The provider of its banking license has criticized the European division of Jack Dorsey’s wildly popular Cash App payment software for “serious and systematic violations of the prevention of money laundering and terrorist financing.”

The Bank of Lithuania, which grants a license to Verse, a Cash App business established in Barcelona, Spain, issued the reprimand and $250,000 fine last week. An activist short seller and investment company, Hindenburg Research, announced on Thursday that it had taken a short position on Block, the owner of Cash App, as a result of the business’ claimed compliance issues. The fundamental problem, according to Hindenburg, is that Block has accepted a historically very “underbanked” section of society: criminals. Bad actors found it simple to mass-create accounts for identity theft and other scams, then quickly withdraw stolen funds thanks to the company’s “Wild West” approach to compliance.

At the time of publishing, Block had not responded.

Bad actors found it simple to mass-create accounts for identity theft and other scams thanks to the company’s “Wild West” approach to compliance.

Hindenburg Analysis

Verse’s compliance with the Bank of Lithuania’s anti-money laundering regulations is the subject of an internal inquiry that was started last year. It was discovered that Verse was not adequately verifying users’ identities, leaving it vulnerable to criminal use. There were numerous instances of fictitious identities being used to create accounts. According to the bank’s complaint, the company had also “failed to ensure that customers at high risk of money laundering and terrorist financing were subject to enhanced customer due diligence procedures.” Similar complaints have been made about Cash App, as Forbes’ probe into the app’s anti-fraud features and abuse by child sex traffickers revealed last year.

For failing to address the money laundering concerns, Bruno Hernandez, the former CEO of Verse who supervised its acquisition by Block in 2020, was also fined €75,000, the bank said. This was “despite the fact that he had been aware of the irregularities committed by the institution for a long time.” At the time of publication, Hernandez, who departed Block in early 2022, had not made any comments.

The Lithuanian bank also pointed out that the Cash App subsidiary lacked sufficient processes for enforcing global financial penalties. Such mistakes are particularly concerning at a time when the U.S., the U.K., and Europe have imposed numerous sanctions against Russian people and entities in response to the invasion of Ukraine. The bank stated that Cash App’s business must resolve the problems by April 30 and arrange an impartial assessment to verify changes have been made. By October 1st, that evaluation must be delivered to the bank, or else Block will endure more penalties.

The Consumer Financial Protection Bureau is looking into Cash App locally because there are concerns that it isn’t properly responding to user complaints about fraud and app usability. The CFPB asserted Block was “slow-walking” its answer to requests for documentation after opening the case in August of last year.

Former employees of Hindenburg’s two-year investigation into Block made statements that “40%-75% of the accounts they reviewed were fake, involved in fraud, or were additional accounts tied to a single individual,” according to their estimates. Jack Dorsey, Elon Musk, and Donald Trump accounts were among the fakes, and many of them, according to the researchers, looked to be connected to scams. When Massachusetts tried to recover 69,000 fraudulent unemployment payouts sent to Cash App accounts four months into the pandemic, it revealed Cash App was frequently used in pandemic relief fraud, according to Hindenburg.

Despite its issues, Cash App surpassed Square to become Block’s largest revenue source, bringing in $850 million in the fourth quarter of 2022. However, following the publication of the Hindenburg this morning, shares of Block fell 20% on the New York Stock Exchange.


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