Western Union Enters $586M Accord, Admits Fraud Violations

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Shares of The Western Union CompanyWU declined more than 3% on Thursday after the company agreed to pay $586 million to the federal government and admitted to "criminal violations including willfully failing to maintain an effective anti-money laundering (AML) program and aiding and abetting wire fraud."

As part of the settlement, the company will enter into a deferred prosecution agreement with the U.S. Department of Justice (DOJ) and a consent order with the Federal Trade Commission (FTC). Authorities are determined to keep the case on hold for three years and drop criminal charges against the company if it enhances its compliance program.

The payment by the company will be utilized in reimbursing consumers who were victims of fraud in the period from 2004 to 2012.

U.S. Attorney Eileen M. Decker of the Central District of California sated, "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 smuggler."

The DOJ mentioned in its release that between 2004 and 2012, Western Union had violated the U.S. laws as it processed hundreds of thousands of transactions for Western Union agents and others engaged in an international consumer fraudulent scheme. As part of this scheme, fraudsters made contact with victims in the U.S. posing as family members in need or promised prizes or job prospects. The fraudsters steered these victims to send money through Western Union in order to help their relative or claim their prize.

Various Western Union agents were involved in these fraud schemes and often processed the fraud payments in exchange of a cut of the fraud proceeds. The DOJ stated that Western Union was aware of the scheme, but failed to take corrective action against those agents.

Financial Impact

Owing to the settlement, Western Union expects to incur a charge of about $570 million in its fourth-quarter 2016 results. The company plans to claim a deduction for the settlement payment. However, since the tax effect is uncertain, it does not expect a related tax benefit in the fourth quarter.

Excluding the charge, the company anticipates reporting 2016 financial results in line with its financial outlook as previously provided. The company had projected 2016 EPS in the range of $1.60-$1.70.

Western Union stated, "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."

Over the past one year, Western Union's shares increased 28.1%, outpacing the 22.1% gain recorded for the Zacks catagorized Financial Transaction Services Industry.

Western Union currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

UMB Financial Corporation UMBF : The company has a long-term expected earnings per share (EPS) growth rate of 13.1% and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Fifth Third Bancorp FITB : The company has a long-term expected EPS growth rate of 7.3% and carries a Zacks Rank #2 (Buy).

Cullen/Frost Bankers, Inc. CFR : The company has a long-term expected EPS growth rate of 9.5% and carries a Zacks Rank #2.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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