TLDR
- Block Inc. is negotiating with New York regulators to settle allegations regarding its Anti-Money Laundering and Bitcoin programs
- The company already settled with multiple state regulators, agreeing to pay $80 million in penalties
- Block must appoint an independent consultant to review its AML Program as part of prior settlements
- The Consumer Financial Protection Bureau investigation led to $55 million in civil penalties plus $75-120 million in customer restitution
- Block is also in a tax dispute with San Francisco over Bitcoin-related revenue
Block Inc., the payments company led by former Twitter CEO Jack Dorsey, is currently in negotiations with New York state regulators to resolve allegations related to its Anti-Money Laundering (AML) and Bitcoin programs, according to a recent regulatory filing.
The company disclosed in a February 24 filing with the Securities and Exchange Commission that it is engaged in “continuing negotiations” with the New York State Department of Financial Services (NYDFS). These discussions center on “aspects of its Bank Secrecy Act/Anti-Money Laundering and Bitcoin programs,” the filing stated.
“The company is engaging in conversations with NYDFS to determine whether this matter can be settled on acceptable terms,” Block added in the disclosure. While the filing mentioned that NYDFS proposed settlement terms in January, no specific details about these terms were provided.
Block indicated that it has set aside funds for a potential settlement but considers the amount “not material” to its financial outlook for 2024. This suggests the company does not expect the settlement to have a major impact on its finances this year.
The current negotiations with New York regulators are part of a broader pattern of regulatory challenges that Block has faced in recent years. Between January 2021 and March 2023, money transmission regulators from multiple U.S. states investigated the company’s operations.
These investigations reportedly uncovered deficiencies in Block’s AML Program, particularly regarding compliance with the Bank Secrecy Act. The Bank Secrecy Act requires financial institutions to help government agencies detect and prevent money laundering by maintaining certain records and reporting suspicious activity.
In January, Block reached a settlement agreement with multiple state money transmission regulators over these compliance issues. However, New York was not among the states included in this settlement, which explains the ongoing separate negotiations with NYDFS.
As part of the earlier multi-state settlement, Block agreed to pay $80 million in penalties. The company expects to complete these payments by February 2025, according to the filing. It’s worth noting that Block neither admitted nor denied any wrongdoing in agreeing to this settlement.
The multi-state settlement also requires Block to take several steps to improve its compliance programs. The company must appoint an independent consultant to review and enhance its AML Program. Additionally, a Compliance Management Committee will be established to oversee the implementation of corrective measures.
More Regulatory Hurdles
Block’s regulatory challenges extend beyond the AML issues. In January, the Consumer Financial Protection Bureau (CFPB) investigated Cash App, Block’s popular mobile payment service, over its handling of customer complaints and disputes.
This CFPB investigation resulted in Block agreeing to pay a $55 million civil penalty. The company also committed to paying between $75 million and $120 million in restitution to affected Cash App customers. These payments are meant to compensate customers who may have been harmed by the company’s practices.
Block is also dealing with tax-related issues. The company is currently in a dispute with the San Francisco Treasurer and Tax Collector’s office, which audited Block’s tax receipts from 2020 to 2022. The local tax authority claims that additional taxes are owed on Bitcoin-related revenue generated by the company during this period.
Block Inc. operates several business lines beyond Cash App, including Square, which provides payment processing services to merchants, and TBD, a Bitcoin-focused business unit. The company also owns TIDAL, a music streaming service, and has interests in blockchain technologies.
Jack Dorsey, who co-founded Twitter (now X) and serves as Block’s CEO, has been a vocal supporter of Bitcoin and blockchain technology. Under his leadership, Block has made Bitcoin a central part of its business strategy, including adding Bitcoin trading features to Cash App.
The ongoing regulatory scrutiny comes as financial regulators around the world are paying closer attention to cryptocurrency-related businesses and money transmission services. Companies operating in these areas face growing pressure to maintain robust compliance programs to prevent financial crimes like money laundering.
Block’s current regulatory challenges highlight the complex compliance landscape that financial technology companies must navigate, especially those involved with cryptocurrencies. As digital payment systems and cryptocurrencies become more mainstream, regulators are working to ensure that consumer protections and anti-money laundering controls keep pace with technological innovation.
The outcome of Block’s negotiations with New York regulators could set precedents for how other financial technology companies address similar regulatory concerns in the future.
