MoneyGram must pay $100 million to victims of fraud scheme

Global money services business MoneyGram has admitted to money laundering and wire fraud charges and agreed to forfeit $100 million under a deferred prosecution agreement with the Justice Department.

According to a criminal information filed in the U.S. District Court for the Middle District of Pennsylvania, MoneyGram International Inc., whose headquarters are in Dallas, operates through a network of 275,000 locations in 190 countries.

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These outlets are franchised to MoneyGram agents who receive a commission on each transaction processed.  Although MoneyGram agents are independent contractors, they can be terminated for illegal activity, the information says.

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Prosecutors claim that MoneyGram consistently failed to address issues at outlets suspected of facilitating fraud and money laundering between 2004 and 2009, and even rewarded franchise owners who processed a high number of illicit transactions by assigning them additional territories and awarding bonuses.

The defendant company’s advertisement on a New York subway.

“MoneyGram’s broken corporate culture led the company to privilege profits over everything else,” Assistant Attorney General Lanny A. Breuer  of the Justice Department said in a news release.  “MoneyGram knowingly turned a blind eye to scam artists and money launderers who used the company to perpetrate fraudulent schemes targeting the elderly and other vulnerable victims.”

In a typical scenario, a scammer would pose as a victim’s relative in need of immediate cash or claim that the targeted victim had won a  large cash prize or had been selected to be a “secret shopper.”  In each instance, the victim would be required to send “processing fees” to the scammer through MoneyGram.

Though corporate policy required certain personal information to be recorded about anyone receiving transactions, prosecutors say MoneyGram agents routinely entered false information and handed over the scammers’ ill-gotten funds after deducting their own fees for completing the fraudulent transactions.

MoneyGram customers filed nearly 64,000 consumer fraud reports involving MoneyGram transfers between 2004 and 2009 for outlets in the United States and Canada, totaling more than $128 million in losses to victims, according to the information.

Despite recommendations from MoneyGram’s fraud department to close 32 of the worst offenders in 2007, prosecutors say senior executives looked the other way and allowed those outlets to remain open.

The company allegedly even helped some its worst offenders increase their fraud opportunities.  For example, MoneyGram agent James Ugoh had racked up nearly 100 consumer fraud reports claiming $350,000 in losses at his four outlets in and around Toronto by 2005.

Instead of terminating him, MoneyGram threw him a party, allowed him to open eight more outlets, increased his commission and gave him a substantial bonus, prosecutors said.  By the time Canadian law enforcement raided Toronto MoneyGram outlets in early 2009, Ugoh’s outlets had received about 1,733 consumer fraud reports totaling about $3.3 million in losses.

In addition to the $100 million forfeiture, MoneyGram has been required to implement additional anti-fraud and anti-money-laundering programs, including enhanced due diligence for agents deemed to be “high risk” for fraud or who operate in a high-risk areas, restructuring bonuses to comport with compliance obligations, and retaining an independent corporate monitor to will report regularly to the Justice Department.

All charges will be dropped after five years, provided MoneyGram complies with the deferred-prosecution agreement, the agency said.  The $100 million will be made available to victims through the Victim Asset Recovery Program, available at www.justice.gov/criminal/vns/caseup/.

The U.S. attorney’s office for the Middle District of Pennsylvania has brought conspiracy, fraud and money-laundering charges against 28 former MoneyGram agents.

United States v. MoneyGram International Inc., No. 1:12-CR-00291, information and proposed agreement filed (M.D. Pa. Nov. 9, 2012).