Block Slams News Reports of a DOJ Investigation for Compliance Violations

Block Inc. chief executive Jack Dorsey fired back at news reports that the U.S. Department of Justice is investigating the company for alleged compliance lapses at Block’s Square and Cash App units. The reports “lack full context,” Dorsey said during Block’s quarterly earnings call late Thursday.

News of the investigation surfaced Wednesday and was first reported by NBC News. The DOJ is reportedly looking at whether Block failed to properly assess risks associated with some customers and processed cryptocurrency transactions for terrorists. Justice also is reportedly looking into whether Square processed transactions for countries economically sanctioned by the United States.

“In general, these sorts of stories can lack full context,” Dorsey said. “First, we do not believe that there is any new investigation into Block, but rather that these reports relate to the existing inquiry by the DOJ that we’ve previously disclosed.”

Dorsey added that, in 2022, Block’s Compliance Emerging Risk team, which investigates threats, conducted “a thorough review” of transactions potentially associated with sanctioned countries.

“We voluntarily reported these to the Office of Foreign Assets Control, we were transparent with them, and we stand by the scope of transactions that were included in the report,” Dorsey said. “OFAC then issued us a No Action Letter in which they determined no further investigation or action was needed at the time. This is how this process is supposed to work and this outcome was not originally included” in news stories.

Addressing fears that Bitcoin could help finance terrorism, Dorsey noted Block uses advanced technologies to identify potential bad actors. These include blockchain analytics from firms that screen transactions in real time. Other measures include restrictive limits for on-chain Bitcoin withdrawals and moves to ensure identity verification for customers engaging with Block’s Bitcoin products. Bitcoin trading constitutes a portion of Block’s business as Dorsey has long advocated for cryptocurrency as a mode of payments.

 “Our work is to constantly be steps ahead of [criminals’] attacks through better use of technology,” Dorsey said. “It’s an always-on part of our business, and it always will be.”

Less than 3% of Block’s resources are dedicated to Bitcoin-related projects, and those costs are covered by the profits from Block’s Bitcoin exchange, which is Cash App’s fourth-largest gross profit stream, Dorsey said in a shareholder letter released Thursday.

Dorsey noted in the letter that 1.6 million Cash App Card actives have used Cash App’s Bitcoin Round Ups feature to convert spare change from everyday transactions into Bitcoin.

Dorsey added that Block is developing a new mining chip, in addition to an entire mining rig system for “further decentralizing both the supply of mining hardware and the distribution of hashrate, the computing power devoted to mining Bitcoin.”

For the March quarter, Block posted gross profits of $2.09 billion, up 22% from a year earlier. Cash App, Block’s mobile-payment service, posted gross profit of $1.26 billion, up 25% year over year. Square, Block’s point-of-sale payments platform, had gross profit of $820 million, up 19% from a year ago.

Profitability during the quarter was so strong that Block is forecasting gross profits for 2024 to total at least $8.78 billion, which would be a 17% increase from 2023, said Amrita Ahuja, Block’s chief financial officer, who joined Dorsey on the call.

There were 24 million Cash App Card monthly actives during the first quarter, a 16% increase from a year ago, the company said. Block defines a transacting active as a Cash App account that performs at least one financial transaction using any product or service within Cash App during a specified period.

New initiatives planned for Cash App during 2024 include rolling out Afterpay, Block’s buy now, pay later offering acquired in 2022, to Cash App cardholders. With 24 million active Afterpay users, Ahuja said the BNPL service represents “a built-in audience” for Cash App. Block has seen “strong attach rates” during testing, she added.

For his part, Dorsey stressed moves at Square to fix point-of-sale reliability issues that resulted in an outage in September that effectively shut down transactions for an untold number of merchants. The outage was followed by the retirement of the executive running Square and Dorsey’s decision to take over the unit. “With Square, we want to focus on reliability, and make sure we stay up,” Dorsey said.

One step the company plans to take is to put Square merchants under contract. “It’s something we were against for many years,” Dorsey said. “We took a different take on it.” Contracts allow merchants “to get free hardware,” he said, adding “Contracts give sellers better predictability.”