Federal prosecutors are scrutinizing Block, Inc., a prominent financial technology company co-founded by Jack Dorsey, over alleged lapses in compliance practices within its Square and Cash App units.

According to sources and documents obtained by NBC News, the investigation is homing in on serious allegations, including the inadequate collection of customer information, processing transactions with countries under U.S. sanctions, and enabling cryptocurrency transactions for terrorist groups.

These claims pose a substantial regulatory hurdle for Block. A former employee alleges that thousands of transactions went unreported to the government, as required by law.

"From the ground up, everything in the compliance section was flawed; it is led by people who should not be in charge of a regulated compliance program," the former employee disclosed.

Despite these allegations, Block has defended its compliance program, emphasizing its voluntary reporting to the Office of Foreign Assets Control (OFAC). However, it has not directly addressed the specific deficiencies highlighted in documents provided to prosecutors.

That comes as Block faces scrutiny not only from federal prosecutors but also from a recent settlement between Sutton Bank, a Cash App partner, and the FDIC over anti-money laundering regulation violations.

The investigation's revelations arrived when Block reported significant financial achievements, particularly from Bitcoin sales through its Cash App platform.

In Q4 2023, Block boasted a 90% increase in gross profit from the previous year, driven by a surge in Bitcoin's market price and an appreciation of its Bitcoin inventory.

Moreover, Cash App's embrace of cryptocurrencies has attracted over one million first-time Bitcoin buyers in January 2023 alone, underscoring the platform's growing influence in the digital currency market.

Yet, the allegations and investigation overshadow Block's recent successes, raising concerns about its compliance infrastructure and corporate governance.

The recent departures from Block's board of directors, including Lawrence Summers and Sharon Rothstein, further compound these concerns, signaling potential turmoil within the company's leadership and oversight mechanisms.