Western Union

The Western Union Company is an American multinational financial services corporation headquartered in Denver, Colorado.

Founded in 1851 as the New York and Mississippi Valley Printing Telegraph Company in Rochester, New York,^[3] the company changed its name to the Western Union Telegraph Company in 1856 after merging with several other telegraph companies.^[4]

It dominated the American telegraphy industry from the 1860s to the 1980s,^[5] pioneering technology such as telex and developing a range of telegraph-related services, including wire money transfer, in addition to its core business of transmitting and delivering telegram messages.

After experiencing financial difficulties, it began to move its business away from communications in the 1980s and increasingly focused on its money-transfer services. It ceased its communications operations completely in 2006,^[6][7] at which time The New York Times described it as "the world's largest money-transfer business" and added that the company would remain as such due to the large number of immigrants wiring money home.^[8]

History

Founding & expansion (1851–1866)

The New York and Mississippi Valley Printing Telegraph Company was founded in Rochester, New York by Samuel L. Selden, Hiram Sibley, and others in 1851.^[9] In 1856 the company merged with its competitor the Erie and Michigan Telegraph Company, controlled by John James Speed, Francis Ormand Jonathan Smith and Ezra Cornell^[10] and, at Cornell's insistence, changed its name to Western Union Telegraph Company.^[11]

In 1857, Western Union participated in the 'Treaty of Six Nations', an attempt by six of the largest telegraph firms to create a system of regional telegraphy monopolies with a shared network of main lines.^[12] After the creation of the 'Six Nations' system, Western Union continued to acquire both larger & smaller telegraph companies and by 1864 had transformed from a regional monopoly into a national oligopolist with its only serious competitors being the American Telegraph Company and the United States Telegraph Company.^[13]

Western Union completed the first transcontinental telegraph in 1861^[14] and formed the Russian–American Telegraph Company in an attempt to link America to Europe, via Alaska, into Siberia, to Moscow – a project abandoned in 1867 following the successful laying of a transatlantic cable in 1866.

Dominance & new challengers (1866–1881)

In 1866, Western Union acquired the American Telegraph Company and the United States Telegraph Company, its two main competitors, for a time gaining a virtual monopoly over the American telegraphy industry.^[13] The company also began to develop new telegraphy-related services beyond the transmission and delivery of telegrams, launching the first stock ticker in 1866,^[15] a standardized time service in 1870 and wire money transfer in 1871.^[16]

In the 1870s, the company faced increased competition from newly formed rival telegraphy conglomerate Atlantic and Pacific Telegraph Company and from the nascent telephony industry led by the Bell Telephone Company. Western Union instead attempted to launch a rival telephony system before settling a patent lawsuit with Bell and leaving the telephone business completely in 1879.^[17][18]

Financier Jay Gould orchestrated a merger of the Atlantic and Pacific Telegraph Company with Western Union in 1881, giving him a controlling share of the merged company.^[19][20][21]

Monopoly & decline of telegraphy (1881–1963)

A Western Union telegram sent on September 7, 1896, to report on the positions of two cometsA 12-year-old Western Union messenger boy in Tampa, Florida, 1911.

When the Dow Jones Railroad Average stock market index for the New York Stock Exchange (NYSE) was created in 1884, Western Union was one of the original eleven companies to be included.^[22] By 1900, Western Union operated a million miles of telegraph lines and two international undersea cables.^[23]

AT&T gained control of Western Union in 1909, acquiring a 30% stake in the company.^[13] However, in 1913 AT&T, under indictment for violating the Sherman Antitrust Act of 1890, was forced to sell its shares in the company which once again became independent.^[24]

)Advertisement for Western Union "Tourate" telegram service, 1939

)60 Hudson Street, Manhattan, was WU's headquarters in the early and middle 20th century.(

)Western Union Telegraph storefront seen in the Chamber of Commerce Building in Toledo, Ohio, 1895

Western Union acquired its only major competitor in the American telegraphy sector Postal Telegraph, Inc. in 1945, effectively giving the company monopoly power over the industry.^[13] After 1945 the telegraphy industry began to experience a decline, with total telegraph messages almost halving from 1945 to 1960.^[13]

In 1958, Western Union began offering telex services to customers in New York City.^[25] Teleprinter equipment for the telex network was originally provided by Siemens & Halske AG^[26] and later by Teletype Corporation.^[27] Direct international telex services commenced in the summer of 1960, with limited service to London and Paris.^[28]

In honor of Valentine's Day 1959, Western Union introduced the Candygram, a box of chocolates accompanying a telegram that was featured in a commercial with the rotund Don Wilson.^[29][30]

Western Union International spin-off

In 1963, Western Union organized its international cable system properties and its right-of-way for connecting international telegraph lines into a separate company called Western Union International (WUI), which it sold that year to American Securities.

In 1967, American Securities listed WUI as a publicly traded company on the New York Stock Exchange. WUI was acquired by Xerox for $207 million in stock in 1979^[31] and subsequently sold for $185 million in cash to MCI Communications in 1981.^[32] MCI renamed WUI to MCI International, ceasing the use of Western Union branding.^[32]

Consolidation (1963–1984)

Logo, 1969 to 1990

Western Union purchased the TWX system from AT&T in January 1969, the only major competitor to its own telex network.^[33]

Western Union became the first American telecommunications corporation to maintain its own fleet of geosynchronous communications satellites, starting in 1974. The fleet of satellites, called Westar, carried communications within the Western Union company for telegram and mailgram message data to Western Union bureaus nationwide. It also handled traffic for its telex and TWX services. The Westar satellites' transponders were also leased by other companies for relaying video, voice, data, and facsimile (fax) transmissions.

In 1981, Western Union purchased a 50% interest in Airfone. It sold Airfone to GTE in 1986 for $39 million in cash.^[34] From 1982, as a result of financial services deregulation, Western Union began offering wire money transfer services globally.^[4]

Financial difficulties, bankruptcies & restructuring (1984–2006)

In 1984, after years of declining profits and mounting debts, Western Union began to negotiate with its creditors regarding debt restructuring.^[35] The restructuring was completed in 1987 when investor Bennett S. LeBow acquired control of Western Union through an outside of chapter 11 process that was a complex leveraged recapitalization.^[35]

The transaction was backed by a total of $900 million in high-yield bonds and preferred stock underwritten by Michael Milken's group at Drexel Burnham Lambert as part of an exchange offer. LeBow installed Robert J. Amman as president and CEO who led a complete strategic, operational and balance sheet restructuring of the company over the next six years

...

Involvement in early computer networking

Western Union telegrams were transmitted through a store and forward message switching system.^[61] Early versions were manual telegraph systems. Later systems using teleprinters were semi-automatic, using punched paper tape to receive, store, and retransmit messages. Plan 55-A, Western Union's last paper tape based switching system (1948–1976), was fully automatic, with automatic routing.^[62][63]

Western Union was a prime contractor in the Automatic Digital Network (AUTODIN) program. AUTODIN, a military application for communication, was first developed in the 1960s, but was dismantled in favor of the ARPANET, the precursor to the modern Internet** in the 1990s. The Defense Message System (DMS) replaced AUTODIN in 2000.^[64]

AUTODIN, originally named "ComLogNet", was a reliable service that operated at 99.99% availability, using mechanical punched card readers and tab machines to send and receive data over leased lines.^[65] During the peak operation of AUTODIN, the US portion of the network handled 20 million messages a month.^[citation ^needed] Western Union failed in its attempts to engineer a replacement (AUTODIN II), leading to the development of an acceptable packet-switched network by BBN (the developer of the ARPANET) which became the foundation of today's Internet. AUTODIN service ceased in 2000, years after it had become obsolete.^[66]

A related innovation that came from AUTODIN was Western Union's computer based EasyLink service.^[67] This system allowed one of the first marketable email systems for non-government users. The system allowed the same message to be sent simultaneously to multiple recipients via email, fax, mailgram, or telex services as well as allowing messages to be sent from the integrated formats. With the service, users could also perform research utilizing its InfoLink application. EasyLink was spun off as a separate company and is now part of OpenText.^[68]

Controversies

Scam industry and money laundering

Western Union advises its customers not to send money to someone that they have never met in person. Despite its efforts in increasing customers' awareness of the issue,^[69] Western Union is used extensively for internet fraud by scammers.^[70]

Western Union has been required to maintain records of payout locations of the individuals who may be laundering the money, though this information may be obtained only through the use of a subpoena. Hence advance-fee fraud and romance scammers continue to receive funds via Western Union confident in the knowledge that money lost to overseas scammers is almost always unrecoverable.^[71] For this reason, it is banned as a medium of payment through eBay,^[72] and discouraged on other online auction websites.^[73]

Western Union admitted to allowing wire fraud in January 2017 and agreed to pay $586m, for turning a blind eye as criminals used its service for advance fee fraud. Scammers engaging in various 419 advance fee scams including offering fake job offers and lottery prizes, were able to process transactions using Western Union money transfer, mainly by giving the agents a share of the earnings from their scams. Western Union failed to investigate hundreds of thousands of complaints that were filed by victims.^[74]

Money laundering and terrorist financing

The Central Bank of Ireland reprimanded and fined Western Union €1.75m in May 2015 because of failures in anti money laundering practices which could have left the firm's payment services open to being used for money laundering and/or terrorist financing saying that they were concerned that Western Union "failed to have in place sufficiently robust systems and procedures to train agents, to monitor and identify suspicious activity in respect of smaller transactions, and to maintain appropriate records" and "the splitting of payments into many separate smaller payments is a common method used to launder money. Similarly, terrorist financing is often carried out by small payment transfers."^[75][76]

Western Union agents also allowed Chinese immigrants to the US to use the service to send hundreds of millions of dollars, by sending the amounts in smaller increments to avoid transfer reporting requirements, to pay human smugglers.^[74]

In 2017, Western Union admitted to anti-money laundering and consumer fraud violations and agreed to pay $586 million in a settlement with the Department of Justice.^[77] Among other charges, the Justice Department showed that Western Union was complicit in creating an ecosystem where criminals were able to engage in consumer fraud and human trafficking. The charges were dismissed in March 2020.^[78]

In 2018, Western Union was fined $60 million by the New York State Department of Financial Services.^[79] The press release accompanying the fine stated that, "Western Union executives put profits ahead of the company’s responsibilities to detect and prevent money laundering and fraud, by choosing to maintain relationships with and failing to discipline obviously suspect, but highly profitable, agents."

On May 29, 2019, Western Union announced the departure of a company executive, Odilon Almeida, who served as executive vice president and president of Global Money Transfer.^[80] In 2012, Stewart Stockdale, who had the same position as Almeida, left the company in a similar situation.

Connection to military intelligence

The book The One Percent Doctrine: Deep Inside America's Pursuit of Its Enemies Since 9/11 alleged that Western Union provided United States military intelligence with personal information.^[81]

Anti-competitive behavior

Western Union has been accused of engaging in anti-competitive behavior in Africa as a result of a lack of competition on the continent.^[44] According to a report by the Overseas Development Institute, this allows Western Union to artificially inflate its fees for money transfers, charging what has been called an “Africa charge” of 8% consistently “applied across countries regardless of the size of the market, regulatory costs or market risk.”^[82] However, the fees can be as high as 10% or more, depending on the region.^[83] Africa's remittance market remains the most expensive in the world,^[84] and the region is estimated to incur excess costs of $1.4 billion to $2.3 billion per year as a result of these high remittance fees.^[82]

The company has also been criticized for its use of exclusivity agreements with banks in countries that receive remittances, restricting competition and harming the consumer,^[85] by requiring the consumer to conduct transactions via nominated banks.^[82] This also allows for the imposition of above-average transaction fees.^[82]

In February 2016, Harada Ltd filed a complaint with the EU antitrust regulator claiming that Western Union colluded with banks to push out smaller rivals from the money transfer market.^[86] The commission concluded that the allegations were insufficient and found in favor of Western Union.^[87]