Federal prosecutors are digging into internal practices at Block, the financial technology firm launched by Twitter co-founder Jack Dorsey, discussing with a former employee alleged widespread and yearslong compliance lapses at the company’s two main units, Square and Cash App, two people with direct knowledge of the contacts say.
During the discussions, the former employee provided prosecutors from the Southern District of New York documents that they say show that insufficient information is collected from Square and Cash App customers to assess their risks, that Square processed thousands of transactions involving countries subject to economic sanctions and that Block processed multiple cryptocurrency transactions for terrorist groups.
Most of the transactions discussed with prosecutors, involving credit card transactions, dollar transfers and Bitcoin, were not reported to the government as required, the former employee said. Block did not correct company processes when it was alerted to the breaches, the former employee told prosecutors and NBC News.
Roughly 100 pages of documents the former employee provided to NBC News identify transactions, many in small dollar amounts, involving entities in countries subject to U.S. sanctions restrictions — Cuba, Iran, Russia and Venezuela — as recently as last year.
“From the ground up, everything in the compliance section was flawed,” the former employee told NBC News. “It is led by people who should not be in charge of a regulated compliance program.”
A second person with direct knowledge of Block’s monitoring programs and practices echoed that assessment; NBC News granted the former employee and the second person anonymity to guard against potential reprisals.
The Southern District of New York did not respond to a request for comment about the inquiry.
Edward Siedle, a former Securities and Exchange Commission lawyer who represents the former employee and participated in the discussions with prosecutors, said, “It’s my understanding from the documents that compliance lapses were known to Block leadership and the board in recent years.”
Prosecutors met with the former employee after NBC News reported in mid-February that two other whistleblowers had told financial regulators about compliance failures at Cash App, the hugely popular mobile payment platform owned by Block. Cash App, introduced in 2013, allows users to send and receive money instantaneously among themselves and to buy stocks and Bitcoin. As of December, Cash App had 56 million active transacting accounts and $248 billion in inflows during the previous four quarters, the company said.
Asked about the probe, a Block spokeswoman provided the following statement: “Block has a responsible and extensive compliance program and we regularly adapt our practices to meet emerging threats and an evolving sanctions regulatory environment. Our compliance program includes systems, tools, and processes for sanctions screening, as well as investigating and reporting on sanctions issues in accordance with our regulatory obligations. Continually improving the safety and security of our ecosystem is a top priority for Block. We have been and remain committed to building upon this work, as well as continuing to invest significantly in our compliance program.”
The company said it believed it had voluntarily reported the “thousands of transactions” described by the former employee to the Office of Foreign Assets Control, or OFAC, a department of the U.S. Treasury that enforces economic sanctions. But the former employee disputed that, saying thousands of different transactions were not reported.
Square, the other main business unit at Block, is a financial services platform used by millions of merchants. Documents provided to prosecutors and reviewed by NBC News identify instances at Square when it failed to conduct basic customer due diligence on its international merchant sellers and improperly reimbursed some of the merchants’ funds that had been frozen for sanctions violations. (Merchants are considered customers at Square, while users are considered customers at Cash App.) New customers at both Square and Cash App who triggered sanctions alerts at their initial screenings were permitted to conduct transactions before the alerts were resolved, the documents say. They also show instances of employees’ flagging that customer biography information, such as linked social media accounts, was not screened against sanctions keyword lists.
Cash App’s design increased the risk of compliance lapses, the documents indicate. “Due to the nature of the product,” a document said, “customers do not appear to leave stored balances in Cash App very long so our ability to block a stored balance or reject funds is limited. In virtually all situations, balances have been depleted by the time of review.”
The former employee also told prosecutors about the findings of an outside consultant Block hired to assess its internal systems for monitoring suspicious activities, rating customer risks and screening for sanctions violations. The consultant identified almost 50 deficiencies in those systems last year, the documents show.
In its response to NBC News, the company said the hiring of the consultant showed Block’s commitment to perform and improve compliance, adding that 50 deficiencies were not unusual given the report’s scope. The former employee’s interpretation of the report misconstrues its findings and their significance, the company said.
The company declined to answer questions about the specific deficiencies cited in the documents. It said that when deficiencies are identified, Block works “with our in-house legal team, as well as with outside counsel and consultants, to advise us on the issue and appropriate remediation.” The company conducts recurring sanctions screening on all merchants, it said, and its program includes the essential components expected by OFAC.
OFAC administers and enforces economic sanctions to protect the nation against “targeted foreign countries and regimes, terrorists and terrorist organizations, weapons of mass destruction proliferators, narcotic traffickers, and others,” according to its website. It “strongly encourages” companies to develop, implement and routinely update sanctions compliance programs. “Senior management’s commitment to, and support of, an organization’s risk-based sanctions compliance program is one of the most important factors in determining its success,” OFAC says, and it is essential to fostering “a culture of compliance throughout the organization.”
Along with senior management, the Block board of directors was informed of extensive lapses at the company, the former employee told prosecutors. In recent months, Block has announced the unexpected departures of two directors: Lawrence Summers, the former U.S. treasury secretary and a Block director since 2011, resigned in February, and in April it said Sharon Rothstein, a director since 2022, will not stand for re-election at the company’s annual meeting in June.
Block said that Summers and Rothstein were leaving the board to devote more time to other professional and personal activities and that their departures were not “a result of any disagreements with the company on any matter relating to the company’s operations, policies or practices.”
During his time on the board, Summers served on the audit committee, which is charged with reviewing and discussing with management the company’s program and policies on risk assessment and risk management. The committee is overseen by Lord Paul Deighton, a former Goldman Sachs executive who was commercial secretary to the treasury in the U.K. government from 2013 to 2015. NBC News requested interviews with Deighton and Summers, but they declined, forwarding the requests to Block’s corporate communications unit.
Block has encountered difficulties with regulators before. In late 2021, the Financial Market Supervisory Committee of the Bank of Lithuania ordered Verse Payments Lithuania UAB, the company’s European version of Cash App, to determine the identity of its existing clients whose identities had not been established or had been established out of compliance with the law on Prevention of Money Laundering and Terrorist Financing.
Verse and its former head were fined last year when the Bank of Lithuania inspected Verse and “found serious and systematic violations of the prevention of money laundering and terrorism financing.” The top Verse executive “did not ensure the safe and reliable operation of the institution, did not take effective measures to eliminate violations and did not ensure the compliance of the institution’s activities with the established requirements, although information about the violations committed by the institution was known to him for a long time,” the Bank of Lithuania said at the time.
Block shut down Verse last year. On an earnings call in August, Dorsey said that Verse required significant investment and that its market had “not seen the growth and profitability we had expected.”
Mobile payment apps like Cash App, PayPal and Venmo are popular, with over three-quarters of U.S. adults using them, according to a study last year by the Consumer Finance Protection Bureau. Known as person-to-person payment platforms, the services pose risks to their users and to the financial system, regulators say. In recent years, for example, law enforcement officials have cited criminals’ use of payment apps to evade laws, such as laundering stolen Covid relief funds in 2020.
Cash App is not a bank, but it usesexternal banking partners toconduct various services. One is Sutton Bank, the small Ohio institution that issues Cash App’s prepaid Visa debit cards, allowing users to spend or withdraw their funds. Banks are required to know every one of their customers, but the Cash App program “had no effective procedure to establish the identity of its customers,” the previous whistleblowers said in their complaints to federal financial regulators.
On March 29, Sutton Bank settled a consent order with the Federal Deposit Insurance Corp. that echoed the whistleblowers’ allegations. In the order, the FDIC alleged “unsafe or unsound banking practices and violations of law or regulation” at Sutton, including those relating to the Bank Secrecy Act.
Under the order, Sutton agreed to revise its internal programs to “improve its supervision and direction” of its anti-money laundering and terrorism financing program and “to assure and maintain the Bank’s full compliance with the Bank Secrecy Act.” Sutton also agreed to look back to July 2020 “to ensure that all required customer identification program information has been obtained and the bank has formed a reasonable belief that it knows the true identity” of its customers.
The FDIC order cited Sutton Bank’s work with “third parties” or outside entities and required it to provide details about anti-money-laundering compliance and customer identification programs at the outside companies it works with. The FDIC did not name Cash App in the order, but it is the largest third party that Sutton Bank works with, according to its chief compliance officer. The FDIC order also required Sutton to provide quarterly reporting of “third-party compliance with legal, contractual, and service level responsibilities, and management actions to address anti-money laundering and countering the financing of terrorism deficiencies.”
James Booker, senior counsel at Sutton Bank, said in an email that the bank is working closely with regulators and that the recent consent order “settled some longstanding issues concerning anti-money laundering controls” that had arisen “prior to the bank’s 2023 restructuring of its anti-money laundering program.”
As for Block, it said the Sutton consent order was not likely to affect Cash App’s ongoing business relationship with the bank.
A turbulent week in the U.S. Treasury market prompted the Treasury Department to sharply increase the size of its long-term debt buyback program, as bond prices fell even while equity markets pushed toward record highs. The divergence has drawn attention from fixed-income strategists who see it as a signal of underlying investor unease about federal borrowing levels.
What Happened This Week
U.S. Treasury Secretary Scott Bessent told CNBC on Thursday, August 20, 2026, that the Treasury had doubled the size of its long-term debt buyback operations, moving from roughly $2 billion to at least $4 billion per operation. Bessent indicated the figure could climb further, saying “we’re going to increase the size of the buyback,” and noted the accelerated pace could exceed the announced $4 billion threshold per issue.
Buybacks allow the Treasury to repurchase outstanding government bonds directly from the market, which can help support prices and dampen yield volatility during periods of stress. The expanded program came as stocks staged a late-week recovery: the S&P 500 and Russell 2000 both advanced on Friday, August 21, even as Treasuries logged mild losses, according to Bloomberg market data.
Why Bond and Equity Markets Are Diverging
Capital.com senior market analyst Daniela Hathorn described the week’s dynamic as markets “ending the week on a softer tone after the relative calm of early August was disrupted by renewed pressure in global bond markets, another rise in oil prices, and growing uncertainty around the Federal Reserve’s next move.” She noted that higher long-term borrowing costs are increasingly challenging elevated equity valuations, even as U.S. equities pull back modestly from record highs.
This divergence — equities near record levels while bonds sell off is unusual and reflects two different sets of investor concerns. Equity investors have remained focused on corporate earnings strength, particularly from large technology companies ahead of Nvidia’s closely watched August 26 earnings report. Bond investors, by contrast, are more directly exposed to concerns about the scale of federal borrowing, highlighted this week by the national debt crossing the $40 trillion threshold for the first time.
The Fed and Treasury “Working in Opposite Directions”
Wilmington Trust senior bond portfolio manager Wil Stith told Yahoo Finance that current conditions reflect “the Fed and the Treasury basically working in sort of opposite directions,” adding that the imbalance will likely require the Federal Reserve which he described as having “the larger sandbox” to adjust the federal funds rate rather than relying on Treasury market interventions alone to manage yields.
Notably, the bond market’s reaction to the Treasury’s buyback expansion was relatively muted; strategists described the move as being largely absorbed without a major rally, suggesting the underlying pressure on yields stems from factors, such as inflation persistence and debt sustainability concerns, that a buyback program alone cannot resolve.
What Comes Next
Markets are now looking to two major events in the days ahead: Nvidia’s earnings report on Wednesday, August 26, and the Federal Reserve’s Jackson Hole Economic Symposium, running August 27-29. This will be the first Jackson Hole gathering under new Fed Chair Kevin Warsh, whose public communication style and policy signals remain less established than his predecessors’, according to market commentary from Regards of Wall Street.
For investors, the key metrics to watch are the size and frequency of future Treasury buyback operations, movements in the 10-year Treasury yield, and any policy signals from Warsh’s keynote address. Continued yield volatility alongside record equity valuations would suggest the market imbalance identified this week has not yet been resolved.
The global banking system is undergoing a comprehensive modernization of cross-border payment infrastructure. Driven by real-time settlement networks, open banking APIs, and interoperable messaging standards, financial institutions and multinational corporations are eliminating multi-day delays and reducing transaction costs associated with legacy international wire transfers.
Transition to Real-Time Gross Settlement Networks
Historically, international business-to-business (B2B) payments relied on complex correspondent banking relationships involving intermediary fees and processing delays. In 2026, the widespread adoption of ISO 20022 messaging protocols alongside interconnected Real-Time Gross Settlement (RTGS) systems allows direct, end-to-end processing of cross-border transfers.
Commercial banks are providing corporate clients with continuous, 24/7 payment clearing capabilities. Real-time transaction confirmation and automated FX rate locking allow international businesses to settle cross-border trade obligations within minutes, significantly reducing counterparty risk.
Central Bank Digital Currency (CBDC) Interoperability
Wholesale Central Bank Digital Currency (CBDC) pilot initiatives are reaching operational maturity across several key financial centers. Collaborative multi-CBDC platforms enable participating central banks and commercial institutions to settle foreign exchange and international trade transactions directly on shared distributed ledgers.
These wholesale digital currency networks eliminate traditional clearinghouse delays and minimize foreign exchange slippage. Enterprise treasury departments benefit from enhanced liquidity management, as cross-border cash balances can be deployed and repatriated instantaneously.
Corporate Treasury Transformation
For enterprise treasurers, instant cross-border settlement transforms cash management strategies:
– Working Capital Optimization: Reduced transaction float allows companies to lower precautionary cash reserves and optimize short-term liquidity investments.
– Automated Reconciliation: Enriched data formats embedded in ISO 20022 payment messages streamline automated general ledger posting and invoice matching.
– Reduced Processing Overhead: Account-to-account (A2A) real-time clearing bypasses costly intermediary correspondent banking fees.
Strategic Financial Priorities
1. Upgrade Treasury Systems: Ensure internal core enterprise software supports real-time ISO 20022 payment messaging standards.
2. Leverage Instant Clearing Rails: Utilize direct payment networks to lower cross-border transaction fees and eliminate settlement delays.
3. Evaluate Multi-Currency Liquidity: Modernize liquidity management frameworks to capitalize on 24/7 real-time settlement capabilities.
The global private credit market has solidified its role as a fundamental pillar of enterprise finance, expanding rapidly across middle-market lending, asset-backed finance, and infrastructure financing. As non-bank financial institutions capture a larger share of corporate debt origination, global regulatory bodies are increasing oversight to evaluate market transparency and systemic risk interconnections.
Growth Drivers in Direct Lending
Direct lending platforms have continued to attract substantial institutional allocations from pension funds, sovereign wealth entities, and insurance companies seeking attractive risk-adjusted yields. Private debt funds offer corporate borrowers customized financing structures, faster execution timelines, and confidentiality compared to syndicated loan markets.
In 2026, private credit managers are increasingly financing larger corporate transactions, providing multi-billion-dollar credit facilities for buyout deals and corporate restructurings. The flexibility of private debt contracts—featuring unitranche pricing and tailored covenant packages—has made direct lending the preferred capital source for middle-market enterprise sponsors.
Regulatory Scrutiny and Systemic Risk Assessment
The rapid growth of non-bank intermediation has drawn heightened scrutiny from financial regulators in North America and Europe. Because private debt agreements are negotiated privately without public exchange disclosures, central banks are evaluating potential vulnerabilities related to asset valuation consistency and fund liquidity profiles.
Regulatory agencies are introducing guidelines aimed at improving reporting standards for private investment vehicles managing institutional assets. Key focus areas include monitoring leverage ratios within private credit funds and evaluating indirect credit exposures between commercial banking institutions and private debt funds.
Navigating Elevated Refinancing Costs
With benchmark interest rates remaining elevated, private debt borrowers face higher debt service obligations on floating-rate credit facilities. Financial advisory firms report an increase in proactive liability management strategies, including payment-in-kind (PIK) interest options, equity infusions from sponsors, and covenant modifications.
Private credit managers with deep operational capabilities are actively working alongside portfolio companies to optimize working capital and maintain cash flow coverage ratios during periods of higher borrowing costs.
Key Financial Takeaways
1. Mainstream Asset Class: Private credit has expanded beyond niche alternative asset status into a core corporate finance solution.
2. Enhanced Transparency Standards: Regulatory frameworks are evolving toward greater disclosure requirements for private debt managers.
3. Proactive Risk Management: Lenders and sponsors must prioritize debt sustainability and active portfolio monitoring amid high benchmark rates.
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