Fintech firm Block has agreed to pay a $40m fine after New York’s Department of Financial Services (DFS) found “significant” lapses in its anti-money laundering compliance programme linked to its Cash App platform.
The violations contravened the Department’s money transmission and virtual currency rules.
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Block has held a licence from the New York Department of Financial Services (NYDFS) to carry out money transmission within the state since 2013. In 2018, the firm was allowed to conduct virtual currency business through Cash App.
An investigation by the Department revealed “critical gaps” in Block’s Bank Secrecy Act (BSA)/AML programme.
These included inadequate procedures for customer due diligence, a lack of effective risk-based controls, and failure to adequately monitor transactions.
Specifically, the company allowed high-risk Bitcoin transactions to occur without sufficient oversight, raising concerns about its anti-money laundering practices.
The company’s rapid expansion between 2019 and 2020 aggravated the situation. Block neglected to address a backlog of transaction alerts, leaving them unresolved for an extended period.
As a result, the Department concluded that Block’s monitoring processes were insufficient to detect and prevent potential illicit transactions.
Block is also required to appoint an independent monitor.
The independent monitor will assess the company’s adherence to the Department’s regulations, evaluate its corrective actions, and ensure the firm remedies the identified compliance deficiencies.
Superintendent of Financial Services Adrienne Harris said: “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.
“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.
“The Department is taking decisive steps to ensure accountability, including the appointment of an independent monitor to oversee corrective measures.”
