equivalent of Cash App, was ordered by the Financial Market Supervisory Committee of the Bank of Lithuania to address identity verification issues related to existing clients.
The company shut down the P2P payment app Verse last year due to alleged “underwhelming” growth and profitability. Additionally, two directors, Lawrence Summers and Sharon Rothstein, unexpectedly departed from Block’s board.
However, both directors emphasized that their departures were unrelated to disagreements with the company’s operations, policies, or practices.
The federal inquiry into Jack Dorsey’s Block underscores the severe allegations of compliance failures and connections to terrorist networks through crypto transactions.
The investigation highlights the firm’s alleged inadequate information collection, economic sanctions violations, and failure to report suspicious transactions. As the probe progresses, the implications for Block’s operations and regulatory standing remain to be seen. As of this writing, Jack Dorsey has not issued any official statements on the matter.
Featured image from LA Times, chart from TradingView.com
