Jack Dorsey’s European cash app firm has been ordered to address money laundering concerns

The Bank of Lithuania said the Spanish payment app owned by Block may violate anti-money laundering and terrorist financing laws.

Verse, a European mobile payments provider owned by Jack Dorsey’s $50 billion fintech giant Block, has been asked by its financial regulator to address concerns over money laundering and user identity checks. If he does not, he risks a sanction, including a fine, Forbes has learned.

Acquired by Block in 2021, Barcelona-based Verse is much the same as Cash App, the payments company it operates under, offering a quick and easy way to transfer funds to a mobile device. While Cash App is only available in the US and UK, Verse can be used across Europe and is the Block game for more business on the Continent. These peer-to-peer payment apps have proven hugely popular with consumers, but increasingly European regulators are looking at the risks associated with the technology, said Kathryn Westmore, a former fraud investigator at PwC. In particular, there is a “tremendous concern” about verifying user identities for fraud, she said.

On December 29, 2021, Verse received a “mandatory instruction” opinion of its European financial service provider, the Bank of Lithuania, which is often used by fintech companies as it provides quick access to the European market. The Vilnius institution, which provides Verse with its banking license in Europe and monitors compliance with financial legislation, said the company has until July 2022 to address concerns over customer identity guarantees. The bank said that by failing to do so, Cash App’s sister company risked breaking anti-money laundering and terrorist financing laws. In the letter, the bank did not provide any additional details about the customers it was concerned about, or the specific identity verification updates it required from Verse.

Cash App’s communications team, which also represents Verse, declined to comment on the bank’s action.

A source with knowledge of the investigation, who was not authorized to speak officially, said Cash App compliance staff visited Verse in Spain earlier this year to help respond to the notice. Bank of Lithuania spokesman Giedrus Sniukas said Forbes it was currently reviewing whether or not the required changes had been made. “As for the mandatory instruction, it was related to customer identification procedures, which did not comply with the requirements of legal acts,” he said. “The company has been instructed to update its procedures and not provide service to customers whose identity has not been sufficiently verified.”

“If you get your license revoked, it would be very difficult to see how you could get back to business quickly.”

Kathryn Westmore, former PwC fraud investigator

While the Bank of Lithuania issued a short statement about its issues with Verse in December, there was no mention of Cash App or its owner Block. This is the first time that Cash App’s involvement in the bank’s order has been made public. Block, a public company listed on the New York Stock Exchange, had not mentioned it in any filing with the SEC.

According to Francine Mckenna, a lecturer in financial accounting at the Wharton Business School at the University of Pennsylvania, disclosures in SEC filings are only necessary when it is “reasonably possible” that a breach of the law results in a recordable loss. “Sometimes the SEC opens investigations and even issues subpoenas and companies don’t disclose. A warning from a law enforcement agency about a possible criminal offense – such as money laundering – is more serious, but it is only a warning,” she added.

Bank of Lithuania spokesman Sniukas said he was unable to reveal what prompted the bank to place the order. He confirmed that failure by a business to respond to the bank’s concerns could lead to a fine or suspension of the banking license, although this is a much rarer outcome due to the severity of the measure. In previous punitive actions for money laundering concerns, the bank imposed small fines, most recently on another European fintech company, Revolut, which was fined €200,000 in March for failing to put in place “internal control procedures for the prevention of money laundering and terrorist financing”.

Neither fines nor reputational damage pose a real threat to companies that break anti-money laundering law, said Westmore, the former fraud investigator, now a senior fellow at the group’s Financial Crimes Center. British think tank RUSI. The bank also has the power to revoke or suspend a license, which could pose an existential threat, Westmore added. “If the license is revoked, it would be very difficult to see how quickly you could resume operations,” Westmore said. “Honestly, no one will want to touch you.”

When Block, formerly known as Square, announced the acquisition of Verse in 2020, he promised that the company, which had raised nearly $40 million before its sale, would continue to operate independently. However, since money laundering concerns were first raised in Lithuania earlier this year, the company has lost its chief executive, Bernardo Hernandez, and its chief technology officer. Neither had provided comment on the nature of their departure at the time of publication. The Verse.me team page does not include any CEO or CTO, indicating that no replacement has been found. Cash App declined to comment on Verse’s leadership changes.

Block is having trouble closer to its San Francisco headquarters with Cash App, which was responsible for about half of Dorsey’s $1.5 billion quarterly revenue in its most recent results. Due to fraud concerns, some US merchants are now limiting or blocking Cash App debit and credit card offers, according to a Forbes report last year. Block said at the time that it takes fraud seriously and has dedicated teams at Cash App to address its issues with merchants.

Revealed in a Filing with the SEC Earlier this year, Cash App also faced investigations from the Consumer Financial Protection Bureau and several state attorneys general regarding its handling of customer complaints and disputes. After the consumer watchdog claimed Cash App was not providing documentation for the investigation, the company said it was “disappointed” because it believed it had a consistent dialogue and said it was waiting, in fact, that the CFPB respond to its latest proposed timeline. Most recently, in September, a class action lawsuit was filed alleging “negligent” security related to a cybersecurity breach that exposed data on more than 8 million Cash App Investments users in December. Cash App declined to comment on the lawsuit.