MoneyGram fined $18-million in cash-transfer scams

The FTC alleges the company allowed its system to be used by fraudulent telemarketers, most based in Canada, to bilk thousands of Americans out of more than $80-million (U.S.). The commission said the real loss is far higher, because only about one-quarter of consumer fraud cases are reported.

The Globe and Mail
October 21, 2009

MoneyGram fined $18-million in cash-transfer scams
Allowed system to be used for fraudulent telemarketers, most based in Canada, U.S. Federal Trade Commission alleges
Paul Waldie

Moneygram.jpg

MoneyGram must also implement anti-fraud and agent-monitoring programs. PETER POWER/THE GLOBE AND MAIL

MoneyGram International Inc. has spent years building its money transfer business in Canada, developing a network of 1,200 agents and even signing up Canada Post as a client.

The Canadian expansion helped make Minnesota-based MoneyGram the second-largest money transfer business in North America, behind Western Union Co. But now the U.S. Federal Trade Commission says some of that growth came with a dark side.

The FTC alleges the company allowed its system to be used by fraudulent telemarketers, most based in Canada, to bilk thousands of Americans out of more than $80-million (U.S.). The commission said the real loss is far higher, because only about one-quarter of consumer fraud cases are reported.

"MoneyGram knew that its system was being used to defraud people but did very little about it," the FTC said yesterday. In some cases, "its agents in Canada actually participated in these schemes."

Canada has acquired a reputation as a haven for fraudulent telemarketers who frequently target elderly people in the U.S. with promises of lottery winnings, quick loans and job offers. Some fraudsters even pose as family members facing legal trouble, then ask to have cash wired. They choose Canada as a place to set up their schemes because the enforcement and punishment of white-collar crimes tends to be laxer here than in the United States.

MoneyGram has agreed to pay $18-million (U.S.) to settle the allegations, representing the amount it made on transfer commissions. It must also implement a sweeping anti-fraud and agent monitoring program.

"While we don't agree with the FTC's allegations regarding our fraud prevention in the past, we can agree on fraud prevention today and in the future," Pamela Patsley, MoneyGram's chairperson, said in a statement.

The FTC said U.S. consumer complaints involving money transfers to Canada more than doubled from 2003 to 2007. Complaints have fallen off recently, but officials say they are not sure if that means there is less fraud or new undetected ways of transferring illicit cash.

The FTC noted in court filings that fraudsters rely on money transfer services for their scams because the money is easy to retrieve (cash can be picked up at any Canadian office) and the payments are usually untraceable. MoneyGram has about 180,000 agents worldwide, less than half Western Union's total.

The FTC alleged that MoneyGram ignored thousands of complaints about a group of roughly 100 agents in Canada who handled close to $100-million in transfers annually. Roughly 99 Canadian MoneyGram agents had previously been fired or suspended by Western Union over allegations of fraud, court filings alleged, and MoneyGram did few, if any, background checks.

When MoneyGram employees raised concerns internally about potential fraud, company managers told them to keep quiet. In some cases, employees who expressed concerns were disciplined or even fired. MoneyGram "typically rejected or ignored [employee anti-fraud proposals], claiming that they were too costly or that consumer fraud prevention was not the [company's] responsibility," the FTC alleged in filings.

Some MoneyGram agents in Ontario knowingly accepted fake identification from cash recipients for years while others directed telemarketing scams, the FTC alleged. At least 65 agents have been charged or are under investigation in Canada by the RCMP, the agency said in court filings.

RCMP officials were unavailable for comment yesterday. However, the force is one of several Canadian agencies that worked with the FTC, and other U.S. officials, on the MoneyGram case.

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