Western Union Admits Violating Money-Laundering Laws In $586 Million FTC Settlement

The Western Union Company WU shares halted and subsequently plummeted Thursday upon news of a $586 million settlement with the Department of Justice and Federal Trade Commission.

Susquehanna analysts said the settlement had long been expected, and Western Union had accrued more than $15 million over the last two quarters in anticipation of the fine. However, Citi analysts said the official sum far exceeded expectations and will consume a significant portion of the company’s total $1.28 billion in cash.

The Case Particulars

According to an FTC press release, Western Union settled consumer fraud charges after admitting to anti-money laundering violations and to aiding and abetting fraudulent wire transfers. The company will refund consumers harmed by its “unlawful” business practices.

“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,” FTC Chairwoman Edith Ramirez said.

U.S. Attorney Eileen Decker said the investigation exposed a network of illegal relations with China that the Western Union had known about for five years.

“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,” Decker said.

In addition to the financial restitution, Western Union has agreed to establish an anti-fraud program and train associates to prevent future illegal activity.

How The Market Responded

After halting trade at 10:53 a.m., shares resumed at 12:36 p.m. and, following an initial fall of about 3.6 percent, have continued to drop on high volume.

Following the activity, Susquehanna asserted a negative stance on Western Union due in part to an anticipated increase in compliance costs. Researchers expect a 0.10 decrease in EPS.