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Western Union Settlement: A Cautionary Tale for Bitcoin Money Transmitters

Money transfer exchange, Western Union, recently announced a $184 million settlement with the Financial Crimes Enforcement Network (FinCEN) for violating the Bank Secrecy Act’s anti-money laundering (AML) requirements. Specifically, FinCEN determined that Western Union failed to (1) implement and maintain effective AML compliance oversight of certain agents and sub-agents; and, (2) failed to file suspicious activity reports (SARs) in a timely manner.

There are several takeaways from the experience of this legacy organization for money transfers that their counterparts in the Bitcoin space would be wise to note. In an exclusive interview with Bitcoin Magazine, Joe Ciccolo, Founder of the U.S.-based BitAML, agreed to explore the findings and offer his thoughts on the potential implications for Bitcoin money transmitters. BitAML provides regulatory compliance solutions for digital currency startups.

For starters, Ciccolo who has an extensive background in bank regulatory compliance, said that FinCEN made the determination that Western Union failed to adequately perform due diligence on several of its agents and sub-agents, thereby preventing the monitoring of these agents and any subsequent corrective actions.

Due diligence, he says, is a vital component of onboarding company agents. Routine background checks, the collection of agent information, and onsite visits are instrumental to the vetting process. In addition to the obvious AML compliance benefits, these actions, he notes, are just good business practices.

Says Ciccolo: “Money transmitters should strive to build and maintain a strong class of agents to properly and ethically represent their brand. This is especially true for Bitcoin money transmitters whose relatively small size — coupled with larger, more rapid growth potential — may increase the likelihood of overlooking prudent and proper agent due diligence. AML programs, policies and procedures should ideally be designed to scale along with the money transmitter, whether legacy or Bitcoin.”

 Ciccolo also noted that as a principal money transmitter, Western Union is responsible for understanding and appropriately accounting for the risks associated with its agents. He asserted that this should be of no surprise to anyone in the industry. In fact, FinCEN just recently reminded principal money transmitters of their responsibilities when it reiterated existing agent monitoring compliance obligations in March 2016.

Returning to the settlement agreement, FinCEN went on to state that the failure to perform adequate due diligence prevented Western Union from ensuring agents were compliant with recordkeeping and reporting requirements. What’s more, FinCEN determined that Western Union failed to take sufficient corrective action when it suspected certain agents were involved in fraud and money laundering activities.

Says Ciccolo: “The cumulative impact of ineffective agent monitoring policies and procedures is clear. Bitcoin money transmitters with principal-agent arrangements are advised to establish and constantly review and update, as necessary, comprehensive agent onboarding and monitoring policies and procedures.”     

Secondly, according to Ciccolo, FinCEN determined that Western Union failed to develop and implement policies and procedures that could detect and lead to the reporting of suspicious activity.

“While Bitcoin money transmitters are familiar with their obligation to report suspicious or unusual customer activity to FinCEN via Suspicious Activity Reports (SAR), many may be unaware that this obligation extends to “insiders,” such as employees or agents.”

FinCEN, says Ciccolo, found that Western Union rarely filed SARs on agents found to be complicit in business practices of concern. Further, in many cases, Western Union took over 90 days to file a SAR, well-north of the statutory requirement of 30 days. “It’s important that Bitcoin money transmitters establish policies and procedures for thoroughly completing SARs, and filing them in a timely manner.”

FinCEN Deputy Director Jamal El-Hindi remarked that the settlement agreement reflects “recognition of past shortcomings and the damage that can be done when there’s a failure of a culture of compliance.”

Making it clear that AML obligations and enforcement actions are not just for the large multinational financial services providers, El-Hindi concluded by remarking that “money transmitters, large and small, play a critical role in the movement of legitimate funds around that world, and they also are of vital assistance to FinCEN and law enforcement in thwarting illicit activity.”

In a press release, Western Union was quick to note that the settlement was mainly related to activity occurring prior to 2012, and that the company has since increased compliance funding by 200 percent over the last five years.

“While this is admirable and suggests a commitment to reform,” said Ciccolo, “I’m not sure the budgets of most Bitcoin money transmitters could afford such an increase, to say nothing of the monetary fine and the reputational risks of an enforcement action.”  

Michael Scott

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