"When Compliance Failed: The Western Union AML Scandal of 2002-03"

BREIF INTRO:

Back in 2002 and 2003, Western Union, a prominent global money transfer service, came under intense scrutiny for significant lapses in its Anti-Money Laundering (AML) program. During this period, the company was found to have inadequately implemented and enforced its AML controls, failing to effectively detect and report suspicious transactions. .

WHAT WENT WRONG?

Western Union Financial Services, Inc. (WUFSI) willfully violated the Bank Secrecy Act (BSA)’s program, recordkeeping, and reporting requirements by failing to maintain an effective risk-based AML program. Key issues included not suspending or terminating certain high-risk agent locations promptly and failing to conduct adequate due diligence on certain foreign agents.

AML Program Failures: WUFSI lacked adequate internal controls, failed to designate responsible individuals, did not provide necessary training, and did not conduct independent reviews.

Due Diligence Failures: WUFSI did not adequately review high-risk new agents or conduct enhanced due diligence on Latin American-based agents, resulting in increased money laundering risks, particularly along the US-Mexico border.

Termination Failures: WUFSI lacked proper procedures to suspend or terminate high-risk agent locations, inconsistently applying corrective actions and sometimes delaying termination due to business interests.

WUFSI's failure to promptly report suspicious transactions led to significant delays in filing thousands of Suspicious Activity Reports (SARs). This included neglecting to report suspicious activities involving agent locations unless agents were directly implicated.

FinCEN imposed a $184 million penalty on WUFSI for AML program failures and SAR filing violations. Additionally, the U.S. Department of Justice collected $586 million from WUFSI for fraud victim restitution, satisfying FinCEN’s penalty. WUFSI consented to the assessment of a $184 million civil money penalty, admitting to willfully violating BSA requirements.

LESSONS LEARNED:

Key learnings for other financial institutions:

1. Compliance is Non-Negotiable

2. Effective AML Programs are Essential

3. Automated Screening of Individuals and Transactions is Crucial

4. Regular Training for Personnel is Necessary

5. Independent Reviews are Vital

6. Up-to-Date Compliance Data is Essential

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