Western Union to Pay $586 Million Over Failure to Stop Fraudby , , and
Company admits it failed to maintain money-laundering controls
U.S. says firm enabled illegal gambling and fraud schemes
Western Union Co. agreed to pay $586 million and admitted it failed to stop money laundering and wire fraud as part of a deal with the U.S.
Lapses in the company’s anti-money laundering controls allowed hundreds of millions of dollars in prohibited transactions to be processed, enabling the proliferation of illegal gambling and scams that defrauded tens of thousands of victims, U.S. authorities said Thursday. Undocumented immigrants from China used Western Union to wire money from New York and California to their human smugglers, the Justice Department said.
The U.S. charged the firm with aiding and abetting wire fraud and failing to keep an effective anti-money laundering program. Prosecutors agreed to put the case on hold for three years and drop it if the company makes promised reforms. In the agreement, Western Union admitted that fraudsters around the world used its system to receive dirty money, and it failed to take action.
“Wiring money can be the fastest way to send it -- directly into the pockets of criminals and scam artists,” Acting Assistant Attorney General David Bitkower said in a statement. “Western Union is now paying the price for placing profits ahead of its own customers.”
The penalty imposed by the Justice Department and Federal Trade Commission is the biggest ever against a money-services company. It’s part of a wave of settlements in the final days of the Obama administration that have cost companies billions of dollars to resolve probes into toxic debt, foreign bribery and auto-emissions cheating.
Western Union, the largest money-transfer business, said it anticipates taking a charge of $570 million in its fourth-quarter earnings, which is the company will announce on Feb. 9. The company is expected to post adjusted profits of $837 million in 2016, according to the average of 16 analysts’ estimates compiled by Bloomberg.
“We share the government’s goal of protecting consumers and the integrity of our global money-transfer network, and we worked hard to resolve these matters with the government,” the company said.
Western Union shares fell 3.3 percent to $21.13 at 4:02 p.m. in New York after plunging as much as 6 percent earlier.
Western Union’s global compliance network is both the company’s greatest asset and also its “greatest liability given the ever increasing cost of compliance and the increased level of complexity in the global remittance system,” Daniel Perlin, an analyst at RBC Capital Markets, said in a note to clients. Thursday’s agreement “highlights the continued cost burden to maintain and support its global network,” he said.
The U.S. said it uncovered hundreds of millions of dollars being sent to China in structured transactions designed to avoid reporting requirements under federal bank laws. It said that much of the money was sent by undocumented immigrants to human smugglers.
Western Union agents, typically retail chains or convenience stores that offer company services, were also complicit in schemes that defrauded people in the U.S. The government said fraudsters contacted victims in the U.S. and falsely posed as family members in need or promised prizes, lottery winnings or job opportunities. The fraudsters directed the victims to send money through Western Union, and Western Union agents processed the payments in return for a cut of the proceeds.
Prosecutors said Western Union aided the scheme from as early as 2004 through 2012 by failing to suspend or terminate agents who knowingly entered fake addresses, telephone numbers and information from personal identification documents - allowing the fraudsters to conceal their identities, according to the charging document filed in federal court in Harrisburg, Pennsylvania.
Western Union knew some of its agents were participating in wire fraud and money laundering because some of them were being prosecuted, and repeatedly identified locations that processed "high levels of fraud transfers" yet didn’t take adequate measures to stop them, according to the document.
The company identified more than $500 million in consumer fraud transactions sent through its agents between 2004 and 2012, yet employees knew the total amount was higher from analyses and internal reports, according to the document.
In 2004, an employee drafted guidelines that would require an investigation of any agent who had 10 money transfers that had been flagged by consumers in a 60-day period. The company didn’t adopt the policy, which the government said could have resulted in suspensions or terminations of more than 2,000 agents over eight years, according to the document. One agent in Peru accumulated 294 consumer fraud reports totaling almost $800,000 in a nine-month period between 2011 and 2012.
Western Union is still facing probes by state attorneys general into the adequacy of its consumer protection efforts, the company said in filings with the U.S. Securities and Exchange Commission.
In 2010, the company agreed to pay $94 million to settle civil and criminal investigations by the Arizona attorney general’s office. Undercover state police posing as drug dealers bribed Western Union employees to illegally transfer money, prosecutors said. Workers in more than 20 Western Union offices allowed customers to use multiple names, pass fictitious identifications and smudge their fingerprints on documents, according to court records.
The case is U.S. v. Western Union Co., 17-cr-00011, U.S. District Court, Middle District of Pennsylvania (Harrisburg).