Neon sign depicting money transfer.

On January 19, 2017, the Western Union Company (“Western Union” or the “Company”) entered into a deferred prosecution agreement (“DPA”) with the Department of Justice (“DOJ”), in which Western Union admitted to willful failures to maintain an effective AML program as well as aiding and abetting of wire fraud schemes.  Western Union agreed to a $586 million monetary penalty which will resolve criminal and civil allegations brought by the DOJ and the Federal Trade Commission against the Company, as well as a related Assessment of Civil Money Penalty by FinCEN against a subsidiary of Western Union.  However, Western Union now faces additional costs and litigation for its admittedly insufficient AML program in the form of shareholder suits brought in federal court following the announcement of this sizeable settlement.  Shareholder derivative suits based on alleged AML failures are becoming increasingly common, and this recent action fits squarely into the apparent trend.

This week a group of investors filed a class action suit in the District of Colorado alleging Western Union violated federal securities law by making false and materially misleading statements which artificially inflated the prices of its shares.  The complaint cites statements by the Company which described its compliance efforts as “very sophisticated” and of the “highest standard.”  The complaint further alleges Western Union made materially false and misleading statements regarding its compliance efforts in the Company’s 10K filing and in various investor conferences and press releases.  The allegedly false and misleading statements are said to be part of a scheme to deceive the market which allegedly artificially inflated the publicly-traded prices of Western Union and operated as a fraud or deceit upon investors.   The investors claim that they would not have purchased Western Union securities at the price they paid, or at all, if they had been aware the market prices were artificially and falsely inflated by defendants’ misleading statements. The investors allegedly suffered damages when the artificially inflated share prices of Western Union precipitously fell once the Company’s misrepresentations and fraudulent conduct become apparent to the market. For example, the complaint alleges the price of Western Union stock dropped by 29%  in 2012 as a result of the Company’s partial disclosures  regarding compliance efforts and a disappointing third quarter due in part to  a revenue drop which was the result of compliance related actions during that time.  The complaint further alleges the recent announcement of the $586 million settlement resulted in a drop of share price of over 10%.

The suit also names as individual defendants the CEO and two former CFOs, who allegedly acted as controlling persons of Western Union and, by reason of their positions in the company, allegedly had the power and authority to cause Western Union to engage in this wrongful conduct. This civil allegation by private investors echoes DOJ’s focus on individual liability in AML/BSA matters, and in fraud investigations in general – a focus that has grown since DOJ issued its principles of prosecution regarding individual accountability throught the so-called “Yates Memo” in September 2015.  This trend should provide yet another incentive for compliance professionals and executives to ensure that their AML/BSA programs will withstand strict scrutiny.

The suit was originally brought in the Middle District of Pennsylvania; however, the case was transferred to District Court of Colorado in light of a similar class action filed on February 22, 2017. This suit follows on the heels of a similar suit announced against Western Union in California in January 2017.

The securities class action suits following in the wake of the Western Union DPA demonstrate the potentially far reaching consequences of such enforcement actions for a company whose AML programs are potentially wanting. They further suggest how the Securities and Exchange Commission (“SEC”) may begin wading more forcefully into this area, just as the SEC already has done in the context of cases involving allegations of underlying violations of the Foreign Corrupt Practices Act.