MoneyGram International, Inc., the second-largest money transfer service in the United States, will pay $18 million in consumer redress to settle FTC charges that the company allowed its money transfer system to be used by fraudulent telemarketers to bilk U.S. consumers out of tens of millions of dollars.
MoneyGram also will be required to implement a comprehensive anti-fraud and agent-monitoring program.
The FTC charged that between 2004 and 2008, MoneyGram agents helped fraudulent telemarketers and other con artists who tricked U.S. consumers into wiring more than $84 million within the United States and to Canada - after these consumers were falsely told they had won a lottery, were hired for a secret shopper program, or were guaranteed loans.
The $84 million in losses is based on consumer complaints to MoneyGram - actual consumer losses likely are much higher.The FTC charged that MoneyGram knew that its system was being used to defraud people but did very little about it, and that in some cases its agents in Canada actually participated in these schemes.
According to the FTC's complaint, MoneyGram knew, or avoided knowing, that about 131 of its more than 1,200 agents accounted for more than 95 percent of the fraud complaints it received in 2008 regarding money transfers to Canada; a similarly small number of agents was responsible for more than 96 percent of all fraud complaints to the company in 2006.
Finally, MoneyGram will pay the Commission $18 million, which will be used to provide redress to consumers.
This is an important change in emphasis by the FTC. In seeking to stop those who enable fraud from profiting, the FTC has signaled its willingness to go beyond simply getting unenforceable default judgments against con criminals who have skipped on to the next con project.
MoneyGram is an legitimate company, who purpose is to transfer money between individuals who know each, but may not have equal access to a banking system. Like Western Union, these companies operate because of the vacuum of an international banking system. But the monies that are transferred through MoneyGram and Western Union are very difficult if not impossible to trace.
"Funds transferred through system can be available to recipients within as little as ten minutes of the sender's transfer. Once MoneyGram's agents have disbursed the funds, the sender cannot obtain a refund of the amount transferred even if the sender is the victim of fraud. Unlike with credit card charges, consumers who send money transfers through MoneyGram's system cannot obtain chargebacks from MoneyGram.
The FTC's complaint against MoneyGram is a straightforward application of their powers under Section 5(a) of the FTC Act, 15 U.S.C. ยง 45(a), which prohibits unfair or deceptive acts or practices in or affecting commerce.
MoneyGram had the right to terminate any of its agents who were failing to abide by all applicable laws, and had adopted the equivalent of a Know Your Agent policy to avoid having its agents involved in money laundering schemes.
But, the FTC alleged that "MoneyGram has not adhered to its own KYA policy with respect to its agents in that it has failed to conduct adequate background checks of prospective agents; failed to adequately train and monitor agents; failed to investigate, suspend, or terminate suspicious agents; and failed to adopt other reasonable measures to prevent fraud-induced money transfers."
"Thus, the 131 Canadian agents for which MoneyGram had five or more fraud complaints in 2008 accounted for 79.4% of all of the money transfers of $1000 or more that were sent by U.S. consumers to Canada that year and 95.4% of the fraud complaints MoneyGram received about the same. MoneyGram's Canadian agents responsible for paying out fraud-induced money transfers from U.S. consumers have permitted fraudulent sellers or telemarketers to use fake or non-existent identifications to collect money transfers of $900 or more."
This is a fairly significant fraud case in which the FTC is using the breach of MoneyGram's statutory duty under the Bank Secrecy Act to adopt a Know Your Own Agent as the grounds for an action under Section 5(a) of the FTC Act to go after MoneyGram which enabled this fraud, instead having to sue the 131 Canadian agents and try to collect from them. (And the FTC alleges that 65 of these agents have already been sued by the FTC for Telemarketing Fraud.)
Expect that the FTC will be looking at more enablers of fraud, and very closely at their compliance programs.
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