Record-Setting Prosecutions In The Money Transmitting Business: Ways To Avoid Compliance Violations
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In the first several months of 2017, we have seen significant anti-money laundering settlements and penalties in the money transmitting business arising from lax compliance programs, including the record-setting Western Union settlement and the various individuals facing personal exposure. From each of these there are lessons to be drawn.
The $586M Western Union Settlement
On January 19, 2017, Western Union agreed to a $586 million forfeiture, the largest ever imposed on a money services business.
According to the deferred prosecution agreement,1 Western Union violated reporting and compliance obligations mandated by the Bank Secrecy Act (“BSA”), which is sometimes referred to as an anti-money laundering law (“AML”) or jointly as “BSA/AML.” 31 U.S.C. §§ 5311-30. The steep penalty for compliance and reporting lapses may be attributable to the fact that, as Acting Assistant Attorney General David Bitkower observed, “Wiring money can be the fastest way to send it—directly into the pockets of criminals and scam artists.”2
Specifically, Western Union violated BSA/AML provisions requiring all domestic financial institutions to implement an effective anti-money laundering compliance program. Part of the required compliance includes the mandatory submission of certain reports, such as Currency Transaction Reports for transactions over $10,000 (or multiple transactions that amount to over $10,000) and Suspicious Activity Reports (“SARs”) for transactions that may violate a law or regulation.
Western Union’s failure to maintain sufficient anti-money laundering measures enabled its agents to defraud thousands of U.S. residents between 2004 and 2012. The various fraudulent schemes induced victims to wire money through false promises of lottery winnings or large cash prizes; sham offerings of “high-ticket” items at greatly discounted prices; fake employment opportunities, such as “secret shoppers”; and fictitious relatives in need of money. The fraudulent and unlawful activities reached into the company’s international operations, most notably in the United Kingdom and China. According to the Department of Justice (“DOJ”), a substantial portion of this money had ties to human smugglers.
While Western Union’s Corporate Security Department recommended guidelines for countering money laundering, Western Union failed to implement these proposed guidelines. According to the DOJ, execution of the proposed guidelines 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.”
Inadequate BSA/AML Compliance Results in Individual Liability
Similar to the circumstances surrounding the Western Union settlement, MoneyGram International Inc. entered into a deferred prosecution agreement in late 2012, forfeiting $100 million. Four-and-a-half years later, penalties from MoneyGram’s inadequate anti-money laundering compliance are still materializing, most recently with the guilty plea of one of its and Western Union’s former agents. This could be at least in part because of the DOJ’s mandate, commonly known as the Yates Memo, to hold individuals and not just corporations accountable.
On May 9, 2017, the former agent pled guilty to defrauding thousands of victims out of approximately $4.4 million through mass-marketing fraud schemes.3 According to the indictment, the former agent conspired with a group of complicit agents. These former agents engaged in mass-marketing fraud by processing fraudulently induced money transfers, while allowing themselves to retain up to 10 percent for their role in the schemes.
The former agent faces imprisonment of up to 20 years for each count and a $250,000 fine for his role in the schemes.
Six Ways to Reduce Exposure
These cases present examples of how important it is for financial institutions to understand their areas of risk and have real and fully executed compliance programs that address and combat these risks. At the outset, companies involved in any way in the transmission of currency should familiarize themselves with the expansive definition of “financial institutions” under the BSA/AML, which, while including traditional entities such as commercial banks, also may include less conventional entities, such as pawnbrokers, travel agencies, travelers check cashiers, jewel dealers, and car dealerships.
Businesses whose cash transactions may have a high degree of usefulness in criminal, tax, or regulatory matters should contemplate the following suggestions as ways to assist in reducing the risk of violations:
- consider whether their business has been designated as one that is subject to the BSA/AML;
- ensure that they have executed a compliance program that appropriately takes into consideration the business’ risk areas;
- understand the triggering obligations for filing SARs and have systems in place to help expose transactions structured in a manner to evade detection;
- designate personnel responsible for day-to-day compliance and to stay abreast of any suspicious activity report trends;
- provide regular training for appropriate personnel, including agents where appropriate; and
- create a hotline for the reporting of suspicious activity.
These measures can assist in avoiding serious violations and in mitigating the potentially hefty fines, should a violation be uncovered.
- Western Union’s deferred prosecution agreement can be accessed through the DOJ’s website: http://www.justice.gov/opa/press-release/file/938371/download.
- Press Release, Western Union Admits Anti-Money Laundering and Consumer Fraud Violations, Forfeits $586 Million in Settlement with Justice Department and Federal Trade Commission, Department of Justice (Jan. 19, 2017), available at http://www.justice.gov/opa/pr/western-union-admits-anti-money-laundering-and-consumer-fraud-violations-forfeits-586-million.
- Press Release, Former Canadian MoneyGram and Western Union Agent Pleads Guilty to $4.4 Million Fraud Scheme, Department of Justice (May 9, 2017), available at http://www.justice.gov/usao-mdpa/pr/former-canadian-moneygram-and-western-union-agent-pleads-guilty-44-million-fraud-scheme.
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