The supplier of its banking licence has criticised the European division of Jack Dorsey’s wildly successful Cash App payment platform for “serious and systematic infringements of the prevention of money laundering and terrorist financing.” This week, Verse, a Cash App business created in Barcelona, Spain, received a reprimand and a $250,000 punishment from the Bank of Lithuania, which grants Verse a licence. In light of the claimed compliance flaws at Block, the business that owns Cash App, activist short seller and investment firm Hindenburg Research said on Thursday that it was initiating a short position on Block.
“Core to the issue is that Block has embraced one traditionally very ‘underbanked’ segment of the population: criminals,” Hindenburg wrote. “The company’s ‘Wild West’ approach to compliance made it easy for bad actors to mass-create accounts for identity fraud and other scams, then extract stolen funds quickly.”
Hindenburg Research published report on Block
At the time of publishing, Block has not made any comments about the Bank of Lithuania’s move. The firm claimed it intends “to work with the SEC and explore legal action against Hindenburg Research for the factually inaccurate and misleading report they shared about our Cash App business today. Hindenburg is known for these types of attacks, which are designed solely to allow short sellers to profit from a declined stock price.”
An internal investigation of Verse’s adherence to the anti-money laundering policies of the Bank of Lithuania was initiated last year. Verse was found to be vulnerable to unlawful exploitation because user identities were not being sufficiently verified.There were several instances of fraudulent identities being exploited to register accounts. According to the bank’s complaint, the business had allegedly “failed to ensure that customers at high risk of money laundering and terrorist financing were subjected to enhanced customer due diligence procedures.”
Square was surpassed by Cash App to become Block’s top income generator
For failing to address the money laundering issues, According to the bank, Bruno Hernandez, the former CEO of Verse who oversaw Block’s acquisition of the company in 2020, was also fined €75,000. Despite the fact that he had long known about the institution’s problems, this occurred.At the time of publishing, Hernandez, who departed Block in early 2022, didn’t comment anything.
The Consumer Financial Protection Bureau is looking into Cash App locally because there are worries that it isn’t appropriately responding to consumer complaints about fraud and app usability.
Despite its issues, Cash App surpassed Square to become Block’s largest revenue source, bringing in $850 million in the fourth quarter of 2022. Nevertheless, upon the release of the Hindenburg this morning, shares of Block fell 20% on the New York Stock Exchange.