U.S. Federal authorities are delving into allegations that Cash App, a widely-used payment application, may have failed to implement effective procedures for verifying the true identity of its users, potentially facilitating money laundering and terrorist financing. This scrutiny follows claims from two whistleblowers, who assert that Cash App and its transaction service providers have conducted insufficient customer due diligence.
About Cash App: it was developed and operated by Block, Inc. (previously Square, Inc.), a financial technology company founded by Jack Dorsey and Jim McKelvey in 2009. Cash App (website), launched in 2013, allows users to send and receive money instantly, purchase stocks and Bitcoin, and use a prepaid Visa debit card for transactions. With 55 million active accounts and $239 billion in inflows over the past year, the platform’s popularity is undeniable, even featuring in rap music narratives. However, this fame does not shield it from regulatory scrutiny.
The whistleblowers, whose complaints have been reviewed, allege that Cash App facilitated transactions with sanctioned entities, operations selling illegal personal and credit card data, and offshore gambling sites prohibited for U.S. citizens. These revelations have prompted a response from the Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Treasury responsible for enforcing the Bank Secrecy Act and combating financial crimes. FinCEN is reportedly referring the complaint for further investigation by internal and other federal agencies, although it has not publicly acknowledged these proceedings.
This situation spotlights the broader challenges and risks associated with mobile payment platforms like Cash App, PayPal, and Venmo, which have become integral to the financial lives of over three-quarters of U.S. adults. Despite their convenience, these services have been exploited for criminal activities, including laundering stolen funds.
The whistleblowers have also reached out to the U.S. Securities and Exchange Commission (SEC) and the U.S. Commodities Futures Trading Commission (CFTC), signaling potential due diligence failures at Cash App. These allegations come at a time when federal regulators are intensifying their focus on anti-money laundering practices across the financial sector. A recent proposal from FinCEN seeks to impose money laundering and terrorism financing prevention measures on investment advisers, a sector previously outside these regulatory requirements.
Read the story about the short seller attack against Cash App here.
Cash App operates through a network of banking partners, such as Wells Fargo, which holds user funds, and Sutton Bank, the issuer of Cash App’s prepaid debit cards. While standard in the industry, this collaborative model complicates the regulatory oversight of transactions, potentially obscuring the full scope of financial activities from watchdogs.
The whistleblowers’ claims describe a “shadow financial system” where due diligence on Cash App users was minimal, challenging the integrity of traditional banking practices. This lack of oversight raises concerns not only for regulators but also for shareholders of Block Inc., Cash App‘s parent company, and its financial partners, who may not be fully aware of the associated risks.
As the digital financial landscape continues to evolve, the case of Cash App underscores the urgent need for robust regulatory frameworks to ensure the security and legality of online transactions. With federal agencies now poised to take action, the financial industry and its consumers await the outcomes of these investigations, which could have far-reaching implications for the future of digital payments.
