Western Union 2011 Annual Report Download - page 23

Money Transfer and Payment Instrument Licensing and Regulation
In the United States, most states license money transfer services providers and many exercise authority over
the operations of our money transfer services and, as part of this authority, regularly examine us. Many states
require us to invest the proceeds of money transfers in highly-rated, investment grade securities, and our use of
such investments is restricted to satisfy outstanding settlement obligations. We regularly monitor credit risk and
attempt to mitigate our exposure by investing in highly-rated securities in compliance with these regulations. The
majority of our investment securities, classified within “Settlement assets” in the Consolidated Balance Sheets,
are held to comply with state licensing requirements in the United States and had credit ratings of “AA–” or
better from a major credit rating agency as of December 31, 2011.
These licensing laws also cover matters such as government approval of controlling shareholders and senior
management of our licensed entities, regulatory approval of agents and in some instances their locations,
consumer disclosures and the filing of periodic reports by the licensee, and require the licensee to demonstrate
and maintain certain net worth levels. Many states also require money transmitters and their agents to comply
with federal and/or state anti-money laundering laws and regulations.
Our money transfer and money order services are subject to anti-money laundering laws and regulations,
including the Bank Secrecy Act, as amended by the USA PATRIOT Act of 2001 (collectively, the “BSA”) and
similar state laws and regulations. The BSA, among other things, requires money transfer companies and the
issuers and sellers of money orders, to develop and implement risk-based anti-money laundering programs,
report large cash transactions and suspicious activity, and in some cases, to collect and maintain information
about consumers who use their services and maintain other transaction records. Many states impose similar and,
in some cases, more stringent requirements. These requirements also apply to our agents. In addition, the United
States Department of the Treasury has interpreted the BSA to require money transfer companies to conduct due
diligence into and risk-based monitoring of their agents inside and outside the United States.
Economic and trade sanctions programs administered by the United States Department of the Treasury Office
of Foreign Assets Control (“OFAC”) prohibit or restrict transactions to or from (or dealings with) certain
countries, their governments, and in certain circumstances, their nationals, as well as with specifically-designated
individuals and entities such as narcotics traffickers, terrorists and terrorist organizations. We provide very
limited consumer-to-consumer services to individuals in Cuba, Syria and Sudan pursuant to and as authorized by
advisory opinions of, or licenses granted by, OFAC.
Outside of the United States, our money transfer business is subject to some form of regulation in all of the
countries and territories in which we offer those services. These laws and regulations may include limitations on
what types of entities may offer money transfer services, limitations on the amount of principal that can be sent
into or out of a country, limitations on the number of money transfers that may be sent or received by a consumer
and controls on the rates of exchange between currencies. They may also include laws and regulations intended
to help detect and prevent money laundering or terrorist financing, including reporting requirements similar to
those required under the BSA. In most countries, either we or our agents are required to obtain licenses or to
register with a government authority in order to offer money transfer services.
The Payment Services Directive (“PSD”), which became effective on November 1, 2009, has changed the
payments market in the European Union (“EU”), harmonizing the licensing and certain other requirements for
offering payment services within the EU. Previously, those requirements differed significantly among these
countries. The PSD, along with similar laws in other jurisdictions, have imposed new rules on payment service
providers like Western Union. In particular, Western Union has become responsible for the regulatory
compliance of our agents who are engaged by one of our payments institution subsidiaries. The majority of our
EU business is managed through our PSD subsidiary, which is regulated by Ireland. Thus, the risk of adverse
regulatory action against us because of the actions of our agents in those areas has increased. Under the PSD, we
are subject to investment safeguarding rules and periodic examinations similar to those we are subject to in the
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