Western Union, a global money services business, has agreed to forfeit $586 million and enter into agreements with the Federal Trade Commission, the Justice Department, and the U.S. Attorneys’ Offices in Pennsylvania, California, and Florida. The company admitted to criminal violations including willfully failing to maintain an effective anti-money laundering program and aiding and abetting wire fraud.
Investigations “uncovered hundreds of millions of dollars being sent to China in structured transactions designed to avoid the reporting requirements of the Bank Secrecy Act, and much of the money was sent to China by illegal immigrants to pay their human smugglers,” said U.S. Attorney Eileen Decker of the Central District of California. “In a case 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 keep this agent—as well as several other high-volume independent agents in New York City—working for [the company] because of the high volume of their activity.”
According to admissions contained in the deferred prosecution agreement with the Justice Department, Western Union violated U.S. laws—the Bank Secrecy Act and anti-fraud statutes—by processing hundreds of thousands of transactions for agents and others involved in an international consumer fraud scheme.
As part of the scheme, fraudsters contacted victims in the U.S. and falsely posed as family members in need or promised prizes or job opportunities. They directed the victims to send money through Western Union to help their relative or claim their prize. Various Western Union agents were complicit in these fraud schemes, often processing the fraud payments for the fraudsters in return for a cut of the fraud proceeds, the enforcement agencies say.
“Western Union knew of but failed to take corrective action against Western Union agents involved in or facilitating fraud-related transactions,” the FTC said in a statement. Beginning in at least 2004, Western Union recorded customer complaints about fraudulently induced payments in what are known as consumer fraud reports. In 2004, Western Union’s Corporate Security Department (CSD) proposed global guidelines for discipline and suspension of Western Union agents that processed a materially elevated number of fraud transactions. In these guidelines, the CSD effectively recommended automatically suspending any agent that paid 15 CFRs within 120 days.
“Had Western Union implemented these proposed guidelines, it would have prevented significant fraud losses to victims and would have resulted in corrective action against more than 2,000 agents worldwide between 2004 and 2012,” the FTC says.
Court documents also show Western Union’s BSA failures spanned eight years and involved, among other things, the acquisition of a significant agent that Western Union knew prior to the acquisition had an ineffective AML program and had contracted with other agents that were facilitating significant levels of consumer fraud. Despite this knowledge, it moved forward with the acquisition and did not remedy the AML failures or terminate the high-fraud agents.
Similarly, Western Union failed to terminate or discipline agents who repeatedly violated the BSA and company policy through their structuring activity in California and Pennsylvania.
The BSA requires financial institutions, including money services businesses, to file currency transaction reports (CTRs) for transactions in currency greater than $10,000 in a single day. To evade the filing of a CTR and identification requirements, criminals will often structure their currency transactions so that no single transaction exceeds the $10,000 threshold. Financial institutions are required to report suspected structuring where the aggregate number of transactions by or on behalf of any person exceeds more than $10,000 during one business day.
Western Union knew that certain of its U.S. Agents were allowing or aiding and abetting structuring by their customers, the FTC and Justice Department say. Rather than taking corrective action to eliminate structuring at and by its agents, they were allowed to continue sending transactions through Western Union’s system and paid agents bonuses.
“Despite repeated compliance reviews identifying suspicious or illegal behavior by its agents, Western Union almost never identified the suspicious activity those agents engaged in in its required reports to law enforcement,” a statement says.
Western Union had been on notice since at least December 1997 that individuals were its money transfer system to send illegal gambling transactions from Florida to offshore sportsbooks. “Western Union knew that gambling transactions presented a heightened risk of money laundering and that through at least 2012, certain procedures it implemented were not effective at limiting transactions with characteristics indicative of illegal gaming from the United States to other countries,” the FTC said.
Western Union agreed to settle charges by the FTC in a complaint filed in the U.S. District Court for the Middle District of Pennsylvania.
In resolving the FTC charges, Western Union agreed to a monetary judgment of $586 million and to implement and maintain a comprehensive anti-fraud program with training for its agents and their front line associates, monitoring to detect and prevent fraud-induced money transfers, due diligence on all new and renewing company agents, and suspension or termination of noncompliant agents.
The FTC order prohibits Western Union from transmitting a money transfer that it knows or reasonably should know is fraud-induced, and requires it to:
block money transfers sent to any person who is the subject of a fraud report;
provide clear and conspicuous consumer fraud warnings on its paper and electronic money transfer forms;
increase the availability of websites and telephone numbers that enable consumers to file fraud complaints; and
refund a fraudulently induced money transfer if the company failed to comply with its anti-fraud procedures in connection with that transaction.
The company’s compliance with the order will be monitored for three years by an independent compliance auditor.
Western Union’s DPA in connection with a two-count felony criminal information filed in the Middle District of Pennsylvania includes enhanced compliance obligations to prevent a repeat of the charged conduct, including creating policies and procedures: for corrective action against agents that pose an unacceptable risk of money laundering or have demonstrated systemic, willful or repeated lapses in compliance; that ensure that its agents around the world will adhere to U.S. regulatory and AML standards; and that ensure that the company will report suspicious or illegal activity by its agents or related to consumer fraud reports.