Moneygram wants more Due Diligence.

A proposal by regulators that would require financial institutions to collect and pass along sender and receiver details on more transactions has raised concerns at many firms about compliance costs. But one of the largest money-transfer companies is putting its weight behind the effort. MoneyGram International Inc. says a more stringent standard would help the money-transfer industry improve protections to customers against fraud and other illicit activities, similar to what the company already has set up internally. The Financial Crimes Enforcement Network and the Federal Reserve Board in October proposed an amendment to anti-money-laundering rules that would require financial institutions to collect, retain and transmit to other institutions certain information related to international transfers and transmittals of funds above $250, down from $3,000. The shift would increase the compliance burden for many financial institutions, some observers say.

Since 2018, MoneyGram has required verification of all sender and receiver identities for every transaction exceeding $1. Executives at Dallas-based MoneyGram—which has spent roughly $100 million since 2012 to improve its compliance programs following allegations of consumer fraud—say stricter due-diligence controls would help close compliance gaps and protect the integrity of the money-transfer network. The threshold for transactions in which customers’ information is collected and checked is applied inconsistently in the industry, as some companies set their limits below the required level, oftentimes varying due to state rules.

“One of the keys that we need to do in this industry is…to get a more uniform standard,” said MoneyGram Chief Executive Alexander Holmes. “It’s not going to allow the bad actors to basically shop around and avoid, say, somebody like us who is going to be able to see the totality of their transactions, and then go to companies with weaker controls that are not going to be as effective.”

FinCEN and the Fed proposed keeping the threshold at $3,000 for domestic transactions. The so-called travel rule regulations are intended to help law enforcement and regulators later investigate and prosecute illicit activities by preserving an information trail.

“Criminals are using smaller-value transfers and convertible virtual currencies to facilitate terrorist financing, narcotics trafficking and other illicit activities,” Kenneth Blanco, director of FinCEN, said this month at a financial crimes enforcement conference, noting that regulators had received about 2,900 comments regarding the proposed rule.

FinCEN and the Fed will review the comments and then decide whether to approve the final rule.

The American Bankers Association, in a comment letter in November, urged FinCEN and the Fed to withdraw the proposed rule. The association asked the regulators to consider the costs the reduced threshold would impose on entities offering wire transfers, and questioned whether the change ultimately would be beneficial to law enforcement.

MoneyGram in January 2018 voluntarily implemented its policy of requiring government-issued identification for each transaction for senders and recipients at all its locations. Later that year, the company agreed to pay $125 million to regulators and entered into an extended deferred prosecution agreement with the U.S. Justice Department to settle allegations that it failed to take steps to crack down on fraudulent money transfers. MoneyGram likely lost about 10% to 15% of its revenue between 2018 and 2019 with the lower threshold it implemented, said Mike Grondahl, an analyst at Northland Securities Inc. who has followed MoneyGram since 2010. He said while the company has since moved past those challenges, new customers could still balk at providing that level of information.

“By not putting these standards in, it’s already costing consumers millions of dollars. There really shouldn’t be any increased costs simply by improving your compliance standards as an organization.”— MoneyGram Chief Executive Alexander Holmes 

“They basically cleaned up their business by ID’ing everybody,” Mr. Grondahl said. “It’s kind of a painful decision in the short term, but in the long term the business is a lot healthier.”

A MoneyGram spokesman said that, although the 10% to 15% lost revenue estimate seems high, “yes, we did expect the ID decisions to impact revenue, but we knew it was the right thing to do for customers and for our business in the long term.”

The collection of data has helped speed internal investigations into suspicious transactions, Andy Villareal, MoneyGram’s chief compliance officer, said. The company also can provide more complete information on potential money laundering or terrorist financing to law enforcement, he said.

“We did not want to spend the money to upgrade our systems and controls only to put poor data into those systems and not get the full capacity and power out of them,” Mr. Villareal said.

Mr. Holmes said a more consistent approach in the industry also can incentivize companies to share information on possible suspicious activities and customers with each other.

“By not putting these standards in, it’s already costing consumers millions of dollars,” he said. “There really shouldn’t be any increased costs simply by improving your compliance standards as an organization.”

Credit: Wall Street Journal