U.S. to Order Wire-Transfer Firms To Boost Their Vigilance Overseas

[R.A. Hettinga]

<http://online.wsj.com/article_print/0,,SB110246667558793883,00.html>

The Wall Street Journal


 December 8, 2004

 U.S. BUSINESS NEWS


U.S. to Order Wire-Transfer Firms
 To Boost Their Vigilance Overseas

By GLENN R. SIMPSON
Staff Reporter of THE WALL STREET JOURNAL
December 8, 2004; Page A2


WASHINGTON -- The booming U.S. money-transfer industry must step up efforts
to ensure that its overseas agents aren't engaging in corrupt activity,
federal regulators say.

Under rules expected to be issued today, the Treasury Department's
Financial Crimes Enforcement Network is ordering First Data Corp.'s Western
Union and other wire-transfer companies to closely monitor their foreign
agents for suspicious activity and to make sure they have policies against
money laundering and no affiliations with criminal enterprises.

During the next 180 days companies are expected to come up with programs
for conducting due diligence of foreign agents, monitoring them and
terminating them when necessary. Firms will be audited for compliance by
the Internal Revenue Service.

"If they are going to take steps to help protect the gateways to the U.S.
financial system, this is a rational thing for them to be doing," said
FinCEN director William Fox. The global-remittance industry moves more than
$70 billion across international borders annually, mostly for migrant
workers and small  businesses, and is growing.

Regulators are concerned that foreign agents of U.S. fund-transfer
companies are a vulnerable area in the struggle against money laundering
and other criminal activity because weak regulations in many other nations
make it hard to keep criminals out. A page-one article in The Wall Street
Journal in October reported that at Western Union alone, the number of
agents has mushroomed, to more than 200,000 today from 50,000 in 1998, with
much of the growth overseas where it is difficult to vet local operators.

In justifying its new "guidance," FinCEN officials said they uncovered
"several instances" of suspected criminal activity by foreign agents of
U.S. businesses. "There are a variety of ways in which a money-services
business may be  susceptible to the unwitting facilitation of money
laundering through foreign agents or counterparties," the agency said. The
cases depict an elaborate and largely successful strategy to launder money
through the U.S. financial system.

First, FinCEN said,  transfer agents made bulk sales of sequentially
numbered travelers checks and large blocks of money orders to suspected
criminals. These financial instruments "usually had illegible signatures or
failed to designate a beneficiary or payor," FinCEN said. " The instruments
were then negotiated with one or more dealers in goods, such as diamonds,
gems or precious metals, deposited in foreign banks, and cleared through
U.S. banks." By the end of the process, "the clearing banks were so far
removed from the transactions that they could not trace back or screen
either the intervening transactions or the individuals involved in the
transactions."

Mr. Fox said the examples cited aren't from one specific region of the
world, and declined to name the companies. "It is a generalized problem and
one we need to address across the board," he said.

He emphasized that companies will have discretion to determine the exact
steps needed for individual foreign partners depending on their assessment
of the risks involved, and that the government isn't trying to discourage
firms from entering into such relationships. "Our notion is to make this
safer and more transparent, so it does not go underground," he said.


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R. A. Hettinga <mailto: rah at ibuc.com>
The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
44 Farquhar Street, Boston, MA 02131 USA
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