MoneyGram’s Settlement with Justice Department Over: What It Could Mean for the Action


VScross-border money transfer business MoneyGram International (NASDAQ: MGI) has produced more than its fair share of legal problems over the past decade. Specifically, in 2009, MoneyGram settled a charge of wire fraud, and last year, MoneyGram settled a money laundering case and completed a mandatory compliance improvement program with US regulators.

But with this most recent case settled and better internal compliance programs at their fingertips, MoneyGram executives are now free to refocus on running and growing the business. This should be good news for shareholders looking to the future.

MoneyGram’s legal issues

The financial services industry is highly regulated and the companies operating there are no strangers to regulatory issues. MoneyGram is certainly no exception: over the years, it has been accused of financial embezzlement on several occasions. However, MoneyGram’s legal problems have resulted in onerous and restrictive oversight by its regulators, in addition to heavy fines.

In 2012, MoneyGram was convicted by the Department of Justice (DoJ) in a money laundering scandal in which the company admitted to “aiding and abetting wire fraud and failing to maintain an effective anti-wire fraud program. against money laundering ”. So the company struck another settlement agreement, paying $ 100 million in damages and agreeing to improve its anti-fraud systems and retain an independent corporate monitor who would report regularly to the Department of Justice.

This oversight program persisted until May 2021 before it was finally allowed to expire – nearly nine years of intense regulatory scrutiny that hampered the company. MoneyGram also paid an additional $ 125 million to settle charges that it failed to properly meet the anti-fraud requirements of its 2009 FTC agreement and failed to meet its anti-money laundering obligations. money, violating its deferred prosecution agreement with the DoJ. This money will fund a compensation program for people who lost money to crooks who used MoneyGram.

Image source: Getty Images.

The new MoneyGram

These accusations of fraud and the scrutiny they garnered from regulators put MoneyGram in a difficult position, but the company’s response has been to rebuild itself from the ground up. From 2016, MoneyGram has started a digital transformation which moved its IT infrastructure to the cloud and overhauled its customer service and compliance operations.

The company has made significant investments in improving transaction verification, investing in identity verification software, hiring additional anti-money laundering staff, and better staff training. As a result, MoneyGram now has an improved platform on which to do business.

MoneyGram should also be able to cut expenses. As part of the DoJ’s oversight program, the company incurred approximately $ 20 million in annual costs related to direct oversight, its compliance improvement program, and legal fees. These costs should disappear now that the monitoring program is complete.

The company recently announced that it would be able to refinance its existing debt, which stands at 13%, at a rate well below 5.375%. This refinancing is expected to save MoneyGram over $ 30 million in interest charges. Adding in the $ 20 million saved at the end of the compliance improvement program and MoneyGram could save up to $ 50 million in expenses by 2021. This is a big deal for MoneyGram, which announced a net loss of $ 7.9 million for 2020!

Investors seem to agree that recent regulatory deals and the prospect of spending cuts are good news for MoneyGram. In recent prices, the company’s stock price has almost doubled so far this year.

MGI chart

MGI given by YCharts

Looking forward to

It’s been a long road for MoneyGram, and the company has had to make profound structural changes to its business and culture. Now he is set up to focus on running his business. This includes reducing its expenses, improving its capital structure, and reinvesting for growth (rather than just investing in compliance).

These are positive developments for MoneyGram and its shareholders. It will be interesting to see how the payment company continues to evolve.

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Luis Sanchez CFA owns shares of MoneyGram International. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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