American Express has agreed to pay more than $138 million to resolve a wire fraud investigation pertaining to its sales and marketing practices, as announced by federal authorities on Thursday. The investigation revealed that the New York-based financial company provided inaccurate tax advice to customers regarding wire products primarily aimed at small and mid-size businesses.
American Express to pay $230 million over wire fraud allegations
The U.S. Attorney for the Eastern District of New York’s office stated that customers were informed that American Express’s fees were tax-deductible as business expenses. Harry Chavis, a special agent in charge at the Internal Revenue Service’s New York office, commented that the company “misled their customers by touting tax breaks that simply didn’t exist.”
In 2021, an internal investigation led to the termination of approximately 200 employees, and American Express subsequently discontinued the problematic products later that year. Judy Philips, Acting Attorney for the U.S. for the Eastern District of New York, stated, “Financial institutions like American Express have no business pitching inaccurate tax avoidance schemes to sell products and turn a quick profit.”
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American Express indicated that the disputed sales practices ceased in 2021 or earlier and that it would pay roughly $230 million in total to settle the issues. The company shared that it cooperated extensively with regulators, took corrective actions, including discontinuing certain products, and enhanced compliance and training programs.
As part of the agreement, American Express will pay a $77.7 million criminal fine and forfeit $60.7 million, representing net revenue from sales of the wire products, as stated by the U.S. Attorney’s office. Additionally, the company has entered into a multimillion-dollar civil settlement with the U.S. Department of Justice.
On Thursday, American Express confirmed it will pay $230 million to settle civil and criminal allegations regarding deceptive sales tactics connected to credit card and wire transfer products sold to small business customers. The Justice Department’s Civil Division accused the company of misrepresenting card rewards, fees, and the necessity of credit checks without customer consent from 2014 to 2017. Further allegations pointed to the submission of falsified financial information, such as overstating a business’s income.
Moreover, American Express allegedly misled its financial institution into issuing credit cards to small business customers without the required employer identification numbers (E.I.N.s). From 2018 to 2021, the company deceptively marketed wire transfer products, specifically Payroll Rewards and Premium Wire, while making false claims regarding their tax benefits, according to the Justice Department.
The settlement with the Justice Department includes a $108.7 million civil payment associated with these allegations. Alongside this, American Express has entered a separate non-prosecution agreement with the U.S. attorney’s office for the Eastern District of New York regarding the criminal investigation related to the criticized wire products.
American Express is also anticipating finalizing an agreement in principle with the Federal Reserve System to resolve similar investigations. The overall amount expected to be paid, including a potential credit, is approximately $230 million, the company stated.
Chavis remarked that the deceitful marketing campaign involved hundreds of employees defrauding customers and the government. Prosecutors stated that the wire products were touted as a means for customers, primarily small- and mid-sized businesses, to generate tax savings, including misconceptions about the deductibility of wiring fees as business expenses.
While the internal investigation began in early 2021, findings led to employee firings and the eventual discontinuation of the products by November of that year. The separate civil settlement detailed allegations of deceptive marketing practices through an affiliated entity from 2014 to 2017.
The allegations included misrepresentation of card rewards, fees, and unauthorized credit checks along with fraudulent financial information submissions. The U.S. Department of Justice also reported that American Express employees utilized fake E.I.N.s when applying for credit cards for small business clients.
American Express’s settlement agreement with the DOJ’s Civil Division does not include any admission of liability or wrongdoing. The company denied the allegations concerning the E.I.N.s and the deceptive credit card sales practices. Principal Deputy Assistant Attorney General Brian Boynton highlighted the importance of holding financial companies accountable for engaging in deceptive practices that threaten the integrity of the financial system.
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