The Western Union Co. has agreed to forfeit $586 million and admitted to crimes in connection with money laundering and fraud schemes, in an agreement announced Thursday by the U.S. Justice Department and Federal Trade Commission.
In its agreement with the Justice Department, Western Union admits to criminal violations, including willfully failing to maintain an effective anti-money laundering program and aiding and abetting wire fraud, officials said.
According to the written admissions, between 2004 and 2012, Western Union violated the Bank Secrecy Act and anti-fraud statutes by processing hundreds of thousands of transactions for Western Union agents and others involved in an international consumer fraud scheme.
As part of the scheme, offenders contacted victims in the United States and falsely posed as family members in need. Or, they promised prizes or job opportunities, according to a deferred prosecution agreement and an accompanying statement of facts,
Scheme participants directed the victims to wire money through Western Union to help their relative or claim their prize. Various Western Union agents were complicit, taking a cut of of the money transfer, prosecutors said.
Western Union, which is based in Englewood, Colorado, knew of, but failed to take corrective action against its agents involved in or facilitating ,fraud-related transactions, the Justice Department said in a statement.
Prosecutors said the company failed to fire or discipline agents who ,repeatedly violated federal law and Western Union policy through their illegal activity in the Central District of California, which includes Los Angeles, Orange, Ventura, Santa Barbara and San Luis Obispo counties, and elsewhere.
The FBI and other agencies found that Shen Zhou International in Monterey Park sent more than $310 million in Western Union transactions to China — about 50 percent of which were structured to avoid federal money reporting regulations, prosecutors said.
The owner of Shen Zhou — Zhihe “Frank” Wang, 60, of Monterey Park — pleaded guilty in 2013 to one count of structuring international transactions to evade reporting requirement in Santa Ana federal court.
Wang admitted making numerous transmission to China in $2,500 increments, which is just below the $3,000 amount that triggers various reporting and record-keeping requirements for money transmitters.
Western Union had policies against that, but took no disciplinary action against Shen Zhou beyond one 90-day probation in January 2006 during which Shen Zhou continued to process transactions, according to the Justice Department.
“This settlement should go a long way in thwarting the proceeds of illicit transactions being sent to China to fund human smuggling or drug trafficking, as well as to interrupt the ease with which scam artists flout U.S. banking regulations in schemes devised to defraud vulnerable Americans,” said Deirdre Fike, the assistant director in charge of the FBI’s Los Angeles field office.
A top executive for Los Angeles-based Herbalife Wednesday denied assertions that the nutrition company’s future is in doubt following a $200 million settlement with federal regulators over allegations it deceived its customers and sales force.
“After more than two years of working with the FTC (Federal Trade Commission), I think we understand the terms of the settlement agreement very well,” said Alan Hoffman, Herbalife’s executive vice president of global affairs. “We would not have settled unless we had the greatest confidence in our ability to comply with the agreement and grow our business and we believe this will be proven out over time.”
Hoffman’s comments came in response to assertions by hedge fund manager Bill Ackman, who has denounced Herbalife as a global pyramid scheme and repeatedly called on regulators to shut the company down, sparking the FTC investigation.
In a conference call with investors Wednesday, Ackman said the FTC settlement, while not labeling Herbalife a pyramid scheme, will still lead to the company’s demise, because federal authorities ordered drastic changes in the way it operates.
The FTC said last week that Herbalife misled people into becoming distributors or members by using videos and brochures showing mansions, luxury cars and boats, and telling participants they could expect to quit their jobs, earn thousands of dollars a month, make a career-level income or even get rich.
However, the “overwhelming majority” of distributors “earn little or no money,” according to the government.
The company issued a statement Friday saying that although it disagreed with many of the FTC’s allegations, it settled to avoid “the financial cost and distraction of protracted litigation.”
The settlement requires Herbalife to revamp its compensation system so that it rewards retail sales to customers and eliminates the incentives in its current system that reward distributors primarily for recruiting new participants.
New America Media – At the request of the Federal Trade Commission, a court has halted the operations of a company that allegedly posed as an affiliate of the FTC to market bogus credit repair services to Spanish-speaking consumers, legal action that is prompting new discussions about fraud in the credit counseling industry.
The U.S. District Court in Los Angeles this week is expected to obtain depositions and hear arguments on whether to extend a March 27 injunction that halted the operations of a Los Angeles-area company called First Time Credit Solutions. The injunction was the court’s response to a FTC complaint that alleges that the company marketed itself as FTC Credit Solutions and used its false affiliation with the agency to sell fraudulent credit repair services to Spanish speakers.
Claiming that their company is licensed by the federal agency, FTC Credit Solutions guaranteed consumers a credit score of 700 or above within six months or less, the complaint says. The defendants also told some consumers that the company could change negative reports that are accurate, according to the FTC complaint.
“Peddling lies under the name of the Federal Trade Commission to target consumers who are in difficult financial situations is appalling,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection.
“This scam used the promise of a fresh start to hurt consumers when they most needed help, so we are pleased the court has taken a first step to ending it for good.”
Consumer complaints about scammers claiming federal affiliations have been rising. In 2014, the number of such complaints was nearly 24 times larger than the number of such reports in 2013, according to the FTC. However, the vast majority of those complaints involved scam-artists impersonating IRS officials as part of identity theft schemes.
The FTC complaint against First Time Credit Solutions, based in the city of Bell in metropolitan Los Angeles, is generating a buzz in the credit counseling industry. For example, the National Association of Credit Service Organizations (NASCO) last week issued a statement designed to disassociate its members from credit repair scammers.
“NACSO supports regulatory enforcement efforts to root out ‘bad actors’ posing to be legitimate providers of credit repair services,” the statement said. “The alleged egregious behavior is unlawful and it appears the FTC appropriately responded swiftly. NACSO represents the professional credit repair industry and its standards of excellence and code of conduct is centered on ethics and integrity in serving consumers.”
FTC Credit Solutions produced misleading radio advertisements that claimed an affiliation with the Federal Trade Commission, the FTC complaint said. The agency used undercover investigators to probe the company.
One company employee told a FTC investigator that the company “works under the Federal Trade Commission, which is a law that was signed by the President in 2010,” the complaint says. That employee falsely promised that the company could “delete” and “get [the investigator] a pardon” for $19,000 in debt, the FTC says. The agency also alleges that FTC Credit Solutions falsely claimed that it could delete individuals’ bankruptcy records.
In addition, the company unlawfully charged consumers fees in advance of providing the promised credit repair services, the complaint says. The company charged $2,000 per person, according to the FTC.
The Federal Trade Commission files court complaints when it has “reason to believe” it has identified violations of law. The FTC Credit Solutions case will be decided by the court. Under the terms of the court’s restraining order, the company has temporarily ceased operations and the defendants’ assets are frozen.
How to Avoid Credit Repair Scams
The following is based on advisories from the Federal Trade Commission.
No one can legally remove accurate information from a credit report. You can ask for a free investigation of information in your file that you dispute as inaccurate or incomplete. Some hire a company to investigate for them. However, anything a credit repair company can do, you can do for yourself. Here are some of your rights and options:
• You are entitled to a free credit report if a company takes adverse action against you such as denying your application for credit, insurance or employment. You have to ask for your report within 60 days of receiving notice of the action.
• If you discover inaccurate information, inform the credit reporting company in writing and include copies of any documents that support your position. Credit reporting companies must investigate the items you question within 30 days.
• Under law, credit repair companies are not allowed to intentionally misinform you about what they can do for you and they are prohibited from charging you before they’ve performed their services.
• The Credit Repair Organization Act, enforced by the FTC, requires credit repair companies to provide a contract that explains your legal rights, the following information among them – details on the services they’ll perform, your three-day right to cancel without any charge and the total cost you will pay.
• Most credit counselors offer services through local offices, online and/or on the phone. If possible, find an organization that offers in-person counseling. Many universities, military bases, credit unions and housing authorities offer nonprofit credit counseling programs. Your financial institution, local consumer protection agency and friends and family also may be good sources of information and referrals.
• Many states have laws regulating credit repair companies. If you have a problem with a credit repair company, report it to your local consumer affairs office or to your state attorney general.
• You can also file a complaint with the Federal Trade Commission. The FTC can’t resolve individual credit disputes but it can take action against a company if there’s a pattern of possible law violations. You can file your complaint online at www.ftc.gov/complaint or call 1-877-FTC-HELP.
This column is part of New America Media’s joint project with the Federal Trade Commission (FTC). For more information about how to avoid fraud and scams, go to: consumer.ftc.gov.