Block Inc., the company behind Cash App and led by Jack Dorsey, has been fined $ 40 million by the New York Department of Financial Services (NYDFS).
The fine, announced on 10 April, stems from widespread in the anti-money laundering practice (AML) of the company and compliance systems with regard to its virtual currency activities.
NYDFS head inspector Adrienne Harris said that companies should scale their compliance programs in addition to their growth. She noted that the shortcomings of Block created vulnerabilities that could have been avoided with good supervision.
Harris said:
“All financial institutions, whether it is traditional financial service providers or emerging cryptocurrency platforms, must adhere to rigorous standards that protect consumers and the integrity of the financial system.”
Block is obliged to pay the fine within 10 days and will also be placed under the supervision of an independent monitor for 12 months. During this period, the company must revise its AML checks, sanctions screening and transaction monitoring processes
Block’s weak supervision of Bitcoin transactions
According to the ConsentThe financial regulator noted that Block did not meet the state requirements for monitoring digital activatransactions.
According to the NYDFS, the company’s compliance program has not detected or marked Bitcoin transactions that are linked to portfolios related to illegal or sanctioned activities, unless certain barriers were exceeded.
In particular, warnings were not activated unless a receiving wallet had more than 1% exposure to portfolios with terrorists.
Moreover, transactions to such portfolios were not blocked until that exposure exceeded 10%. The approach -based approach has violated the expectations of the regulations that require proactive risk management.
The authorities emphasized that any involvement in portfolios with a high risk, even below 1%, requires a solid, risk -based reason. Without this, the company did not fall due to its obligations under federal and national financial laws for preventing crimes.
Involved in mixers
Another point of care was Block’s handling of transactions that were routed by crypto mixers, services that mask the origin and destination of funds, making them attractive to criminals.
Despite their risky nature, Block continued to classify these transactions as “average” risk instead of “high”, and ignored repeated warnings from supervisors.
NYDFS also criticized Block’s inability to handle the volume of transaction warnings. From 2018 to 2020, the backlog of the company of unprocessed notifications went from 18,000 to more than 169,000.
This increase was accused of the company’s failure to anticipate the compliance requirements that are linked to the rapid growth of the Cash app. As a result, some suspicious activity reports (SARS) were submitted more than a year after the first reports, so that the investigation was considerably postponed.
