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Will Western Union's (WU) Compliance Plan Save its Face?

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Leading money transfer company The Western Union Co. (WU - Free Report) has successfully navigated the secondary recommendations in the Southwest Border Anti-Money Laundering Compliance Program. This proves that the company is one step ahead in trimming illegal money laundering in its network.

The company had cleared the primary recommendation of the Southwest Border program last year. The enhanced compliance program is being undertaken by the company to protect its well-established brand name especially since it was recently alleged of illegally money transfer.

Providing secure and legal transactions is one of the main purviews of a money transfer company and Western Union’s image has been tarnished.

Early this year, the Department of Justice held that between 2004 and 2012, Western Union had violated U.S. laws as it processed hundreds of thousands of transactions for its 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.

In the fourth quarter of 2016, the company was charged with a penalty of $571 million to be paid to the The Federal Trade Commission for reimbursement to the victims of fraud.  

Year to date, Western Union’s shares have lost 11.3% compared with the Zacks catagorized Financial Transaction Services industry’s gain of 15.7%.



Providing secure and legal transactions is one of the main purviews of a money transfer company and Western Union’s image has been tarnished.

The company, as a remedial measure is making significant efforts and investments in compliance programs. For full-year 2016, the compliance expense was 3.6% of revenues. In the first quarter, compliance expense was 3.7% of revenue and is expected to be at the higher end of the 3.5% to 4% revenues range for full-year 2017.

Apart from investing in compliance, the company is also spending significantly on technology to keep pace with the rapid shift in the space from physical to electronic money transfer. High compliance and investment costs are expected to put pressure on the company’s bottom line.

The company is also faced with a tough competitive environment as the pending acquisition of MoneyGram International Inc. (MGI - Free Report) by Ant Financial an affiliate company of Alibaba Group Holding Limited (BABA - Free Report) will create a stronger player that will pose stiff competition to Western Union.

Western Union carries a Zacks Rank #3 (Hold). A better-ranked player in the same space is Total System Services, Inc. (TSS - Free Report) . The stock carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Total System beat estimates in three of the last four reported quarters, with an average positive surprise of 3.6%.

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