Western Union 2008 Annual Report Download - page 43

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Management’s
Discussion and
Analysis of Financial
Condition and
Results of Operations
On September 15, 2008, we requested redemption
of our shares in the Reserve International Liquidity
Fund, Ltd., a money market fund, (the “Fund”) totaling
$298.1 million. We did not receive any portion of the
redemption payment prior to December 31, 2008, and
accordingly, we have reclassified the total amount due from
“Cash and cash equivalents” to “Other assets” in the consol-
idated balance sheet as of December 31, 2008. At the time
the redemption request was made, we were informed by
the Fund’s investment advisor that our redemption trades
would be honored at a $1.00 per share net asset value.
On January 30, 2009, we received a partial distribution
from the Fund of $193.6 million. We expect to receive
the remaining redemption amount based on written and
verbal representations from the Manager to date and our
current legal position regarding our redemption priority.
We expect to receive the remaining payment based on
the maturities of the underlying investments in the Fund
and the outcome of the litigation process. There is a risk
the redemption process could be delayed and that we
could receive less than the $1.00 per share net asset value
should pro-rata distribution occur. Based on the net asset
information provided by the Fund, our exposure related
to pro-rata distribution could be $12 million, excluding
settlement costs incurred by the Fund. However, based on
written and verbal representations from the manager to
date and our current legal position regarding our redemp-
tion priority, we believe that we are entitled to such funds
and are vigorously pursuing collection of the remaining
distribution.
To manage our exposures to credit risk with respect to
investment securities, money market fund investments and
other credit risk exposures resulting from our relationships
with banks and financial institutions, we regularly review
investment concentrations, trading levels, credit spreads
and credit ratings, and we maintain our largest relationships
with globally diversified financial institutions. We also limit
our investment level with respect to individual funds.
We are also exposed to credit risk related to receivable
balances from agents in the money transfer, walk-in bill
payment and money order settlement process. In addi-
tion, we are exposed to credit risk directly from consumer
transactions particularly through our online services and
electronic consumer-to-business channels, where trans-
actions are originated through means other than cash,
and therefore are subject to “chargebacks,” insufficient
funds or other collection impediments, such as fraud.
We perform a credit review before each agent signing
and conduct periodic analyses when an agent’s balance
exceeds a minimum threshold. Our losses associated with
agent and consumer bad debts have been less than 1%
of our annual revenue in all periods presented.
Regulatory
Our business is subject to a wide range of laws and regu-
lations enacted by the United States federal government,
each of the states, many localities and other countries.
These include financial services regulations, consumer
disclosure and consumer protection laws, currency con-
trol regulations, money transfer and payment instrument
licensing regulations, escheat laws and laws covering con-
sumer privacy, data protection and information security.
Our services also are subject to an increasingly strict set
of legal and regulatory requirements intended to help
detect and prevent money laundering, terrorist financing
and other illicit activity. Failure to comply with any of these
requirements—by either Western Union or its agents (who
are third parties, over whom Western Union has limited
legal and practical control)—could result in the suspension
or revocation of a license or registration required to pro-
vide money transfer services, the limitation, suspension
or termination of services, the seizure of our assets, and/
or the imposition of civil and criminal penalties, including
fines and restrictions on our ability to offer services. We
continue to implement policies and programs and adapt
our business practices and strategies to help us comply
with current and evolving legal standards and industry
practices. These programs include dedicated compliance
personnel, training and monitoring programs, suspicious
activity reporting, regulatory outreach and education, and
support and guidance to our agent network on regula-
tory compliance.