Cash App Owner Pays States And CFPB To Settle Alleged Anti-Money-Laundering Deficiencies And Fix Its Failures On Fraud
Whistleblowers are leading federal and state regulatory investigations into complex, opaque FinTech business practices.
Last February, NBC News reported that federal financial regulators were exploring allegations by two whistleblowers (whom I represent) that Cash App, the popular mobile payment platform, and entities providing transaction services to its users performed inadequate due diligence on customers, potentially opening the door to money laundering, terrorism financing and other illegal activities.
While banks are required to know the true identity of every customer, the Cash App program “had no effective procedure to establish the identity of its customers,” the whistleblowers said. In their complaints, reviewed by NBC News, the whistleblowers detail an array of questionable Cash App transactions with entities under sanction by the Treasury Department’s Office of Foreign Assets Control, operations known to sell personal information and credit card data for illegal purposes, and offshore gambling sites barred to U.S. citizens.
As NBC News observed, while over three-quarters of U.S. adults have used a mobile payment app, such as Cash App, PayPal or Venmo, also known as person-to-person payment platforms, these apps pose risks to their users and to the financial system.
“There are obvious national security issues here and it would be foolhardy for the public to think that regulators and law enforcement are keeping pace with the financial ‘innovators,’” said Edward Siedle, a former SEC enforcement lawyer who represents the whistleblowers. NBC News interviewed the whistleblowers, who are knowledgeable on financial services compliance issues, on the condition of anonymity.
Yesterday, Cash App parent company Block agreed to pay $80 million in a settlement with dozens of state regulators over alleged problems with its program to counter money laundering. Forty-eight state financial regulators joined the coordinated settlement, which also requires Block to retain a third-party consultant to review its anti-money-laundering program. Regulators in Arkansas, California, Massachusetts, Florida, Maine, Texas and Washington state led the effort.
Today, the Consumer Financial Protection Bureau (CFPB) ordered Block, the operator of Cash App, to refund and pay other redress to consumers up to $120 million and pay a penalty of $55 million into the CFPB’s victims relief fund. Said the CFPB:
Block employed weak security protocols for Cash App and put its users at risk. While Block is required by law to investigate and resolve disputes about unauthorized transactions, the company’s investigations were woefully incomplete. Block directed users — who had suffered financial losses as a result of fraud — to ask their bank to attempt to reverse transactions, which Block would subsequently deny. Block also deployed a range of tactics to suppress Cash App users from seeking help, reducing its own costs.
“Cash App created the conditions for fraud to proliferate on its popular payment platform,” said CFPB Director Rohit Chopra. “When things went wrong, Cash App flouted its responsibilities and even burdened local banks with problems that the company caused.”
Fintech entrepreneurs openly boast they have “found a way around the banking laws” and are increasingly applauded for their successes, despite widely-known questionable business practices. These so-called financial “innovators” are running circles around regulators seeking to hold them accountable. Worse still, there is every reason to believe that regulatory interest will wane in the coming years.
Federal and state whistleblower programs represent the height of Government Efficiency: Whistleblowers who offer their industry expertise to regulators don’t get paid a dime unless the information they provide is both correct and results in state and federal governments collecting fines. Awards to whistleblowers are paid from fines collected.
At this moment in time, it appears whistleblowers are our best hope for protecting consumers from increasingly complex, opaque Fintech frauds.