On January 19th, 2017, money transfer company Western Union agreed to pay $586 million in fines and to enter into agreements with the Justice Department, the Federal Trade Commission (FTC) and several U.S. Attorney's offices throughout the United States.
The agreements stipulate that Western Union knowingly committed criminal violations, ranging from aiding and abetting wire fraud to neglecting to enforce an effective anti-money laundering (AML) program.
Financial Regulations in U.S. Among the Strictest
Western Union's fines are reminiscent of recent fines issued to banks in the past several years as the judicial system catches up to years of strict monitoring of financial transactions. Financial regulations built to address anti-money laundering (AML) are partly supported by the US Patriot Act, which allows for monitoring of any and all money transfers.
In the past, authorities have taken particular interest in monitoring the bank accounts of money transfer providers, and any suspicious activity tended to be blamed on banks. The result of these investigations was later seen when HSBC, Barclays and several Australian banks were fined for suspicious transactions involving the bank accounts held by various remittance companies.
The investigation of Western Union's financial transactions is reminiscent of these bank investigations, taking years to complete and resulting in large fines for Western Union.
Western Union - No Stranger to Scrutiny
According to U.S. Attorney Bruce D. Brandler of the Middle District of Pennsylvania, "The U.S. Attorney’s Office for the Middle District of Pennsylvania has a long history of prosecuting corrupt Western Union Agents. Since 2001 our office, in conjunction with the U.S. Postal Inspection Service, has charged and convicted 26 Western Union Agents in the United States and Canada who conspired with international fraudsters to defraud tens of thousands of U.S. residents via various forms of mass marketing schemes. I am gratified that the deferred prosecution agreement reached today with Western Union ensures that $586 million will be available to compensate the many victims of these frauds"
The recent investigation into Western Union revealed that hundreds of millions of dollars had been sent to China in structured transactions. These transactions were designed to eschew financial reporting protocol set in place by the Bank Secrecy Act. Much of the money was traced back to illegal immigrants paying their human smugglers. According to U.S. Attorney Decker, "In a case being prosecuted by my office, a Western Union agent has pleaded guilty to federal charges of structuring transactions - illegal conduct the company knew about for at least five years. Western Union documents indicate that its employees fought to eep this agent - as well as several other high volume independent agents in New York City - working for Western Union because of the high volume of their activity."
The team behind the Western Union investigation is hopeful that the fines will result in better compliance in the future by Western Union, who seemed to knowingly avoid legal codes in order to make a profit.
Bad News for Start-ups?
Will the actions taken against Western Union be part of a trend toward enforcing old regulations against rapidly changing technology? Many business experts have warned that startups are developing and releasing technology at a rapid pace without much consideration to regulations. Though Western Union is an established company and not a startup, should this recent news be cause for concern for startups?
Interested in learning more about the impact of de-risking and anti-money laundering (AML) on the money transfer industry? Check out FXcompared Intelligence's 2016 Money Transfer Report.
