American Express agreed to settle federal probes.
In January, American Express agreed to pay over $200 million in fines to settle two different federal probes initiated by the Department of Justice (DOJ); a criminal probe into wire fraud and a civil probe into deceptive marketing practices and “dummy” account information.
Wire Fraud Allegations
The criminal wire fraud probe focused on sales practices that provided inaccurate tax advice regarding two wire products, Payroll Rewards and Premium Wire. For both products, the DOJ alleged that American Express charged fees in excess of market rates and awarded the businesses or the business owners credit card Membership Reward points. Customers were allegedly told the wire transfer fees were tax deductible as business expenses, and the reward points earned were not taxable. However, the DOJ asserts that the above-market wiring fee was not deductible as an ordinary or necessary business expense because it was incurred by a customer solely for the purpose of generating personal benefit. In early 2021, concerns about the marketing approach led to an internal investigation at American Express, which ultimately resulted in the termination of approximately 200 employees and the discontinuation of the products in November 2021.
To resolve the matter, American Express entered into a non-prosecution agreement with the Attorney’s Office for the Eastern District of New York and agreed to pay penalties of more than $138 million, which includes a criminal fine of $77.7 million and forfeiture of profits of $60.7 million.
Deceptive Marketing Allegations
The civil deceptive marketing probe alleged that American Express violated the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) by deceptively marketing credit card and wire transfer products to small businesses. Additionally, it was alleged that certain small business customers were allowed to acquire American Express credit cards without the required employer identification numbers (EINs).
The DOJ alleged from 2014 through 2017 the deceptive marketing practices included misrepresenting the card rewards or fees and whether credit checks would be done without a customer’s consent. Additionally, falsified financial information was allegedly submitted for prospective customers.
The DOJ also alleged that in 2015 and the first half of 2016, American Express allowed certain small business customers to acquire credit cards without the required employer identification numbers. American Express employees allegedly used “dummy” EINs such as “123456788” when opening the accounts.
To resolve the matter, American Express agreed to pay a $108.7 million civil penalty, concurrent with the aforementioned non-prosecution agreement addressing the criminal wire fraud probe. Under the terms of the civil settlement, American Express will receive a $30.35 million credit toward the satisfaction of the civil penalty if it makes a full payment of the fine and forfeiture amounts due under the criminal resolution.
Except for the conduct admitted in connection with the criminal resolution, the claims resolved by the settlement are allegations only. There has been no determination of liability.
For more information, see this Press Release from the DOJ regarding settlement of AMEX wire fraud allegations and this Press Release from the Department of Justice regarding settlement of AMEX deceptive marketing allegations.
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