Human traffickers will encounter a much tougher time if they try to to move money out of the US. At the same time, consumers impacted by Western Union’s illegal wire fraud-based activities from 2004 to 2012 may be entitled to a repayment based on the settlement announced last month.
While a class action lawsuit has been filed against Western Union and certain top officers of the company for making “public statements that were materially false and misleading at all relevant times,” share prices have fallen only slightly – just over 3% or back to a price seen a year ago.
Among other things, the lawsuit contends that “Western Union’s fraud prevention efforts did not comply with applicable laws,” and that it aided and abetted wire fraud.
“For at least five years, Western Union knew of agents structuring transactions designed to avoid the reporting requirements of the Bank Secrecy Act,” the lawsuit adds.
From January 1, 2004, and August 29, 2015, Western Union received at least 550,928 complaints about fraud-induced money transfers, totaling at least US$632,721,044; and consequently, defendants’ public statements were materially false and misleading at all relevant times.
Western Union will reveal its 2016 revenues later this month. It reported revenues of US$1.4 billion for the quarter that ended on September 30, 2016.
The investigation was undertaken by the US Department of Justice, the US Postal Inspection Service, the US Federal Bureau of Investigation, the Toronto Police Service Financial Crimes Unit, the Canadian Anti-Fraud Centre, the Royal Canadian Mounted Police, the Spanish National Police, and the Offices of the Attorney General for Arizona, Minnesota, and Vermont.
Among the measures taken by the US Federal Trade Commission, Western Union has agreed to forfeit US$586 million to the US government, “to be used to reimburse consumers who were victims of fraud during the relevant period.”
Among other things, this is described in a release issued by the FTC as “the largest forfeiture ever imposed on a money services business, and [Western Union] has agreed to take specific steps to ensure that it complies with the law in the future. This office will continue to vigorously enforce the anti-money laundering laws and regulations, which are necessary to prevent those engaged in fraud, terrorism, human trafficking, drug dealing and other crimes from using companies like Western Union to further their illegal activity.”
The charges were filed by the FTC in a complaint filed on January 19 the US District Court for the Middle District of Pennsylvania, alleging that the company’s conduct violated the FTC Act.
“The complaint charges that for many years, fraudsters around the world have used Western Union’s money transfer system even though the company has long been aware of the problem and that some Western Union agents have been complicit in fraud,” the FTC release said.
“The FTC’s complaint alleges that Western Union declined to put in place effective anti-fraud policies and procedures and has failed to act promptly against problem agents. Western Union has identified many of the problem agents but has profited from their actions by not promptly suspending and terminating them.”
The reference above to human trafficking has a direct bearing on certain individuals in California and China.
“Our investigation 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 US Attorney Eileen M. Decker of the Central District of California.
“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 keep 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.
This action today will ensure that Western Union effectively controls its agents and prevents the use of its money transfer system for illegal purposes.”
A company named Shen Zhou International in Monterey Park, California allegedly sent a total sum exceeding US$310 million in Western Union transactions to China. In the process, about half of the money orders were deliberately structured to ensure avoidance of US money reporting regulations.
The owner of the company is identified as Zhihe “Frank” Wang. He had previously pleaded guilty to one count of structuring international transactions to evade reporting requirements in Santa Ana, California federal court.
Wang has admitted to sending sums of money averaging US$2,500 or well below the US$3,000 amount that would normally trigger the reporting and record-keeping requirements that US regulators have in place. It appears that Western Union had cracked down on Shen Zou over a decade ago, but that the company’s activity continued nonetheless.
“Los Angeles-defendant Wang’s company was considered to be among the largest Western Union agents in the United States as over US$310 million was sent to China in a span of five years, half of which was illegally structured and transmitted using false identification,” said Special Agent in Charge Deirdre Fike of the FBI’s Los Angeles field office.
“Rather than ensuring their high volume agents were operating above-board, Western Union rewarded them without regard to the blatant lack of compliance and illegal practices taking place.
“This settlement should go a long way in thwarting the proceeds of illicit transactions being sent to China to fund human smuggling or drug trafficking, as well as to interrupt the ease with which scam artists flout US banking regulations in schemes devised to defraud vulnerable Americans.
“As a major player in the money transmittal business, Western Union had an obligation to its customers to ensure they offered honest services, which include upholding the Bank Secrecy Act, as well as other US laws,” said Chief Richard Weber of Internal Revenue Service-Criminal Investigation (IRS-CI).
“Western Union’s blatant disregard of their anti-money laundering compliance responsibilities was criminal and significant.
IRS-CI special agents – working with their investigative agency partners – uncovered the massive financial fraud and is proud to be part of this historic criminal resolution.”
The activity uncovered in other states suggests a broad pattern of criminal activity.
In fact, the US Attorney’s Office for the Middle District of Pennsylvania has stated its prosecution of corrupt Western Union agents has been going on for years.
“Since 2001 our office, in conjunction with the US 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 US residents via various forms of mass marketing schemes,” said US Attorney Bruce D. Brandler of the Middle District of Pennsylvania.
“I am gratified that the deferred prosecution agreement reached with Western Union ensures that US$586 million will be available to compensate the many victims of these frauds.”
The FTC blasted Western Union for its conduct in this instance.
“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,” said FTC Chairwoman Edith Ramirez.
“The agreements we are announcing today will ensure Western Union changes the way it conducts its business and provides more than a half billion dollars for refunds to consumers who were harmed by the company’s unlawful behavior.”
The FTC instructs “persons who believe they were victims of the fraud scheme should visit the Department of Justice’s victim website for instructions on how to request compensation through the Victim Asset Recovery Program.”
The Victim Compensation Program, operated by the Money Laundering and Asset Recovery Section, is composed of a team of experienced professionals, including attorneys, accountants, auditors and claims analysts. In hundreds of cases, the program has successfully used its specialized expertise to efficiently convert forfeited assets to victim recoveries.