Block Fined $40 Million for Cash App’s Anti-Money Laundering Failures

Block will pay a $40 million penalty over anti-money laundering deficiencies in its Cash App.

The New York Department of Financial Services (NYDFS) announced the penalty Thursday (April 10), saying it came after the regulator found “significant failures” in Block’s Bank Secrecy Act/anti-money laundering (BSA/AML) compliance program.

“All financial institutions, whether traditional financial services companies or emerging cryptocurrency platforms, must adhere to rigorous standards that protect consumers and the integrity of the financial system,” NYDFS Superintendent Adrienne Harris said in a news release.

“Compliance functions must keep pace with company growth or expansion. The rapid growth of Block’s Cash App absent a robust compliance function created risk and vulnerabilities that violated the rules financial services companies operating in New York must adhere to.”

“Notably, Block’s lax treatment of high-risk Bitcoin transactions allowed largely anonymous transactions to proceed without proper scrutiny,” the release said. “Additionally, Block’s rapid growth between 2019 and 2020 contributed to a severe transaction alert backlog, which Block left unaddressed for a significant period of time.”

Aside from the monetary penalty, Block is required to retain an independent monitor to carry out a comprehensive evaluation of its compliance with NYDFS regulations. The department said Block cooperated with the investigation and has “already committed significant financial and other resources” to remediate the issues identified by the investigation.

“Block did not admit to any of the department’s findings, and we are pleased to put this matter behind us,” the company said in a statement provided to PYMNTS. “We share the department’s dedication to addressing industry challenges and remain committed to investing across our operations to help promote a safe and healthy financial system.”

The company published a statement on its website Thursday that — while not mentioning the investigation — outlined Cash App’s compliance efforts, which include a bitcoin monitoring program featuring things like “enhanced due diligence” and real-time transaction blocking.

“This is an enduring effort,” the company said. “We are committed to continued investment in safety, and full compliance with both the letter and the spirit of the law as our program continually evolves.”

The NYDFS action comes amid calls for updates to federal anti-money laundering (AML), rules, the subject of a recent House Financial Services Committee hearing.

Darrin McLaughlin, executive vice president and chief AML and sanctions officer for Flagstar Bank, testified before the committee on behalf of the American Bankers Association.

“We need a strategic approach” that includes the banking sector, the government and other stakeholders, he said, and that “regulatory reforms let us focus on the real threat.”

Banks have embraced AML compliance and anti-fraud programs, he said, to identify anomalous patterns of fund flows. However, McLaughlin noted an issue with the suspicious activity reports (SARs) that banks are required to file.

“By the time law enforcement receives the reports, it is often too late,” he said, adding that the “federal government has a database that is bursting with information that should be shared with the private sector.”