Compliance
Block Allocates $764 Million for DOJ Settlement Amid Declining Bitcoin Profits
Block, the company founded by Jack Dorsey, has agreed in principle to allocate $764 million to resolve a Justice Department investigation concerning its anti-money-laundering controls. This settlement amount exceeds the $566 million profit reported by the company for the third quarter of 2023.
The agreement, disclosed in a 10-Q filing on November 3, involves a deferred criminal charge related to Block's failure to maintain an effective anti-money-laundering program under the Bank Secrecy Act. The gross settlement figure is approximately $964 million, reduced to $764 million after accounting for credits from previous regulatory settlements.
Block has accrued the total amount and indicated that losses beyond this figure are “reasonably possible.” The company disputes the government's assessment methodology, and the settlement is pending final approval.
In the third quarter, Block reported a 22% increase in gross profit to $3.24 billion, with Cash App and Square contributing significantly. However, the company's Bitcoin business saw a stark 50% decline in gross profit, dropping to $52 million from $104 million a year earlier, alongside an 11% decrease in Bitcoin revenue to $1.8 billion.
The investigation into Block began in March 2023, following allegations from Hindenburg Research that Cash App inflated user counts and allowed fraudulent activities. Although the SEC closed its inquiry without enforcement action, state regulators imposed fines totaling $120 million for compliance failures.
The settlement structure allows Block to avoid a conviction if it adheres to the agreement's terms over the next three years. This approach mirrors a similar path taken by Binance in 2023, which cost the exchange $4.3 billion.
As Block navigates these challenges, it is also pursuing an industrial bank charter for a new unit called Builders Bank, which aims to provide custody and fiduciary services for Bitcoin. The company's declining Bitcoin profits are attributed to a strategic decision to reduce fees on Cash App transactions, positioning Bitcoin as a payment method rather than a trading asset.
FAQ
What is the amount Block has agreed to pay for the DOJ settlement?
Block has agreed in principle to allocate $764 million to resolve a Justice Department investigation concerning its anti-money-laundering controls.
How does the settlement amount compare to Block's profits?
The settlement amount of $764 million exceeds the $566 million profit reported by Block for the third quarter of 2023.
What led to the investigation of Block by the Justice Department?
The investigation began in March 2023 following allegations from Hindenburg Research that Cash App inflated user counts and allowed fraudulent activities.
What are the implications of the settlement for Block?
The settlement structure allows Block to avoid a conviction if it adheres to the agreement's terms over the next three years.
How has Block's Bitcoin business performed recently?
Block's Bitcoin business saw a 50% decline in gross profit, dropping to $52 million from $104 million a year earlier, alongside an 11% decrease in Bitcoin revenue to $1.8 billion.