New York Regulator Imposes $40 Million Fine on Block for Anti-Money Laundering Violations

Block, the financial services company known for its widely used peer-to-peer payments platform, Cash App, has recently faced a hefty fine of $40 million imposed by the New York State Department of Financial Services (DFS). This penalty stems from significant failures in anti-money laundering (AML) and virtual currency compliance, highlighting the importance of adherence to regulatory standards in the financial sector.

Details of the Fine Against Block

The $40 million fine was triggered by a thorough investigation conducted by the DFS, which revealed numerous deficiencies in Block’s AML compliance program, particularly in relation to cryptocurrency transactions facilitated through Cash App. Since obtaining authorization to conduct money transmission in New York in 2013 and virtual currency operations in 2018, Block has struggled to maintain adequate risk controls and transaction monitoring systems.

Key Findings from the DFS Investigation

• Inadequate Customer Due Diligence: Block was criticized for failing to conduct proper checks on its customers.
• Insufficient Risk-Based Controls: The company did not implement effective measures to prevent illicit activities.
• Delays in Reviewing Suspicious Transactions: There were significant delays in addressing suspicious activity reports.
• High-Risk Bitcoin Transactions: Many transactions were processed with insufficient scrutiny, allowing potentially anonymous transfers.

Moreover, the DFS noted that Block’s rapid expansion between 2019 and 2020 exacerbated these compliance issues, leading to a backlog of unaddressed suspicious activity reports. This situation posed vulnerabilities that could be exploited for money laundering, ultimately compromising the integrity of the financial system.

Response from DFS Superintendent

DFS Superintendent Adrienne A. Harris emphasized that the fine was a necessary response to the “serious deficiencies” observed in Block’s compliance procedures. She stated, “The rapid growth of Block’s Cash App absent a robust compliance function created risks and vulnerabilities that violated the rules financial services companies operating in New York must adhere to.”

Future Compliance Measures

As part of the settlement, Block is required not only to pay the $40 million penalty but also to engage an independent monitor. This external oversight is intended to ensure that the company implements effective improvements and remains compliant with the DFS regulations moving forward.

Harris reiterated the critical nature of aligning compliance functions with business growth, stating, “All financial institutions, whether traditional financial services companies or emerging cryptocurrency platforms, must adhere to strict standards that protect consumers and the integrity of the financial system.”

For more information on the regulatory requirements for financial services, visit the New York State Department of Financial Services website.