Cash App Under Investigation: Allegations of AML Violations Rock Fintech Industry

The Financial Crimes Enforcement Network (FinCEN) has recently launched a sweeping investigation into allegations of serious Anti-Money Laundering (AML) violations against Cash App, a prominent US fintech platform. This investigation comes in response to whistleblowers' claims of inadequate Customer Due Diligence (CDD) processes within Cash App, potentially opening the door to illicit financial activities such as money laundering and terrorist financing. The revelations, first reported by NBC News and investigated by Gretchen Morgenson, have sent shockwaves through the fintech industry, raising questions about regulatory compliance and governance within one of America's fastest-growing financial platforms.

According to the whistleblowers, Cash App's AML program exhibited significant deficiencies, particularly in its procedures for verifying the identities of its customers. This lack of effective identity verification measures allowed suspicious transactions to flow through the platform unchecked, potentially facilitating illicit financial activities. The whistleblowers provided detailed accounts of transactions involving entities under sanction by the Treasury Department's Office of Foreign Assets Control (OFAC), operations known for trafficking personal information and credit card data for illegal purposes, and offshore gambling sites prohibited to US citizens. These revelations paint a troubling picture of systemic failures within Cash App's AML framework, highlighting the urgent need for regulatory intervention.

The allegations against Cash App have raised concerns not only about the platform's compliance with AML regulations but also about the potential risks posed to its banking partners, including Visa Inc. and Wells Fargo. The whistleblowers' complaints draw parallels to the Wirecard scandal, where similar lapses in compliance led to widespread financial misconduct. Furthermore, the recent enforcement actions against Binance for AML violations serve as a stark reminder of the regulatory scrutiny facing fintech companies operating in the digital asset space.

The resignation of Larry Summers, a former Treasury secretary, from the board of Cash App's parent company, Block Inc., has further underscored the seriousness of the allegations. Summers' departure after more than a decade of service suggests deep-seated concerns about the company's governance and oversight practices, prompting speculation about the extent of regulatory and legal exposure faced by Cash App and its affiliated entities.

Visa's involvement with Cash App's prepaid debit card has come under scrutiny, with allegations that the credit card giant waived standard AML restrictions for Cash App, potentially exposing itself to legal and reputational risks. The whistleblowers speculate that Visa's leniency may be linked to its investment in Marqeta, a fintech startup with ties to Cash App. These revelations have cast a shadow over Visa's reputation as a trusted financial services provider, raising questions about its role in facilitating potentially illicit activities.

FinCEN's inquiry into Cash App's AML practices has far-reaching implications for Marqeta Inc., the fintech platform responsible for facilitating Cash App transactions, as well as for Visa, whose brand is associated with the Cash Card. The whistleblowers' decision to file complaints with the Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission reflects the seriousness of the allegations and the need for regulatory action to address systemic deficiencies in AML compliance.

Edward Siedle, a former SEC enforcement lawyer representing the whistleblowers, has highlighted the national security implications of the allegations, warning that regulators may be struggling to keep pace with financial innovators like Cash App. The whistleblowers' decision to speak out against Cash App's compliance failures underscores the urgency of addressing these issues to safeguard the integrity of the financial system and protect against illicit activities.

The allegations against Cash App come at a time of increasing regulatory scrutiny on deficient AML practices across the financial services industry. FinCEN's proposed rule requiring investment advisers to adopt AML systems reflects a broader trend towards strengthening AML regulations in response to recent enforcement actions against Danske Bank and other financial institutions found to have inadequate AML controls.

Cash App has defended its banking partnership model, arguing that it allows the company to offer financial services products beneficial to its customers while complying with AML regulations. The company asserts that it performs due diligence on customers and collaborates with law enforcement to combat illicit activities on its platform. However, the whistleblowers maintain that Cash App's historical lack of diligence on customer accounts has created a shadow financial system beyond regulators' reach, posing significant risks to shareholders and the broader financial system.

In response to the allegations, Visa Inc. declined to comment, while Lincoln Savings Bank, one of Cash App's banking partners, did not respond to requests for comment. Marqeta Inc. reaffirmed its commitment to compliance with regulatory obligations, emphasizing its role as a responsible fintech platform. Wells Fargo, another banking partner of Cash App, reiterated its commitment to AML obligations and emphasized its ongoing due diligence efforts to detect and report suspicious activities.

Cash App's exponential growth in recent years, generating significant revenue for its parent company Block Inc., underscores the urgency of addressing the compliance shortcomings highlighted by the whistleblowers. The allegations raise critical questions about the integrity of Cash App's operations and its adherence to regulatory requirements, posing significant reputational and financial risks for all parties involved.

As FinCEN's investigation unfolds and regulatory scrutiny intensifies, the outcome of these allegations will have far-reaching implications for the future of fintech regulation and the broader financial services industry. It is imperative that regulators take swift and decisive action to address the systemic deficiencies in AML compliance highlighted by the whistleblowers, ensuring the integrity and stability of the financial system for years to come.

By fLEXI tEAM