MoneyGram International (MGI) has set aside $100 million for victims of consumer fraud scams as part of an effort to settle an investigation by the Justice Department and U.S. Attorney’s Office for the Middle District of Pennsylvania.

The agreement relates to a previously disclosed probe into transactions involving MoneyGram agents in the U.S. and Canada and the company’s fraud complaint data and consumer anti-fraud program. The investigation involved the company’s activities between 2003 and early 2009.
MoneyGram agents and others had been involved in consumer fraud phishing schemes that defrauded tens of thousands of victims in the U.S., the Justice Department said. The scams generally targeted the elderly and other vulnerable groups. They involved people posing as relatives of victims in urgent need of money, falsely promising victims large cash prizes and claiming to sell high-ticket items online at deeply discounted prices. In each case, the perpetrators required the victims to send them funds via MoneyGram’s money transfer system, the Justice Department said.
MoneyGram received thousands of complaints from consumers but failed to terminate agents involved in the scams, the department said. Its fraud department also identified agents believed to be involved in the scams and recommend termination to senior management. However, the recommendations were rarely followed because they failed to receive approval from sales department executives.
Fraudulent activity grew from 1,575 reported cases in the U.S. and Canada in 2004 to more than 19,000 in 2008, according to the DOJ.
Under the agreement, MoneyGram will pay $100 million to victims of scams committed through its agents, the company said Friday. The company set aside $30 million in the second quarter for a possible settlement of the claims. The remaining $70 million will be part of a third quarter charge.
MoneyGram also announced Friday that it recorded a third-quarter loss of $55 million, versus \ a profit of $15.8 million a year earlier.
In addition to setting aside the funds, MoneyGram agreed to appoint an independent compliance monitor under a deferred prosecution agreement. The company must create an independent compliance and ethics committee on its board with direct oversight of the chief compliance officer and the compliance program. MoneyGram must also adopt a bonus system which rates all executives on success in meeting compliance. Failure will render the executive ineligible for a yearly bonus.
MoneyGram said it has taken additional steps to strengthen its antifraud and antimoney laundering programs. It has terminated relationships with agents suspected of being involved in consumer fraud related to the investigation.

The company has created two executive level positions responsible for enhancing efforts to combat consumer fraud and is implementing a risk-based agent audit program that includes an antifraud alert system and financial intelligence unit. New agent training includes information on various types of consumer frauds and how to detect, prevent and report suspicious transactions.

In October 2009, MoneyGram paid $18 million as part of an agreement with the Federal Trade Commission. Those funds were also paid to consumers who had been victims of fraud committed through MoneyGram agents.

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