FTC slams MoneyGram with $18M charge to settle fraud complaints

As posted on October 20, 2009 on www.networkworld.com

By Michael Cooney

This place sounds like scam central. The second-largest money transfer service in the United States, MoneyGram International today agreed to 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.

The FTC charged that between 2004 and 2008, MoneyGram agents helped fraudulent telemarketers and other con artists who tricked US 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 stated.

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% 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% of all fraud complaints to the company in 2006.

MoneyGram operates a worldwide network of approximately 180,000 agent locations in 190 countries and territories. The FTC said con artists prefer to use money transfer services because they can pick up transferred money immediately, the payments are often untraceable, and victimized consumers have no chargeback rights or other recourse.

According to a recent FTC survey cited in the complaint, at least 79% of all MoneyGram transfers of $1,000 or more from the United States to Canada over a four-month period in 2007 were fraud-induced. The Commission’s complaint further stated that based on the more than 20,600 fraud complaints MoneyGram itself received, consumers lost more than $44 million to cross-border money-transfer frauds between 2004 and 2008 alone. When combined with losses reported by U.S. consumers on money transfers within the United States, that number grows to $84 million.

The FTC’s complaint alleges that MoneyGram ignored warnings from law enforcement officials and even its own employees that widespread fraud was being conducted over its network, claiming that proposals to deal with the problem were too costly and were not the company’s responsibility. The company even discouraged its employees from enforcing its own fraud prevention policies or taking action against suspicious or corrupt agents. Some employees who raised concerns were disciplined or fired, the FTC charged.

Today’s FTC agreement contains monitoring and discipline provisions that will ensure MoneyGram is properly training, monitoring, and taking actions to address problems related to its agents, the FTC stated. The order requires MoneyGram to develop and maintain a system for receiving consumer complaints and data, and to provide that information to the FTC upon request. MoneyGram also must take all reasonable steps to identify agents that are involved in fraud. It must review its transaction data to identify any unusual or suspicious activity by its agents and fire any agent who it believes may be participating in fraudulent activities. It also must fire or suspend any agent who has not taken appropriate steps to stop fraudulent money transfers.

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