Money Gram to Pay $18 Million to Settle FTC Charges

Company Also Required to Implement Comprehensive Anti-Fraud Program and to Monitor its Agents 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 FTCs 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. Money transfer services have a responsibility to make sure their systems dont become conduits to rip people off, said David C. Vladeck, Director of the FTCs Bureau of Consumer Protection. In this case, MoneyGram not only ducked this responsibility, but also looked the other way while its agents took part in the scams. Minneapolis, Minnesota-based MoneyGram operates through a worldwide network of approximately 180,000 agent locations in 190 countries and territories. In its complaint, the FTC charged that in recent years this network has increasingly been used by telemarketing scammers to prey on U.S. consumers. 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. In 2007, 72 percent of all complaints received by the FTC involving Canadian-based fraud reported using money transfer services to make payments. According to a recent FTC survey cited in the complaint, at least 79 percent 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 Commissions complaint further stated that based on the more than 20,600 fraud complaints MoneyGram itself received, U.S. 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. In many of the scams that used MoneyGrams money transfer system, the con artists used counterfeit checks to induce consumers to send money back by wire transfer. The most prevalent of these scams were lottery or prize schemes in which consumers were told they had won thousands of dollars and just had to pay a fee for taxes, customs, or insurance to a third-party to collect their winnings. Consumers paid the fee using MoneyGram, but received nothing. In another scheme, telemarketers told consumers they were guaranteed loans, regardless of their credit score. All they had to do was pay insurance, paperwork, or processing fees to complete the transaction. Consumers who sent funds using a money transfer service got nothing in return. In mystery shopping scams, the con artists called U.S. consumers or sent them a piece of direct mail in which they claimed to be hiring consumers to visit stores such as Wal-Mart to evaluate MoneyGram money transfer operations. The con artists sent consumers a cashiers check, telling them to deposit it in their checking account and then send most of the money back using a money transfer at Wal-Mart. When the counterfeit checks bounced, consumers realized they had lost the money they transferred. By this time, however, the money transfer agents had already received and paid out the money, often either without checking IDs or by using fake drivers license information. The FTCs 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 companys 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. In addition, at least 65 of MoneyGrams Canadian agents have been charged by Canadian or U.S. law enforcers with, or are currently being investigated for, colluding in fraud schemes that used the MoneyGram system. The complaint charges MoneyGram with violating both the FTC Act and the FTCs Telemarketing Sales Rule by helping sellers or telemarketers who it knew or consciously avoided knowing were violating federal law, and for not taking adequate steps to prevent fraud. The agreed-upon court order settling the FTCs charges bars MoneyGram from knowingly providing substantial help or support to any sellers or telemarketers that are violating the Telemarketing Sales Rule and requires it to implement a comprehensive anti-fraud program. Under the anti-fraud program, MoneyGram must conduct background checks on prospective agents; educate and train its employees about consumer fraud; institute agent monitoring; and discipline agents who dont comply with the rules. The order also requires MoneyGram to provide a clear and conspicuous fraud warning on the front of all its money transfer forms. The orders conduct provisions apply to all MoneyGram money transfers sent worldwide from either the United States or Canada. The order contains monitoring and discipline provisions that will ensure MoneyGram is properly training, monitoring, and taking actions to address problems related to its agents. To do this, 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. Finally, MoneyGram will pay the Commission $18 million, which will be used to provide redress to consumers. Consumer Education The FTC has a new Consumer Alert, available on its Web site at ftc.gov/bcp/edu/pubs/consumer/alerts/alt034.shtm, titled Money Transfers Can Be Risky Business. It includes useful information on how consumers can avoid telemarketing and money transfer fraud, including the following tips. Dont wire money to: * someone you dont know, in the U.S. or in a foreign country; * someone claiming to be a relative in the midst of a crisis and who wants to keep the request for money a secret; * someone who says a money transfer is the only form of payment thats acceptable; or * someone who asks you to deposit a check and send some of the money back. Consumers interested in the process of redress administration should call 202-326-3755.