Federal Financial Regulators Investigating Allegations of Money Laundering and Terrorism Financing on Cash App
Federal financial regulators have launched an investigation into Cash App following allegations made by two whistleblowers. The whistleblowers claim that the popular mobile payment platform, along with its transaction service providers, neglected to conduct proper due diligence on customers, potentially facilitating money laundering, terrorism financing, and other illegal activities.
According to the whistleblowers, Cash App lacks an effective procedure to verify the identities of its customers, allowing transactions with entities sanctioned by the Treasury Department's Office of Foreign Assets Control and offshore gambling sites banned for U.S. citizens. These deals also allegedly involved operations known for trading personal information and credit card data for illicit purposes.
In response to the allegations, Cash App stated that they prioritize due diligence on customers, employing a substantial workforce dedicated to Know Your Customer (KYC), due diligence, anti-money laundering, and compliance functions. They also use supplemental staffing and resources to enhance these efforts.
The whistleblowers have submitted complaints to the Financial Crimes Enforcement Network (FinCEN), the Securities and Exchange Commission (SEC), and the Commodities Futures Trading Commission (CFTC). The timing of these allegations is significant, as regulators are currently intensifying their focus on anti-money laundering practices. FinCEN, for instance, has proposed a new rule mandating investment advisers to implement systems to prevent money laundering and report suspicious transactions. Furthermore, federal prosecutors and the SEC have recently taken action against Danske Bank for its inadequate transaction monitoring systems.
The whistleblowers' allegations cover a timeframe spanning from 2016 to 2022. They describe a "shadow financial system beyond the reach of regulators," indicating a lack of diligence in verifying Cash App users.
In addition, this report coincides with recent developments involving Manhattan District Attorney Alvin Bragg, who has reached out to various payment apps including Cash App, Venmo, and Zelle. Bragg has urged these platforms to implement stronger protection measures against theft. Some of his recommendations include the implementation of a second and separate password for accessing the app on smartphones by default, lower limits on daily transfers, and the introduction of wait times and secondary verification for large transactions, lasting up to a day.
As the investigation unfolds, federal financial regulators, in collaboration with FinCEN, the SEC, and the CFTC, are expected to closely scrutinize Cash App's compliance with anti-money laundering regulations and due diligence practices. Users of payment apps like Cash App, Venmo, and Zelle should also anticipate potential changes aimed at enhancing their security and safeguarding against fraudulent activities.
Analyst comment
Negative news: The investigation into Cash App’s alleged inadequate due diligence on customers and potential involvement in illegal activities raises concerns about money laundering and terrorism financing. Market response: Investors may be cautious about the company’s compliance practices, leading to a possible decrease in investor confidence and a potential decline in the company’s market value.
