If you run a business that offers people a way to send money to other people, you may want to pay attention to whether your service is catering to fraudsters. It’s an important message because, for many years, money transfers have been a preferred payment method for scammers, who know that they can pick up the cash and disappear. And it’s a message some companies apparently need to hear twice.
Back in 2009, the FTC sued MoneyGram for failing to address fraud-induced money transfers in its system. It’s a big system: MoneyGram offers its services to consumers worldwide through a network of agent locations – currently numbering about 350,000. And it was a lot of fraud: more than $84 million in consumer losses from 2004 to 2008. The FTC charged that MoneyGram knew its system was being used for fraud but did very little about it, and that some agents actually participated in the fraud.
In 2017, we brought a case against MoneyGram’s main competitor, Western Union, which paid $586 million to settle very similar charges.
For a 2018 encore, we’ve dragged MoneyGram back to the stage, this time for failing to live up to its end of the deal it struck in 2009. That settlement required MoneyGram to beef up its anti-fraud measures, such as by: (1) implementing a comprehensive anti-fraud program to protect consumers; (2) conducting due diligence on prospective agents; (3) investigating problematic agents and disciplining or terminating them as appropriate; and (4) sharing consumer complaints with the FTC.
Which of those things did MoneyGram fail to accomplish fully? All of them, says the FTC. As a result, scammers kept using MoneyGram’s system to collect millions of dollars from victims. You can read more about it in the FTC’s new court filing, but here are a few glaring examples:
- Its electronic system for spotting and blocking fraud-induced transfers suffered serious technical problems for a year and a half, resulting in even greater consumer losses.
- It hired agents who had been terminated from Western Union for their role in fraud-induced money transfers.
- It didn’t properly investigate or discipline agents who were responsible for high volumes of fraud complaints. In fact, MoneyGram had different standards for when to take disciplinary action against large “chain” agents with 10 or more locations, allowing the company to focus its disciplinary efforts instead on lower-volume “mom and pop” agents.
- It didn’t record all of the consumer complaints it received and didn’t share all of the complaints it did record with the FTC.
Even without a sophisticated – and fully operable -- anti-fraud system, the fraud in MoneyGram’s system was not exactly hidden from its view. The FTC’s court filing says that “[i]nformation contained in MoneyGram’s own records demonstrates that it has been aware for years of high levels of fraud and suspicious activities involving particular agents.” Annual consumer fraud complaints to MoneyGram more than doubled between 2012 to 2016. These complaints were also highly concentrated: in the last five-plus years, under 4% of MoneyGram’s agents received five or more fraud complaints, but those agents accounted for over 84% of all fraud complaints.
Now MoneyGram has committed, in a revised order, to address its deficiencies and improve its anti-fraud program. It will need to block transfers of known fraudsters and provide refunds to people when agents haven’t complied with applicable policies and procedures. It will also pay $125 million in refunds to consumers who used MoneyGram to pay a scammer. (We should note that, in this matter as well as the past action against Western Union, the FTC was joined by the Department of Justice, which resolved parallel criminal actions.)
When people send money using a money transfer service like MoneyGram or Western Union, it’s not free. The sender pays a fee to the company each time. So the more people use the service, the more money the company makes. That’s as it should be. But when the company looks the other way while the service is being used to commit fraud, while continuing to rake in fees for those illegal transfers, that’s a problem.
A more general take-away from this case? If you know your company’s services are being exploited to defraud consumers, it’s not just their problem. It’s not just the government’s problem. It’s yours.