MoneyGram fined $125 million for failing to crack down on fraudulent money transfers

MoneyGram says it will take steps to crack down on scammers. Photo / Getty Images

MoneyGram International has agreed to pay a penalty of US$125 million ($185m) to settle allegations from both the Federal Trade Commission and the Department of Justice that the company didn't do enough to prevent fraudulent money transfers.

Under an agreement with the Federal Trade Commission, the company said it would take steps to crack down on scammers who got victims to wire them money in schemes that often targeted the elderly and ranged from bogus cash prizes, to impersonating government officials from the IRS to posing as troubled relatives needing money.

"MoneyGram's alleged failure to implement key provisions of the order allowed scammers to continue to use its money transfer system to rip off consumers," said FTC Chairman Joe Simons in a news release.

Scammers often get people to use money transfers because they can remain anonymous and the funds can be sent globally.

Once the criminals pick up the cash, it's nearly impossible for victims to get their money back.

From January to September of this year, 54 per cent of government-impostor scams involved the use of a gift card or reloadable payment card, according to the FTC. But the next most common method of payment was a wire transfer.

The FTC alleges that MoneyGram knew certain agents ignored suspicious activities.

The company was required to "promptly investigate, restrict, suspend and terminate high-fraud agents," according to the FTC. Instead, the FTC alleges, the company established policies that required agents to have unreasonably high fraud rates before they could be suspended or terminated.

"Some of the chain's locations had fraud rates as high as 50 per cent of the money transfer activity," the FTC said. "When it did take disciplinary action, MoneyGram focused on lower-volume, 'mom and pop' agents with high levels of fraud, while treating large chain agents differently."

The company will also provide refunds to fraud victims in cases where its agents failed to comply with it's own policies and procedures, the FTC said.

The $125 million MoneyGram has to pay will also go to settle allegations from a separate 2012 agreement with the Department of Justice.

In 2012, DOJ charges were filed against MoneyGram in Pennsylvania, alleging the company failed to maintain an effective anti-money laundering program. The DOJ deferred prosecution for five years on the promise from MoneyGram that it would beef up its anti-fraud efforts. The government said MoneyGram didn't adequately adhere to that agreement and as a result processed at least US$125 million in fraudulent transactions between April 2015 and October 2016.

In responding to the settlement, MoneyGram said it instituted new standards that have prevented about US$1.5 billion in fraudulent transactions.

"Over the past several years, we have taken significant steps to improve our compliance program and have remediated many of the issues noted in the agreements," Alex Holmes, MoneyGram's chairman and chief executive officer, said in a release about the settlement.

The company said fraud reports are less than 0.05 percent of all transactions conducted through its money transfer systems.

MoneyGram has agreed to again expand its efforts to block money transfers from known scammers. Specifically under an extension of the DOJ's deferred prosecution agreement, MoneyGram has agreed to the following:

• Reported fraudsters will be blocked from using MoneyGram's transfer system within two days of receiving a complaint identifying those individuals.

• Individuals worldwide will be required to show government-issued identification to send or receive money transfers.

• Money transfers from the United States will be monitored.

• Agents who are found to have processed a high volume of transactions connected to reported fraudsters will be terminated, disciplined or restricted.

The $125 million paid by MoneyGram will be given to fraud victims through the DOJ's victim compensation program.