By Herb Weisbaum ConsumerMan
msnbc.com contributor
updated 10/28/2009 3:54:41 PM ET 2009-10-28T19:54:41

The Federal Trade Commission has settled a huge case aimed at slowing the flow of money unwittingly wired to con artists.

The FTC had charged MoneyGram International, the second-largest money transfer service in the United States, with allowing fraudulent telemarketers to use its system to bilk American consumers out of tens of millions of dollars.

MoneyGram did not admit doing anything wrong in last week’s settlement, but agreed to pay $18 millionin refunds to consumers who were tricked into transferring money to crooks – most of them in Canada – and to change the way it does business to prevent future consumer fraud.

In its complaint, the FTC charged that between 2004 and 2008, MoneyGram agents helped wire at least $84 million to con artists within in the United States or Canada. During that time MoneyGram received more than 41,000 fraud complaints from customers in the U.S.

"We allege they knew or consciously avoided knowing what was going on,” says Steven Baker, director of the FTC’s Midwest Regional Office, which prosecuted this case.

In a news release, MoneyGram says it does not agree with the FTC’s allegations. CEO Pamela Patseley is quoted as saying, “At MoneyGram, we take the issue of consumer fraud very seriously. We are committed to be vigilant in our efforts in protecting our customers from fraudulent activity.”

The FTC says at least 65 Canadian MoneyGram agents have been criminally charged with, or are being investigated for, “colluding in fraud schemes” that used the MoneyGram system.

In settling this case, MoneyGram agreed to establish a comprehensive anti-fraud program. The company will carefully screen prospective agents to weed out any bad apples. It will also train agents to spot potential fraud and monitor them to look for patterns of suspicious activity.

Con artists get the money
Many of the scams that used wire transfer services involve the use of fake checks. The problem is huge with tens of thousands of victims each year. I’ve been warning you about these scams for years. (See As economy worsens, fake check scams spread and Counterfeit checks an Internet menace .)

Here’s how it works: The scammer sends you a counterfeit check and tells you to deposit it. You’re then told to wire most of the money back to them.

The storyline varies from con to con. Sometimes it starts with a prize notice that comes in the mail that says you’ve won a contest or lottery. To claim your millions you need to deposit the enclosed check (anywhere from $4,000 to $9,000) and wire off most of the money to cover taxes or other required fees.

Other victims are snagged by bogus ads for mystery shoppers. When they get “hired” they’re sent a check for thousands of dollars and told to cash it and transfer most of the money via MoneyGram or Western Union as part of their first assignment.

Of course, you don’t know you’re dealing with international thieves or that the check is a fake – until your bank tells you it bounced and erases the deposit from your account.

The FTC says MoneyGram should have known customers were being scammed. The company received an incredibly large number of complaints from consumers. They were also warned about the problem by law enforcement and alerted to it by members of their own fraud department.

A small number of MoneyGram agents in Canada – probably about 10 percent – are suspected of being responsible for most of the complaints from victims in America. The FTC’s Steven Baker says he believes those agents were in on the scams or at least complicit with the crooks.

“MoneyGram knew about that and didn’t do anything about it,” Baker tells me.

The FTC’s complaint accused MoneyGram of discouraging employees from enforcing its own fraud prevention policies or taking action against suspicious or corrupt agents. It was also alleged the company disciplined or fired some employees who raised concerns about fraud.      

Law enforcement in Canada was also involved in this case. Inspector Kerry Petryshyn with the Royal Canadian Mounted Police tells me they found that some MoneyGram offices in Canada were opened “exclusively for the purpose of receiving the money from the victims.” He says there were plenty of warning signs of fraud that executives at MoneyGram should have spotted.

Authorities in U.S., Canada work together
Canadian con artists target Americans because they know it’s easier to get away with a crime when two countries are involved. They prefer their victims to wire money because they get it immediately, the payments are often untraceable and the victims have no way to get their money back.

Thankfully, law enforcement in the U.S. and Canada are working together to catch these cross-border crooks and prosecute them.

Earlier this month, the RCMP Commercial Crime Unit in Calgary, Alberta arrested nine people involved in a fake check scam. Victims were called or sent letters telling them they had won a lottery or sweepstakes and needed to wire off money to pay taxes, administration or lawyer’s fees. No prize money was ever sent. The RCMP says this one operation took in more than $3 million. 

In July, the RCMP in Montreal raided and shut down a number of MoneyGram and other wire transfer outlets. Four people were arrested. According to the RCMP news release, some employees at these locations were accomplices to the crimes.

The bottom line
It’s fairly easy to avoid this scam if you stop and think before you do anything. The FTC says you should never wire money:

  • To someone you don’t know
  • To someone who asks you to deposit a check and send some of the money back
  • To claim a sweepstakes or lottery prize
  • To someone who says this is the only way you can pay for something
  • To someone who calls and claims to be a relative in trouble, who needs the money right away and wants to keep it a secret.

If you’ve been the victim of fake check wire fraud, the FTC wants you to file a complaint with them and with the wire transfer service.

More information

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