NYDFS Hits Block, Inc. with $40 Million Settlement Over Cash App Compliance Failures

Key Takeaways:

• $40 Million Penalty: Block, Inc. has agreed to pay a $40 million penalty for failing to meet BSA/AML compliance requirements related to Cash App.
• Independent Monitor: Block must retain an Independent Monitor to oversee the company's compliance improvements.
• Investigation Findings: DFS found inadequate customer identification, insufficient risk-based controls, and transaction monitoring issues within Block’s operations.
• Bitcoin Transactions: The company failed to scrutinize high-risk Bitcoin transactions, creating vulnerabilities for illicit activity.
• Growth-Related Issues: Cash App’s rapid growth between 2019 and 2020 led to a significant backlog of transaction alerts that were not promptly addressed.

Deep Dive

The New York Department of Financial Services (NYDFS) has reached a $40 million settlement with Block, Inc., the parent company of Cash App, following an investigation into significant failures in its anti-money laundering (AML) program and virtual currency compliance. The settlement is a response to gaps in Block’s compliance measures, including inadequate customer identification procedures and poor transaction monitoring that exposed the company to greater money-laundering risks.

Superintendent Harris was direct in her remarks, emphasizing the importance of robust compliance, "All financial institutions, whether traditional or emerging platforms like cryptocurrency services, must adhere to the highest standards of consumer protection and financial system integrity," she said. "As Block’s Cash App grew rapidly, its compliance functions simply didn’t keep up, creating vulnerabilities that put both consumers and the broader financial system at risk."

The investigation revealed troubling flaws in Block’s Bank Secrecy Act (BSA) and AML compliance program. Notably, the company’s failure to enforce sufficient controls around high-risk Bitcoin transactions allowed anonymous transfers to slip through the cracks, unmonitored. In addition, the rapid expansion of Cash App between 2019 and 2020 caused a backlog of transaction alerts, an issue Block left unaddressed for far too long.

For a company licensed to operate both as a money transmitter and a virtual currency service in New York, this kind of oversight isn’t just a slip-up, it’s a serious violation of regulations that are designed to protect against financial crimes. Block will now be required to appoint an Independent Monitor who will oversee the company’s corrective actions and evaluate its compliance efforts moving forward. This monitor will ensure that the company strengthens its BSA/AML controls, ensuring that such gaps are never repeated.

Despite these shortcomings, Block has shown full cooperation throughout the investigation and committed to allocating significant resources to remediate its compliance issues.

"The Department is taking decisive steps to ensure accountability," Harris added, emphasizing the importance of holding companies to account for actions that undermine financial security.

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