Western Union 2014 Annual Report Download - page 154

2014 FORM 10-K
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Economic and trade sanctions programs administered by the United States Department of the Treasury Office of Foreign
Assets Control ("OFAC") and by certain foreign jurisdictions 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 money transfer and payments
services to individuals in Cuba, Syria and Sudan in accordance with United States laws authorizing such services and pursuant to
and as authorized by advisory opinions of, or specific or general licenses granted by, OFAC.
In the United States, almost all states license certain of our services and many exercise authority over the operations of certain
aspects of our business and, as part of this authority, regularly examine us. Many states require us to invest the principal of
outstanding money orders, money transfers, or payments 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 substantial majority of our investment
securities, classified within "Settlement assets" in the Consolidated Balance Sheets, are held in order to comply with state licensing
requirements in the United States and are required to have credit ratings of "A-" or better from a major credit rating agency.
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 transfer providers and their agents to comply with federal and/or state anti-money laundering laws and regulations.
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, agent registration requirements, 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 also include laws and regulations intended to detect and prevent money laundering or terrorist
financing, including obligations to collect and maintain information about consumers, recordkeeping, reporting and due diligence,
and supervision of agents and subagents similar to and in some cases exceeding 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") in the European Union ("EU") and similar laws in other jurisdictions have imposed
rules on payment service providers like Western Union. In particular, Western Union is responsible for the regulatory compliance
of our agents and their subagents who are engaged by one of our payments institution subsidiaries. Thus, the costs to monitor our
agents and the risk of adverse regulatory action against us because of the actions of our agents in those areas have increased. The
majority of our EU business is managed through our Irish PSD subsidiary, which is regulated by the Central Bank of Ireland.
Under the PSD, we are subject to investment safeguarding rules and periodic examinations similar to those we are subject to in
the United States. These rules have resulted in increased compliance costs and may lead to increased competition in our areas of
service. Additional countries may adopt legislation similar to these laws. The PSD, as well as legislation in other countries such
as Russia, has also allowed an increased number of non-bank entities to become money transfer agents, allowing Western Union
and other money transfer providers to expand their agent networks in these countries but also resulting in increased competition.
On February 11, 2010, Western Union Financial Services, Inc. ("WUFSI"), a subsidiary of the Company, signed a settlement
agreement ("Southwest Border Agreement"), which resolved all outstanding legal issues and claims with the State of Arizona and
required us 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. As part of the Southwest Border Agreement,
we have made and expect to make certain investments in our compliance programs along the United States and Mexico border
and a monitor (the "Monitor") has been engaged for those programs. We have incurred, and expect to continue to incur, significant
costs in connection with the Southwest Border Agreement. The Monitor has made a number of recommendations related to our
compliance programs, which we are implementing, including programs related to our Business Solutions segment. On January
31, 2014, the Southwest Border Agreement was amended to extend its term until December 31, 2017 (the "Amendment"). The
Amendment imposes additional obligations on the Company and WUFSI in connection with WUFSI’s anti-money laundering
compliance programs and cooperation with law enforcement. See Part I, Item 1A, Risk Factors - "Western Union is the subject of
governmental investigations and consent agreements with or enforcement actions by regulators" for more information on the
Southwest Border Agreement, including the potential impact on our business.