Western Union Will Pay $585 Million For Not Doing Enough To Stop Wire Fraud

Whether it’s the “distant relative stranded in a foreign country” scam or the “you’ve won the lottery but you have to pay us scam” or any other variation on this remotely operated ruse, wire transfer services like Western Union are often the conduit for getting that money from the victim to the scammer. After years of being accused of not doing enough to clamp down on fraud by its customers, Western Union has agreed to pay $585 million to federal authorities and admit that its policies — and some of its agents — aided and abetted wire fraud.

Today’s settlement is a “deferred prosecution” agreement, meaning the deal halts any prosecution of criminal charges against the company. It involves Western Union’s practices and policies from 2004 through 2012, during which time the company allegedly violated federal anti-fraud statutes and the Bank Secrecy Act, which — among other things — requires certain businesses to keep track of and report on suspected money laundering.

The agreement closes the book on investigations by various divisions at the Justice Department, the Federal Trade Commission, and the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

According to court documents [PDF] filed by FinCEN, Western Union’s involvement in criminal transactions was sometimes more than just allowing for funds to be transferred from one party to another.

For example, in Oct. 2011 Western Union realized (with the help of law enforcement) that about half of the consumer fraud reports in Peru, where there are hundreds of WU locations, were connected to just four WU agents, all owned by the same person.

The company shut down these locations in April 2012, but eight months later allowed their owner to open a new Western Union location.

Along the border between the U.S. and Mexico, FinCEN says that Western Union agents failed to properly vet the subagents they contracted with to deliver funds to recipients, despite the company’s (and the public’s) awareness that wire transfers were a popular way to launder and move money for narcotics transactions.

The problems weren’t solely in Latin America. In the UK, one Western Union location had been repeatedly flagged as a high-fraud risk and potentially complicit in criminal activity. By 2012, the company had received some 2,000 consumer fraud reports related to this one location. WU staff even recommended severing ties with this agent, but the company chose to continue the relationship until 2012, notes FinCEN.

Those 2,000 fraud reports are nothing compared to the 31,000 suspicious activity reports filed by Western Union regarding transfers processed through four WU locations in China. One of these agents was responsible for 11,000 of those reports. According to FinCEN, this location was repeatedly facilitating transactions that were large enough to raise internal red flags, but just short of meeting the record-keeping requirements for large transfers.

“Despite continually identifying this activity, WUFSI implemented insufficient corrective action and never suspended this agent location’s relationship and this agent location continued to be one of WUFSI’s top accounts for sending money to China,” notes FinCEN, pointing out that it took five years and thousands of reports before WU finally terminated its relationship with this location in Sept. 2010.

The practice of transferring amounts of money that are just under the Bank Secrecy Act’s reporting threshold is known as “structuring.” That’s why banks and wire-transfer companies like Western Union are also required to report incidents of suspected structuring.

Instead, notes the DOJ in its announcement of today’s agreement:

“Western Union knew that certain of its U.S. Agents were allowing or aiding and abetting structuring by their customers. Rather than taking corrective action to eliminate structuring at and by its agents, Western Union, among other things, allowed agents to continue sending transactions through Western Union’s system and paid agents bonuses.”

Western Union could have avoided today’s messy settlement (and the substantial financial penalty) if it had just listened to its own security people more than a decade ago. In 2004, the company’s Corporate Security Department proposed global guidelines would have automatically suspended any agent involved in 15 fraud reports within a six-month period. Those guidelines were not adopted at the time.

In addition to the criminal and BSA-related allegations against Western Union, the Federal Trade Commission accused the company in a civil complaint [PDF] of violating federal law by failing to put effective anti-fraud policies in place, and for not properly dealing with Western Union locations and employees that the company had internally identified as being connected to questionable activity.

For its part, Western Union is downplaying its past problems, by pointing out that the settlement deals with practices and policies that happened more than four years ago, and that the company has increased spending on compliance by some 200% since then.

“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,” reads Western Union’s statement. “We are committed to enhancing our compliance programs to prevent illicit activity on our network and protect customers who transfer money to friends, family and businesses.”