Western Union 2012 Annual Report Download - page 108

THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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arbitration and the stay request. Both companies appealed the decision. On January 24, 2012, the United States Court of Appeals
for the Tenth Circuit granted the companies' request to stay the District Court proceedings pending their appeal. During the fourth
quarter of 2012, the parties executed a settlement agreement, which the Court preliminarily approved on January 3, 2013. The
settlement agreement, which is subject to the Court's final approval, would result in a substantial amount of the settlement proceeds
to be paid from the Company's existing related unclaimed property liabilities. If a settlement agreement is not approved, the
Company and Western Union Financial Services, Inc. intend to vigorously defend themselves against both lawsuits.
During 2009, the Company recorded an accrual of $71.0 million for an agreement and settlement with the State of Arizona
and other states, which was paid in 2010. On February 11, 2010, the Company signed this agreement and settlement, which resolved
all outstanding legal issues and claims with the State of Arizona and required the Company to fund a multi-state not-for-profit
organization promoting safety and security along the United States and Mexico border, in which California, Texas and New Mexico
are participating with Arizona. The accrual included amounts for reimbursement to the State of Arizona for its costs associated
with this matter. In addition, as part of the agreement and settlement, the Company has made and expects to make certain investments
in its compliance programs along the United States and Mexico border and a monitor has been engaged for those programs. On
January 23, 2013, the monitor announced his intention to resign. A replacement monitor has been identified and is subject to court
appointment. Pursuant to the terms and conditions of the agreement and settlement, the costs of the investments in the Company's
programs and for the monitor were expected to be $23.0 million over the period from signing through 2013; however, actual costs
have exceeded this amount. In addition, in the fourth quarter of 2012, the Company's Business Solutions business was included
in the scope of the monitor's review. The Company is considering entering into an extension of the term of the agreement and
settlement, or another arrangement with the State of Arizona, either of which would require the approval of the State of Arizona
and could have further adverse effects on the Company's business, including additional costs. The monitor has made a number of
recommendations related to the Company's compliance programs. While the Company has devoted significant time and resources
to these efforts, it is expected that not every recommendation of the monitor will be fully implemented within the required timeframe
ending on July 31, 2013. If the Company is not able to negotiate an extension of the agreement and settlement or other arrangement
and the State of Arizona determines that the Company has committed a willful and material breach, the State of Arizona has
indicated that it will pursue remedies under the agreement and settlement, which could include initiating civil or criminal actions.
The pursuit by the State of Arizona of remedies under the agreement and settlement could have a material adverse effect on the
Company's business, financial condition or results of operations.
On March 20, 2012, the Company was served with a federal grand jury subpoena issued by the United States Attorney's Office
for the Central District of California (“USAO”) seeking documents relating to Shen Zhou International (“US Shen Zhou”), a former
Western Union agent located in Monterey Park, California. The principal of US Shen Zhou was indicted in 2010 and is currently
awaiting trial in U.S. v. Zhi He Wang (SA CR 10-196, C.D. Cal.). Concurrent with the government's service of the subpoena, the
government notified the Company that it is a target of an ongoing investigation into structuring and money laundering. Since
March 20, 2012, the Company has received additional subpoenas from the USAO seeking additional documents relating to US
Shen Zhou, materials relating to certain other former and current agents and other materials relating to the Company's anti-money
laundering compliance policies and procedures. The government's investigation is ongoing and the Company may receive additional
requests for information as part of the investigation. The Company continues to cooperate fully with the government. The Company
is unable to predict the outcome of the government's investigation, or the possible loss or range of loss, if any, which could be
associated with the resolution of any possible criminal charges or civil claims that may be brought against the Company. Should
such charges or claims be brought, the Company could face significant fines, damage awards or regulatory consequences which
could have a material adverse effect on the Company's business, financial condition and results of operations.
In the normal course of business, the Company is subject to claims and litigation. Management of the Company believes such
matters involving a reasonably possible chance of loss will not, individually or in the aggregate, result in a material adverse effect
on the Company's financial condition, results of operations and cash flows. The Company accrues for loss contingencies as they
become probable and estimable.