MoneyGram will pay $100 million to settle consumer fraud case

MoneyGram International Inc. will pay $100 million as part of a government settlement in which the company admitted to criminally aiding and abetting wire fraud and failing to maintain an effective anti-money-laundering program.

The consumer swindles that MoneyGram was involved in defrauded "tens of thousands of victims" across the United States via telephone, mail and Internet between 2004 and 2009, according to federal prosecutors who announced the settlement Friday.

The U.S. Department of Justice will be returning the $100 million to victims over the next three months.

MoneyGram, the world's second-largest money transfer company, was founded in Minnesota but shifted its headquarters from St. Louis Park to Dallas in 2011. The company's chairman and CEO during the period, Philip W. Milne, stepped down in 2008 following record losses from investments the company made.

MoneyGram still employs about 700 people in Minnesota, with operations in St. Louis Park and Brooklyn Center. There are dozens of MoneyGram agent locations statewide, some in Wal-Mart stores.

"MoneyGram's broken corporate culture led the company to privilege profits over everything else," Assistant Attorney General Lanny Breuer said in the government's 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."

A two-count criminal information was filed Friday in U.S. District Court for the Middle District of Pennsylvania. As part of the deal, MoneyGram agreed to a five-year deferred prosecution agreement in which the government will dismiss the charges if the company complies with all its obligations during that time.

In an interview Friday, Assistant U.S. Attorney Kim Douglas Daniel, one of the prosecutors handling the case, said that the settlement doesn't close its investigation and that this is "an agreement just with the corporation."

"This agreement contains no provision that precludes further investigation of responsible individual parties," Daniel said. "We're going to continue to investigate these facts."

Daniel wouldn't comment on who might be targeted.

The agreement is the latest of the company's legal troubles in recent years.

MoneyGram also said Friday that it has received civil investigative demands from a working group of nine state attorneys general investigating whether the company took adequate steps to prevent consumer fraud from 2007 to 2011. The company said it's cooperating and that no claims have been made against it.

In 2009, it paid $18 million to settle allegations by the Federal Trade Commission that it allowed its money transfer system to be used by fraudulent telemarketers in Canada who allegedly bilked U.S. consumers out of more than $80 million from 2004 to 2008.

MoneyGram would not provide a company official to discuss the latest settlement. It disclosed the agreement Friday in conjunction with its third-quarter earnings. In the disclosure it said it had been served with subpoenas.

In a conference call Friday with industry analysts, MoneyGram's current CEO, Pamela Patsley, said the company was cooperating with the government and has invested more than $84 million in a revamped compliance program.

"We take compliance extremely seriously at MoneyGram and nothing angers us more than when people attempt to use our service to engage in illegal activities," Patsley said during the call. "Since 2009 we have created a new culture at the company."

From 2004 until 2009, however, MoneyGram collected fees and other revenue on thousands of transactions it processed for MoneyGram agents that were known to be involved in an international fraud scheme targeting the U.S. public, the U.S. Department of Justice said.

MoneyGram customers filed more than 60,000 complaints with the company from 2004 to 2009 involving losses of more than $128 million, according to court documents. The vast majority of the complaints were about losing money through such schemes.

According to court documents, the company refused to fire agents they knew were committing fraud.

Court documents show the company continued to reward MoneyGram agent James Ugoh in Toronto despite a pileup of consumer fraud reports involving Ugoh's "Money Spot" outlets. By 2008, when it permitted Ugoh to open his 11th Money Spot, customers had filed more than 1,000 complaints involving his outlets.

In another instance, MoneyGram executives at the senior and executive vice president level attended a meeting in April 2007 where the company's fraud department recommended closing 32 specific Canadian outlets considered to be "the worst of the worst." The executives ultimately rejected the advice.