US: MoneyGram Settles with FTC for US$125m

The Federal Trade Commission (FTC) announced on Thursday, November 8, that MoneyGram will pay US$125 million in penalties after having violated a six-year-old settlement tied to anti-money laundering (AML) controls. According to the FTC, the company violated the settlement struck in 2012 that stemmed from charges that the company had aided and abetted wire fraud.

After the terms of the settlement were announced, the Financial Times (FT) reported that the company failed to prevent “at least US$125 million” in fraudulent transactions from being completed between April 2015 and October 2016. Court documents stated that the revised fraud prevention system that was put in place after the settlement was ineffective. MoneyGram said the fraud that winnowed its way through its agent network was due to “external circumstances,” reported the FT.

The Thursday announcement from the FTC stated that the company’s computerized monitoring system—aimed at blocking known fraudsters from using its service—“malfunctioned for an 18-month period in 2015 and 2016. During that time, MoneyGram failed to block individuals that the company knew, or should have known, were using its service for fraud or to obtain fraud-induced money transfers.”

Against this backdrop, the FTC stated MoneyGram is paying the US$125 million, and that a deferred prosecution agreement with the Department of Justice (DOJ) has been extended to May 2021.

MoneyGram also settled with the FTC—which had claimed MoneyGram violated a 2009 order that stipulated the company needed to cut down on fraud. This annoucement came separately on Thursday. In that case, the FTC stated said MoneyGram did not address fraud that had originated from its large agents, and instead had focused its lower-volume, smaller agents known as “mom and pop” agents.

“MoneyGram did not place any restrictions on one large chain agent until approximately mid-2013, even though the chain was the subject of more fraud complaints than any other MoneyGram agent worldwide,” the FTC stated said in its announcement.

Dallas News reported Thursday night that the new penalties come on top of the US$100 million the company paid in the initial 2012 settlement. The investigation leading up to that settlement stretched from 2003 to 2009 and focused on agents in the US and Canada. The investigation found that MoneyGram knew as far back as 2003 that a scheme was in place that lured victims into sending money to fictitious accounts.

“The FTC’s 2009 order required MoneyGram to protect consumers from fraud through its money transfer system, and, today, we are holding MoneyGram accountable for its failure to do so,” said FTC Chairman Joe Simons in the Thursday announcement. “MoneyGram’s alleged failure to implement key provisions of the order allowed scammers to continue to use its money transfer system to rip off consumers.”

Furthermore, the FTC stated said money transfers remain a preferred conduit to fraud, because cash can be picked up at locations globally and is “all but impossible” for consumers to get back.

“The 2009 order required MoneyGram to conduct timely fraud investigations of any agent location that has received two or more fraud complaints within 30 days, has fraud complaints totaling 5% or more of the location’s total monthly received transactions, or has displayed any unusual or suspicious money transfer activity. It also must terminate locations that may be complicit in fraud-induced money transfers,” stated the announcement, which went on to state that “MoneyGram also often failed to promptly conduct the required reviews or to suspend or terminate agents, particularly those from larger locations with high levels of fraud.”

The FTC found that between January 1, 2013 and April 30, 2018, MoneyGram received at least 295,775 complaints about fraud-induced money transfers—a large majority of which involved a small percentage of agents. However, the company, “in some cases,” did not record information tied to those fraudulent money transfers or share it with the FTC.