Western Union Slammed For Aiding Crooks, Agrees To Pay $586 Million
Money transfer giant Western Union has agreed to pay $586 million in connection with its failure to prevent criminals from moving ill-gotten money using its platform, according to federal authorities.
In a statement from the U.S. Department of Justice and Federal Trade Commission on Thursday, authorities describe insufficient or poorly enforced policies that resulted in the funneling of hundreds of millions of dollars in proceeds from illegal gambling, fraud and drug and human trafficking.
Western Union admitted to criminal violations including its willful failure to maintain an effective anti-money laundering program and aiding and abetting wire fraud.
“Western Union owes a responsibility to American consumers to guard against fraud, but instead the company looked the other way, and its system facilitated scammers and rip-offs,” says FTC chairwoman Edith Ramirez.
Authorities say that employees allowed or aided and abetted fraudsters in processing illicit proceeds and that the company knew about it. However, rather than firing them, Western Union allowed the employees to continue working for the company and even paid them bonuses.
In one case, illegal immigrants from China sent money back to the people who smuggled them across the border. With the help of employees, the payments were structured so that they didn’t trigger reporting requirements under the Bank Secrecy Act, say authorities.
In another example, Western Union processed hundreds of thousands of transactions for an international scam, wherein fraudsters directed people to send money in order to claim a prize or help a relative. Western Union employees often processed the payments in return for a cut of the proceeds, say authorities.
These schemes illustrate “a flawed corporate culture,” says U.S. Attorney Wifredo Ferrer of the Southern District of Florida, which “failed to provide a checks and balances approach to combat criminal practices.”
As part of the agreement with authorities, Western Union has agreed to implement stricter policies to prevent future fraud and money laundering. The forfeiture of $586 million will be used to reimburse consumers who were victims of fraud from 2004 to 2012. It is the largest forfeiture that has ever been imposed on a money services business.
“We acknowledge that in certain instances in the 2004 to 2012 period of time the company did not do as much as it should have with respect to agent oversight,” said Western Union spokesperson Bill Chandler. “We will continue raising the bar to help protect customer transactions and defend against those who would abuse our network.”
Western Union expects to record a charge of approximately $570 million in its fourth quarter for matters related to the settlement. The company says that it has increased compliance spending by more than 200% in the last five years and a fifth of its workforce now performs compliance-related functions.
Western Union pay $586m for gambling, fraud AML lapses
Financial services firm Western Union (WU) has reached a $586m settlement with the US Department of Justice, in part due to the company’s involvement with Costa Rica-based online gambling operators.
A year ago, WU revealed that the US Attorney for the Southern District of Florida had issued a subpoena requesting company documents regarding suspected online gambling transactions with Western Union agents in multiple countries, including Costa Rica, Panama, Nicaragua, the Philippines and Vietnam.
On Thursday, the DOJ announced that WU had agreed to forfeit $586m – the largest penalty ever imposed on a money services business – and admit to criminal violations including willfully failing to maintain an effective anti-money laundering (AML) program and aiding and abetting wire fraud.
A significant portion of WU’s shenanigans involved processing payments for an international fraud scheme, in which fraudsters contacted victims in the US posing as relatives in need of cash, or falsely promised prizes or job opportunities in exchange for cash sent to an international WU office. Some WU agents were complicit in this fraud.
But the DOJ also said WU had been “on notice since at least December 1997” about gamblers in Florida using WU’s money transfer system to send cash to online sportsbooks based outside the US. Beginning in “at least 2012,” the DOJ says WU knew that the procedures it had in place to limit these gambling transactions “were not effective.”
In addition to the monetary penalty, WU has agreed to straighten up and fly right by (a) ensuring its agents around the world adhere to US AML standards, (b) taking corrective action against agents who prove unwilling to follow these standards, and (c) reporting all suspicious or illegal activity by its agents.
Besides the DOJ and the US Attorney in Florida, the settlement involved the Federal Trade Commission and the US Attorney’s Offices in Florida, the Central District of California and the Middle and Eastern Districts of Pennsylvania.
Acting Assistant Attorney General David Bitkower said WU was “paying the price for placing profits ahead of its own customers.” FTC Chairwoman Edith Ramirez added that WU had a responsibility to “guard against fraud, but instead the company looked the other way, and its system facilitated scammers and rip-offs.” (She left out “and victimless gambling entertainment.” Just saying.)
Source: Calvin Ayre
Western Union Hit With Investor Suit After Fraud Disclosure
The Western Union Co. was slapped with a putative securities class action Thursday in California federal court after recently disclosing it agreed to pay the U.S. government $586 million to resolve an investigation it violated anti-fraud laws and aided and abetted fraud between 2004 and 2012.
Martin Herman is suing the global payment service and three individual executives on behalf of a proposed class of shareholders who bought publicly traded Western Union securities between Feb. 14, 2012, and Jan. 19, 2017, and were allegedly damaged by the dip in stock price following the recent disclosure.
Western Union on Jan. 19 publicly admitted to failing to maintain an effective anti-money laundering program and to aiding and abetting wire fraud, resulting in a $586 million deal with the feds to resolve civil charges from the Federal Trade Commission and criminal charges for which it entered into a deferred prosecution agreement with the U.S. Department of Justice.
Herman’s complaint contends that statements the company made in SEC filings between 2012 and 2016 — including that its fraud prevention efforts were “effective” and that it was compliant with regulatory responsibilities — were materially false and misleading in light of the recent developments, ultimately damaging investors.
“As a result of defendants’ wrongful acts and omissions, and the precipitous decline in the market value of the company’s securities, plaintiff and other class members have suffered significant losses and damages,” the complaint states.
Share prices fell $0.87 per share, or over 3.9 percent, over two trading days to close at $20.98 per share on Jan. 20 in the wake of the news, according to the suit.
Named in the complaint are Western Union and its CEO and President Hikmet Ersek, former CFO Scott T. Scheirman and current CFO Rajesh K. Agrawal.
Herman contends that he and other potential class members relied on Western Union’s statements in public filings over the four-year period and trusted the integrity of the market price of the securities which, he later realized, had been “artificially inflated.”
Had he known Western Union’s statements were misleading, he and other proposed class members wouldn’t have purchased the Western Union securities, the lawsuit alleges.
The suit comes a week after the blockbuster agreement in which the financial services company admitted to violating the Bank Secrecy Act and other anti-fraud laws.
Federal authorities alleged that the fraud scheme involved fraudsters who would contact unwitting victims, pretending to be relatives who needed money for a job opportunity or other reason. The money would be sent through Western Union, with the help of complicit agents within the company who received a cut of payments, according to the DOJ.
Western Union was aware of the activity as early as 2004 due to consumer fraud reports, but failed to implement guidelines that could have staved off further losses to victims and blocked the actions of more than 2,000 fraudulent agents worldwide between 2004 and 2012, according to prosecutors.
Officials also alleged that Western Union didn’t have an effective anti-money laundering program in place. The company was aware of illegal practices dating back two decades, in which people used the money transfer service to send illegal gambling transactions abroad, according to the DOJ.
In a statement last week announcing its deal with federal investigators, Western Union said it increased compliance funding by more than 200 percent and now spends about $200 million a year on compliance measures.
A company spokesman did not immediately respond to a request for comment in response to Thursday’s suit.
Thanks Forbes, Calvin Ayre, Law360 and for reading Western Union Settles
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