Jeff Gelles: MoneyGram deal helped shed light.

Western Union Co. and MoneyGram International Inc. money-transfer stores in Athens, Greece. MoneyGram's own investigation of fraudulent transfers identified the scamming problem years before authorities figured it out.
Western Union Co. and MoneyGram International Inc. money-transfer stores in Athens, Greece. MoneyGram's own investigation of fraudulent transfers identified the scamming problem years before authorities figured it out. (CHRIS RATCLIFFE / Bloomberg News)

Nonbank wire transfers at heart of massive fraud

Posted: November 18, 2012

Karen Luther first heard about becoming a "mystery shopper" from a friend and couldn't help being intrigued. In her 50s and disabled by spinal injuries, she had no prospects of returning to work as a nurse's aide. If she could earn a few extra dollars shopping for life's necessities, it sounded like a gift.

Instead, her shopping foray turned into a nightmare - and federal authorities believe hundreds of thousands of victims suffered with her. They were targeted by a network of scammers running sophisticated cons, some so notorious they became known by shorthand - such as "grandparent fraud," in which a supposedly stranded grandchild begs from overseas for emergency money.

But this wasn't just ordinary bad guys at work. Two linchpins connected a set of scams that flourished for much of the last decade: One was - and remains - a particularly weak link in the financial world: nonbank wire transfers. The other was a major company, MoneyGram, that for years turned a blind eye to some of its own agents' involvement.

MoneyGram International Inc. recently announced a deal with prosecutors: To avoid criminal charges, the Dallas company agreed to pay $100 million to compensate victims, and to adopt mechanisms to protect against future frauds.

If prosecutors conclude MoneyGram has fallen short in the next five years, the company will face wire-fraud and other financial charges.

Criminal cases against large, publicly traded companies are rare, though last week's news featured another: BP agreed to plead guilty to felony charges related to its massive Gulf of Mexico oil spill and to pay $4.5 billion in fines and penalties.

The victims of BP's 2010 spill were obvious, including 11 people who died in the explosion that triggered it.

That's not true of MoneyGram's victims, including 64,000 MoneyGram customers who reported more than $128 million in fraud losses from 2004 to 2009, and others likely too embarrassed to acknowledge having been conned.

"We believe that only one in five complain - and that's a conservative number," says postal inspector Nick Alicea, lead investigator in a case headed by the Harrisburg office of the U.S. Postal Inspection Service.

I spoke with Luther and Alicea last week for help understanding the giant con game that Alicea calls a "loosely organized network" of scammers, many of them West African immigrants who help one another pull off complex cons.

Authorities believe the network has been slowed, but nowhere near halted, by the MoneyGram probe. For evidence of that - and of how anybody can fall victim - look no farther than a fraud that has recently targeted lawyers.

So far, Alicea said, 155 victims have lost more than $70 million - an average of about $450,000 - to the scam, in which fake clients send checks supposedly representing proceeds from, say, a divorce settlement or an insurance payout.

The victims, including some lawyers at Pennsylvania firms, deposit the checks in trust accounts. Then, following instructions from their bogus clients, they wire some money to accounts typically in Asia. When the lawyers' banks finally flag the checks as fraudulent, it's too late, and the firms are on the hook for the losses.

On a much smaller scale, that's what happened to Karen Luther.

In 2008, after replying to e-mails touting mystery shopping, the Mechanicsburg, Pa., woman received a check for $3,000 and a letter welcoming her to the program.

Luther, now 55, said that "a little red flag went off," but that her own attempts at due diligence were reassuring. "I went to my bank, and they cashed it right away - no questions asked," she told me. "I went online to look up the bank. There was a picture of a bank in Texas." She even called a number from the letter, explaining her worries about scams to a man who answered.

"He said to just follow the directions on the check, and everything would be good," she recalls. And it was - for one brief moment she's still paying for. "It was like Christmas for me, just to go around and buy things, no questions asked."

Luther bought items such as fancy shampoo and a tiny grill - "just odds-and-ends things I needed and couldn't really afford" on income of less than $1,000 a month.

"They said to go to different departments, and I took it seriously. I even looked up sales clerks when I didn't really need them," she said.

When she got home, she diligently filed two reports on her experience. "I kept on thanking them, like a fool," she said. Her mistake became clear when her credit union called to say she owed it the $3,000.

Nonbank wire transfers have long played a starring role in such scams, in part because of loose rules that endure despite anti-fraud efforts by the wire companies and crackdowns by law enforcement and the Federal Trade Commission.

For instance, if you wire money to someone in Ohio, MoneyGram and Western Union allow it to be picked up not just anywhere in Ohio but in any bordering state, Alicea said.

That makes tracking fraudsters especially difficult, and may explain why MoneyGram itself identified the problem years before authorities figured it out. Though it has more than 290,000 agents worldwide, it recognized as early as 2003 that a large number of fraud reports involved a tiny fraction of MoneyGram agents in cities such as Toronto and Brooklyn - reason to suspect they were central to the fraud, not just unwitting conduits.

Yet that did little to stop them. By 2008, MoneyGram had recorded 19,614 complaints involving $43 million in stolen funds - up more than twelve-fold from four years before. A single Toronto agent was linked to 1,733 fraud complaints involving about $3.3 million in losses and was repeatedly honored by MoneyGram for his productivity.

Alicea calls that an " 'Are you kidding me?' case."

For victims like Luther, MoneyGram's compensation fund may belatedly provide a last laugh.

Jeff Gelles:

Where to call

If you believe you were a victim, call 1-877-282-2610.

Contact Jeff Gelles at 215-854-2776 or

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