Western Union: Where the Money Is--In Small Bills

In the three days preceding September 11, four separate payments were sent to the United Arab Emirates by the alleged hijackers. All four were made through Western Union Financial Services Inc. agents in the U.S., according to law enforcement officials.

On Sept. 8 and 9, Mohamed Atta, who the FBI says was on American Airlines Flight 11 that crashed into the World Trade Center, wired a total of $4,000 from two Maryland locations to Mustafa Muhammad Ahmed, a top official in Osama bin Laden's organization--apparently returning excess funds. On Sept. 9, Waleed M. Alsheri, who was also on Flight 11, sent $5,000 to Ahmed from Boston's Logan International Airport. And on Sept. 10, Marwan Al Shehhi, who was on United Airlines Flight 175, sent $5,400 to him. A year ago, the suspected hijackers received money by at least two other transfers through Western Union, government officials said.

It is unclear whether Western Union realized the significance of the transactions until the FBI began its investigations. But money-laundering experts say transfers totaling nearly $15,000 to one person over three days is a red flag. "Anything over $4,000, within one month alone, should get flagged," says Jorge Guerrero, president of the National Money Transmitters Assn. trade group. Western Union would not comment on the transfers or whether they had triggered an internal investigation, but said it is cooperating fully with the government. "Unless an individual winds up on a list, we're not going to be able to stop those transactions," says spokesman David Banks.

The pre-September 11 payments aren't Western Union's only encounters with suspected terrorists. At least one of its 50 UAE agents operates out of an al Baraka Exchange storefront. The Treasury Dept.'s Office of Foreign Assets Control has identified al Baraka as part of the al Barakaat network of banks and companies, which it charges is involved in raising and moving funds for al Qaeda.

SPEED AND ANONYMITY. Money-transfer shops have grown exponentially in the past decade, fueled by legions of immigrants who send cash home. About $40 billion is transferred annually through the likes of Western Union, says The Nilson Report, a California newsletter. Western Union, by far the largest player, did 89 million transfers last year. The appeal to clients is obvious--cash moves around the world in as little as 15 minutes. No bank account or background check is necessary. Nor is an ID to send less than $1,000. Controls on recipients abroad vary. In the UAE, the limit was $55,000 until the government slashed it to $550 on Sept. 27.

The systems' very speed and anonymity make it attractive to terrorists, drug dealers, and others. "If you gave me a million dollars, I could move it through Western Union inside of a week and it would be virtually untraceable," says Lyle Justus, former director of special projects at Western Union. Using small transfers and paying others to make them would be enough to beat the system, he says. Before leaving the company in 1997, when his job was eliminated, he helped develop Western Union's network in Latin America. "When we set up branches in Colombia, Peru, and the Dominican Republic, business took off like you wouldn't believe. A lot of those guys picking up money between the U.S. and Colombia were standing outside the offices with bodyguards and guns under their coats. It was pretty obvious what was going on," he says. William Thomas, president of Western Union's international unit, calls Justus' claims "irresponsible, false and unfortunate."

However, Western Union may be vulnerable because of its phenomenal growth. In 1995, when it was bought by First Data Corp. of Greenwood Village, Colo., it was operating in 20 countries. It expanded by forming affiliations with local firms such as Al Baraka, and now has more than 117,000 agents in 187 countries. It controls about three-quarters of the market. In 2000, Western Union's revenue grew nearly 20%, to $1.8 billion, while operating profits rose 17%, to $540 million--about half of First Data's overall profits.

RADICAL CHANGES. Money-transfer agents have long tried to allay fears they are a hotbed of money laundering. They must get identification for every transaction over $3,000, report those over $10,000 to their state banking department, and voluntarily file Suspicious Activity Reports to the Treasury Dept. But until new legislation goes into effect in January, they have no federal regulator. The Patriot Act, aimed at tracking and stopping terrorist money, should bring some radical changes. "The money-transfer business was caught in the crosshairs," says Donald Vangel, who is a partner with Ernst & Young. "They're going to have to beef up their controls."

On the ground, little seems to have changed yet. The teller at a Western Union desk in a Manhattan grocery store says the company is still operating the way it did before September 11. Western Union says it is continually reviewing its procedures.

U.S. government officials have pointed to the hawala system, which is used to transfer cash in the Middle East, as a possible conduit for terrorist money. That may be so. But, for now, America's own homegrown money transfer system apparently can easily be made to serve the same purpose.

By Heather Timmons in New York

    Before it's here, it's on the Bloomberg Terminal.