Block Inc., the company behind Cash App and led by Jack Dorsey, has been hit with a $40 million fine by the New York Department of Financial Services (NYDFS). The penalty, announced on April 10, is a result of significant lapses in the company’s anti-money laundering (AML) and compliance systems related to its virtual currency operations.
NYDFS Superintendent Adrienne Harris emphasized the importance of companies scaling their compliance programs alongside their growth. She stated that Block’s failures created vulnerabilities that could have been avoided with proper oversight. Harris noted, “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.”
As part of the penalty, Block is required to pay the fine within 10 days and will be placed under the supervision of an independent monitor for 12 months. During this time, the company must revamp its AML controls, sanctions screening, and transaction monitoring processes.
The Consent Order from the financial regulator revealed that Block did not meet state requirements for monitoring digital asset transactions. The company’s compliance program failed to detect or flag Bitcoin transactions linked to wallets associated with illicit or sanctioned activities unless specific thresholds were exceeded. Alerts were not triggered until a receiving wallet had more than 1% exposure to terrorist-connected wallets, and transactions were not blocked until that exposure crossed 10%.
Furthermore, Block’s handling of transactions routed through crypto mixers, services that obfuscate the origin and destination of funds, raised concerns. Despite the high-risk nature of these transactions, the company classified them as “medium” risk instead of “high,” disregarding warnings from regulators.
The NYDFS also criticized Block’s inability to manage the volume of transaction alerts. The company’s backlog of unprocessed alerts increased from 18,000 to over 169,000 between 2018 and 2020, leading to delays in filing suspicious activity reports (SARs) and hindering investigations.
Overall, the fine serves as a reminder to financial institutions, including cryptocurrency platforms, of the importance of robust compliance programs to protect consumers and maintain the integrity of the financial system. Block must now take the necessary steps to enhance its AML controls and ensure compliance with regulatory requirements to prevent similar lapses in the future.