Fintech giant Block faces scrutiny from federal prosecutors in the Southern District of New York amid allegations of significant compliance failures involving its main business units — Square and Cash App, as reported by NBC News on May 1.

Following claims of compliance breaches made by a former employee, federal prosecutors initiated an investigation into Block’s transaction monitoring systems.

Internal documents provided by the former employee allegedly indicate that Square processed transactions involving entities in nations under US sanctions, such as Cuba, Iran, Russia, and Venezuela. Additionally, Block purportedly facilitated crypto transactions for groups linked to terrorism without reporting them to government agencies as required by law.

The former employee also alleged inadequate customer due diligence by Square and Cash App, hindering proper risk assessment. Despite being aware of the breaches, the firm allegedly failed to address the issues.

Alleged failures include Square's failure to conduct due diligence on international merchant sellers and the wrongful reimbursement of funds frozen for sanctions violations. Moreover, Square and Cash App reportedly allowed transactions involving sanctioned countries and handled crypto transactions for terrorist groups without proper reporting.

Block has defended its compliance efforts, stating it has an extensive program and addresses emerging threats and regulatory issues. The firm also reported questionable transactions to the Office of Foreign Assets Control (OFAC) and hired an outside consultant to address compliance deficiencies.

However, the former employee claims Block failed to report thousands of other transactions. The revelations have caused internal turmoil within Block, with unexpected board member departures raising concerns about governance and compliance.

Federal regulators and law enforcement are closely monitoring the situation, and further investigations could result in significant penalties and operational reforms within Block.

Block, known for its involvement in crypto, supports Bitcoin through its Cash App and recently launched the Bitkey hardware wallet. It also has a crypto-mining initiative.