Published: 09 November 2012 09:32 PM

http://www.dallasnews.com/business/headlines/20121109-moneygram-agrees-to-pay-100-million-to-aid-fraud-victims-under-federal-settlement.ece

Dallas-based MoneyGram International has agreed to pay $100 million to compensate victims of money transfer scams carried out by some of its agents, under a federal settlement announced Friday.

The money transfer company had previously announced that the U.S. attorney’s office for the Middle District of Pennsylvania and the money laundering unit of the Department of Justice were investigating wire transfer scams involving some of MoneyGram’s U.S. and Canadian agents, fraud complaint data and the company’s anti-fraud program between 2003 and early 2009.

The settlement involves a five-year deferred prosecution agreement in which MoneyGram admitted aiding wire fraud and failing to maintain an effective anti-money laundering program, according to federal authorities.

In exchange, federal authorities agreed to withdraw criminal charges in five years if the company meets its obligations, including retaining an independent monitor who will report progress to the Justice Department.

The Justice Department will return the $100 million to victims through its Victim Asset Recovery 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 activity,” MoneyGram chairman and chief executive Pamela Patsley said during a conference call with analysts to discuss the company’s third-quarter earnings and the settlement.

Federal prosecutors said MoneyGram agents were involved in a scheme to trick victims into sending money through the company’s wire-transfer system.

Victims were often promised cash, large prizes or lottery winnings or fake jobs as secret shoppers. Some perpetrators posed as victims’ relatives seeking help.

Federal authorities said MoneyGram agents knowingly entered false addresses, telephone numbers and other personal information to conceal the identity of the perpetrators when they picked up the money, according to court documents. The agents received fees for completing the fake transactions, according to documents.

MoneyGram customers filed 63,814 fraud reports totaling more than $128 million in losses between 2004 and 2009, according to court documents. A majority of these customers described losing money through the scheme.

The government said MoneyGram officials knew as early as 2003 that some of its agents were engaging in fraud. While the company’s fraud department recommended firing these agents, executives in the sales department did not follow through, according to court documents.

U.S. Assistant Attorney General Lanny Breuer said MoneyGram’s “broken corporate culture” allowed for the wire transfer scams to occur.

“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,” Breuer said in a statement.

So far, the U.S. attorney’s office for the Middle District of Pennsylvania has charged 28 former MoneyGram agents with conspiracy, fraud and money laundering.

Patsley, who became chief executive in 2009, said MoneyGram has taken several steps to shore up its anti-fraud program and to create a new culture since then. Patsley called the settlement a “significant step” forward for MoneyGram to shed its “legacy issues.”

The company fired agents suspected of being involved in the scheme, hired two executives responsible for combating consumer fraud, stepped up staffing and improved its processes and technology. In all, MoneyGram has spent more than $84 million for its compliance program, Patsley said.

“The standards of the MoneyGram today would not have allowed the types of activities described in the DPA [deferred prosecution agreement] to occur,” she said.

The company set aside $70 million of the settlement in the third quarter, hurting its most recent earnings. The remaining amount was accounted for in the previous quarter in anticipation of a final resolution.

MoneyGram swung to a third-quarter loss largely because of the settlement costs and other charges. MoneyGram lost $54.8 million, or 77 cents per share, in the three months ending Sept. 30. That’s compared with a profit of $15.8 million, or 22 cents per share, in the same period a year ago.

The company saw growth in its core business. Revenue rose 5 percent to $338.6 million, from $321.9 million.

Money transfer volume increased 13 percent from a year ago on the strength of transactions originating abroad and U.S.-to-Mexico remittances.

Shares gained 15 cents, or 1 percent, to close at $13.93.