Moneygram International Inc. Admits Anti-Money Laundering and Wire Fraud Violations, Forfeits $100 Million in Deferred Prosecution
Also Agrees to Enhanced Compliance Obligations and Structural Changes in Connection with Five-Year Agreement
WASHINGTON – MoneyGram International Inc. – a global money services business headquartered in Dallas – has agreed to forfeit $100 million and enter into a deferred prosecution agreement (DPA) with the Justice Department in which it admits to criminally aiding and abetting wire fraud and failing to maintain an effective anti-money laundering program, as charged in an information filed today in the Middle District of Pennsylvania.
The announcement was made by Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division; U.S. Attorney Peter Smith for the Middle District of Pennsylvania; and Karen V. Higgins, Inspector in Charge, Philadelphia Division, U.S. Postal Inspection Service (USPIS).
According to court documents, MoneyGram was involved in mass marketing and consumer fraud phishing schemes, perpetrated by corrupt MoneyGram agents and others, that defrauded tens of thousands of victims in the United States. MoneyGram also failed to maintain an effective anti-money laundering program in violation of the Bank Secrecy Act. The Justice Department will return the forfeited funds to the victims of the fraud scheme through its Victim Asset Recovery Program.
“MoneyGram’s broken corporate culture led the company to privilege profits over everything else,” said Assistant Attorney General Breuer. “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 addition to forfeiting $100 million, which will be used to compensate victims, MoneyGram must for the next five years retain a corporate monitor who will report regularly to the Justice Department.”
U.S. Attorney Smith said, “Thousands of citizens in Pennsylvania and other states suffered heartbreaking financial losses for years because of these international telemarketing schemes which depended on MoneyGram’s facilities to give them an electronic highway to move their illegal profits quickly out of the country. The determined work of U.S. Postal Inspectors and federal prosecutors disrupted and closed that electronic highway, hopefully for good. This case provides a way to get restitution for victims and ensure that MoneyGram does its part to deter similar scams in the future.”
“This agreement demonstrates the ongoing and important work of the U.S. Postal Inspection Service in protecting consumers all across America,” said Karen V. Higgins, Inspector in Charge, Philadelphia Division. “Businesses are supposed to provide their customers with fair and honest services. Today’s agreement reflects the commitment of the U.S. Postal Inspection Service in seeking justice and, to every extent possible, restitution for the most vulnerable in our society.”
As part of the DPA, MoneyGram has agreed to enhanced compliance obligations and structural changes to prevent a repeat of the charged conduct, including:
Creation of an independent compliance and ethics committee of the board of directors with direct oversight of the chief compliance officer and the compliance program;
Adoption of a worldwide anti-fraud and anti-money laundering standard to ensure all MoneyGram agents throughout the world will, at a minimum, be required to adhere to U.S. anti-fraud and anti-money laundering standards;
Adoption of a bonus system which rates all executives on success in meeting compliance obligations, with failure making the executive ineligible for any bonus for that year; and
Adoption of enhanced due diligence for agents deemed to be high risk or operating in a high-risk area.
To oversee implementation and maintenance of these enhanced compliance obligations and evaluate the overall effectiveness of its anti-fraud and anti-money laundering programs, MoneyGram has agreed to retain an independent corporate monitor who will report regularly to the Justice Department. Under the DPA, the department will recommend the dismissal of the criminal information in five years, provided MoneyGram fully abides by the DPA’s terms.
The Fraud Scheme
According to court documents, starting in 2004 and continuing until 2009, MoneyGram violated U.S. law by processing thousands of transactions for MoneyGram agents known to be involved in an international scheme to defraud members of the U.S. public. MoneyGram profited from the scheme by collecting fees and other revenues on the fraudulent transactions.
The scams – which generally targeted the elderly and other vulnerable groups – included posing as victims’ relatives in urgent need of money and falsely promising victims large cash prizes, various high-ticket items for sale over the Internet at deeply discounted prices or employment opportunities as “secret shoppers.” In each case, the perpetrators required the victims to send them funds through MoneyGram’s money transfer system.
Despite thousands of complaints by customers who were victims of fraud, MoneyGram failed to terminate agents that it knew were involved in scams. As early as 2003, MoneyGram’s fraud department would identify specific MoneyGram agents believed to be involved in fraud schemes and recommended termination of those agents to senior management. These termination recommendations were rarely accepted because they were not approved by executives in the sales department and, as a result, fraudulent activity grew from 1,575 reported instances of fraud by customers in the United States and Canada in 2004 to 19,614 reported instances in 2008. Cumulatively, from 2004 through 2009, MoneyGram customers reported instances of fraud totaling at least $100 million.
The USPIS and U.S. Attorney’s Office for the Middle District of Pennsylvania have been investigating and prosecuting telemarketing scams that used MoneyGram’s money transfer system and corrupt MoneyGram agents since 2007. To date, 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.
Ineffective Anti-Money Laundering Program
MoneyGram’s involvement in this international fraud scheme resulted from a systematic, pervasive, and willful failure to meet its anti-money laundering (AML) obligations under the Bank Secrecy Act (BSA), a set of laws and regulations enacted by Congress to strengthen the U.S. financial system’s protections against criminal money laundering activity through financial institutions, including money services businesses like MoneyGram. Court documents show that MoneyGram failed to meet its AML obligations by, among other things, failing to:
Implement policies or procedures governing the termination of agents involved in fraud and/or money laundering;
Implement policies or procedures to file the required Suspicious Activity Reports (SARs) when victims reported fraud to MoneyGram on transactions over $2,000;
File SARs on agents MoneyGram knew were involved in the fraud;
Conduct effective AML audits of its agents and outlets;
Conduct adequate due diligence on prospective and existing MoneyGram Agents by verifying that a legitimate business existed; and
Sufficiently resource and staff its AML program.
MoneyGram’s BSA failures spanned five years, and resulted, among other things, from the failure of its fraud and AML compliance functions to share information and from its regularly resolving disagreements between its sales and fraud departments in the sales department’s favor. One notable such disagreement occurred in April 2007, when, at a meeting attended by senior MoneyGram executives, the fraud department recommended that 32 specific Canadian agents that were characterized as “the worst of the worst” in terms of fraud be immediately closed. The sales department disagreed with the fraud department’s recommendation, and these outlets were not closed; instead, MoneyGram continued to process transactions from the 32 outlets despite continued complaints of fraud.
This case was prosecuted by Money Laundering and Bank Integrity Unit Trial Attorney Craig Timm of the Criminal Division’s Asset Forfeiture and Money Laundering Section (AFMLS) and Assistant U.S. Attorney Kim Douglas Daniel of the U.S. Attorney’s Office for the Middle District of Pennsylvania. The forfeiture was handled by Acting Assistant Deputy Chief Jeannette Gunderson of AFMLS’ Forfeiture Unit. The case was investigated by the Harrisburg, Pa., office of the USPIS, Philadelphia Division.
The Money Laundering and Bank Integrity Unit is a corps of prosecutors with a boutique practice aimed at hardening the financial system against criminal money laundering vulnerabilities by investigating and prosecuting financial institutions and professional money launderers for violations of the money laundering statutes, the Bank Secrecy Act and other related statutes.
Information regarding victim compensation through the Victim Asset Recovery Program (VARP) will be posted on the Department of Justice’s victim website at http://www.justice.gov/criminal/vns/caseup/. Persons who believe they were victims of the fraud scheme should visit that site for instructions on how to request compensation.
VARP, operated by AFMLS, is composed of a team of experienced professionals, including attorneys, accountants, auditors and claims analysts. In hundreds of cases, VARP has successfully used its specialized expertise to efficiently convert forfeited assets to victim recoveries.