How MoneyGram improved its ability to police its own network

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MoneyGram is investing more time and technology in helping law enforcement agencies spot the scammers moving money on its network.

It's a bit of a redemption story for the Dallas-based money transfer network, which has absorbed fines from the Financial Crimes Enforcement Network in the past when bad transactions found their way through its system. These days, MoneyGram has kept in consistent contact with law enforcement as it deploys new fraud prevention technology.

MoneyGram is now able to spot the behavior patterns of terrorists, money launderers and fraudsters when law enforcement agencies tell it what they are seeking.

"We have very sophisticated compliance KYC systems that interact with our front-end technologies to ensure when we capture a transaction, we understand the consumer behavior, while also tracking the pattern and flow of transactions all around the world," MoneyGram CEO Alex Holmes said.

"The exciting part is that 99 percent of everything we do in terms of transfers is not suspicious in any way at all, but there is always that last 1 percent," Holmes added. "We spend countless hours looking through that information and making sure we are preventing or reporting any suspicious behavior."

That level of dedication to compliance fraud protection is critical for MoneyGram. The company is only five years removed from having its name dragged through the mud when its former compliance officer was fined for neglecting some anti-money-laundering regulations during his tenure in the early 2000s.

Considering MoneyGram moves funds across borders to 200 countries and an estimated 20,000 payment corridors, the company sees many events across the world that could affect its operations.

"We see geopolitical issues, economic issues, changes in currency fluctuations, and things like Brexit with consumers migrating out of the U.K., or immigration issues in the U.S. or other countries," Holmes said. "All of those come to the forefront of our business."

It also explains why its fraud and AML preventions must be firmly in place.

"Money services businesses and their customers represent a really attractive target for organized crime rings, because the money is often hard to claw back once it’s gone," said Julie Conroy, research director and fraud expert with Boston-based Aite Group.

"The money remitters have long been leaders in fraud mitigation, by necessity, especially as the business gets more digital," Conroy added. "Just like in banking, though, minimizing friction is really important, especially as we see more and more startups trying to take business from the incumbents."

Digital identity analysis, link analysis, and machine learning are important tools in the arsenals of the money remitters, Conroy said, especially when underbanked consumers may be reluctant to appear "on the grid" through biometrics or mobile document scans.

But as law enforcement becomes more advanced, it has been beneficial for those agencies to understand how MoneyGram works and what type of demographic it serves.

Kim Garner, senior vice president of global security and investigations at MoneyGram, said she came to the company nine years after working for the Secret Service and First Data. In her current role, she helps law enforcement agencies understand the money transfer networks.

"I came because I didn't think law enforcement understood that we wanted to help solve or deter crime," Garner said. "I speak their language and I understand what they are looking for, but it was an awareness issue for them in understanding the concept of unbanked consumers who live out of an area."

MoneyGram has many examples to point to in which communication between the company and law enforcement has been helpful.

"The Mexican drug cartel is no longer transferring money straight from Mexico into the U.S.," Garner said. "They are first moving it into China and then moving it down here."

If the law enforcement agencies had not explained that to MoneyGram's fraud team, the company would not have known to scrutinize transfers from Mexico to China for certain patterns.

"Those transfers were otherwise working within our rules and we would not see that activity as suspicious without having monthly discussions with law agencies," Garner said.

MoneyGram also looks at crime on a smaller scale, such as when individual consumers are targeted by fraudsters. CEO Holmes estimates that MoneyGram saves its customers up to $30 million a month in refunds, or more than $300 million every year, by warning them about common scams.

"Don't send money to Nigeria. Don't send money to the IRS after a [fake] warning call, because it is not a legitimate transaction," Holmes said. "We will stop those money transfers and keep that money in their hands."

All the fraud prevention efforts come at a time when MoneyGram continues to advance its reach and technology in building a partnership with Ant Financial to move money to the Alipay wallet used heavily in China.

Ant Financial's planned acquisition of MoneyGram fell apart due to scrutiny by the U.S. government.

Moving forward, MoneyGram's message to customers and law enforcement agencies emphasizes safety and relevance in an increasingly digital world.

"All of this, combined with our leading compliance program, puts us in a position for long-term success," Holmes said. "That is what we are most excited about."

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Compliance Cross border payments AML Payment fraud Fraud detection MoneyGram