FTC Sends Money Transfer Service $125M Penalty, Expanded Order

Financial Services Law

An international money transfer service must pay $125 million after it failed to take the steps required in a 2009 consent order it had agreed to with the Federal Trade Commission (FTC) and a 2012 Deferred Prosecution Agreement (DPA) entered into with the Department of Justice (DOJ).

The expanded and modified orders—which include a significant civil penalty—provide an important reminder that failure to comply with the requirements of government consent orders can be costly.

What happened

In 2009, the FTC brought an action against the money transfer service for violating the Telemarketing Sales Rule (TSR) and the FTC Act. The FTC alleged that the money transfer service helped fraudulent telemarketers and others who defrauded consumers by tricking them, using a variety of schemes, into wiring money to the telemarketers through the money transfer network. The FTC found that the money transfer service failed to take effective measures to address fraud-induced money transfers in its system over a four-year period, including by allowing agents to continue to operate over its network even though it knew these agents were using its system to defraud consumers.

To settle the 2009 charges, the Dallas, Texas-based company agreed to a consent order under which it paid a civil penalty of $18 million.

The 2009 Order prohibited the money transfer service from violating the TSR, by failing to establish, implement and maintain a comprehensive anti-fraud program that was reasonably designed to protect U.S. and Canadian customers; conduct thorough due diligence on prospective agents, and ensure its written agreements require agents to have effective anti-fraud policies and procedures in place; and adequately monitor its agents by providing appropriate and ongoing training, recording all complaints, reviewing transaction activity, investigating agents, taking disciplinary action against problematic agents, and ensuring agents are aware of their obligations to detect and prevent fraud and to comply with company policies and procedures.

The 2009 Order also required the company to share consumer complaint information with the FTC for inclusion in its complaint database.

While the money transfer service “made some enhancements to its agent oversight and anti-fraud program,” it never achieved full compliance with the terms of the 2009 Order, the FTC alleged in a new court filing.

“For years, [the company] failed to take all of the steps necessary—and required by the 2009 Order—to detect and prevent consumer fraud over its money transfer system,” the agency told the Illinois federal court. “As a result, [the company’s] system continued to be used by fraudsters around the world to obtain money from their victims.”

In some cases, the company failed to properly train its agents or promptly investigate agents who were the subject of fraud complaints; in other instances, the company neglected to adopt and implement anti-fraud policies and procedures consistent with the 2009 Order, the FTC said.

The company appeared to turn a blind eye toward individual locations of large chain agents, focusing its disciplinary efforts on lower-volume, “mom and pop” agents and treating large chains with high volume differently, according to the agency. For example, the money transfer service placed no restrictions on locations of one large chain after the 2009 Order until mid-2013, despite the fact the chain was the subject of “substantially” more consumer fraud complaints than any other agent worldwide, with some locations reaching fraud rates as high as 50 percent of its activity.

Nor did the company record or share all consumer complaints, as required, the FTC said, and a new interdiction system meant to enhance its ability to hold and prevent the payout of money transfers that were likely fraud-induced failed to function properly for an 18-month period.

“Together, the violations caused significant consumer losses,” according to the agency.

Without admitting or denying the allegations, the money transfer service agreed to pay a $125 million civil penalty in favor of the FTC, and agreed to the entry of a new order modifying the 2009 Order. The expanded 2018 Order added a requirement to block the money transfers of known fraudulent agents, provide refunds for noncompliance with certain policies or procedures, and implement enhanced due diligence and investigative and disciplinary requirements, among other changes.

To read the FTC’s stipulated order, click here.

In addition to the FTC action, the company’s failure to correct its previous conduct violated a 2012 DPA with the DOJ in which the money transfer service admitted that it had criminally aided and abetted wire fraud and failed to maintain an effective anti-money laundering (AML) program related to consumer fraud. The DPA, which was scheduled to expire in 2017, now has been extended until 2021. The amended DPA is based on the company’s continued weaknesses in its anti-money laundering and anti-fraud programs. In the amended DPA, the company again agreed to enhance its anti-fraud and AML compliance programs.

Why it matters

The transfer service, which apparently failed to correct the numerous violations that led to the FTC’s 2009 Order, is now subject to a substantial monetary penalty as well as continued reporting and other requirements designed to enhance its compliance, and ultimately could be subject to criminal prosecution under the DPA.