Western Union Co. has agreed to pay over $586 million, while admitting to failing to stop wire fraud and money laundering as part of its deal with the United States.
Lapses in the controls for anti-money laundering by the company allowed hundreds of millions of U.S. dollars in illegal transactions to be processed, that enabled the proliferation of scams that defrauded thousands of people, and illegal gambling, said authorities in the U.S. on Thursday.
Western Union was used by undocumented immigrants originally from China to wire money from California and New York to the human smugglers who helped them, said the Justice Department.
U.S. authorities charged Western Union with the aiding and abetting of wire fraud, as well as failing to maintain an effective program of anti-money laundering.
Prosecutors had agreed to put this case on hold three years and to drop it if Western Union makes its promised reforms. In its agreement with authorities, Western Union admitted that scammers across the globe used its money transfer system to receive money called “dirty” and the company did not take action.
The penalty that was imposed by the Federal Trade Commission and the Department of Justice is the largest ever against a company involved in the money-services industry.
This is one of a number of settlements during the final days of the Obama administration that cost companies billions to resolve that have probed into foreign bribery, auto-emissions cheating and toxic debt.
Western Union, which is the largest money-transfer company, announced that it was anticipating a charge of more than $570 million for its earnings in the fourth quarter. The company is scheduled to announce its earnings February 9.
The company will likely post $837 million in adjusted profit for 2016, according to analyst estimates.
On Wall Street, Western Union stock was down 3.3% late Thursday, after the plummeting up to 6% when news of the settlement was first released earlier in the day.
The global compliance network for Western Union is both a great asset for the company and its greatest liability since the cost of compliance continues to increase and the complexity level has jumped across the global remittance system, said an industry analyst on Wall Street.
U.S. authorities said they had uncovered hundreds of millions of U.S. dollars that were being sent over to China in transaction structured to avoid the requirements of reporting under bank laws in the U.S.