American Express to pay $230 million to settle fraud investigation

American Express will pay a total of about $230 million to resolve federal wire fraud investigations and to settle civil allegations of deceptive marketing, the company announced Thursday.

The tally includes more than $138 million in a non-prosecution agreement with the U.S. attorney’s office in Brooklyn, New York, related to allegations that American Express gave its customers “inaccurate tax advice » for two electronic products.

Separately, the banking giant will pay $108.7 million to resolve civil lawsuits filed by the Justice Department’s Civil Division for deceptively marketing credit cards to small businesses, among other allegations.

American Express said it had also reached an “agreement in principle with the staff of the Board of Governors of the Federal Reserve,” which it plans to finalize in the coming weeks.

“Pursuant to the agreements and after credit, American Express will pay a total of approximately $230 million to resolve these issues,” the company said.

This significant settlement follows recent agreements reached by other major companies, including Mastercard and Block, to settle claims by prosecutors or regulators.

“American Express misled its customers by touting tax breaks that simply did not exist,” Harry Chavis, special agent in charge of the New York IRS Criminal Investigation Division, said in a statement.

“This deceptive marketing campaign … involved hundreds of employees defrauding their customers and the government,” Chavis said.

Prosecutors said in a press release that American Express launched the Payroll Rewards and Premium Wire wire products in 2018 and 2019, which were “marketed as a means to generate tax savings.”

Customers, which included mostly small and medium-sized businesses, were told that fees related to wire payments were tax deductible as a business expense and that customers would otherwise have paid taxes on those fees, the clients said. prosecutors.

Customers were also informed that Membership Reward points, received in exchange for transactions, were earned tax-free and therefore exceeded the actual cost of the fees.

But that speech “relied on incorrect tax advice that wiring costs were fully deductible as a business expense,” prosecutors said.

“Incurring cabling costs – well above those offered by competitors in the market – for the purpose of generating personal benefit does not constitute an ‘ordinary’ and ‘necessary’ business expense”, as required, they said. declared.

An internal investigation into these marketing practices in early 2021 led to the firing of about 200 employees, prosecutors said. By November of the same year, both products had been completely discontinued.

The separate civil settlement announced Thursday centered on allegations that American Express “deceptively marketed credit cards” through “an affiliated entity that made sales calls to small businesses.”

The practices, which took place from 2014 to 2017, included “misrepresentation of card rewards or fees” and “questioning whether credit checks would be performed without customer consent,” the lawyer said. DOJ.

The practices also reportedly include “submitting falsified financial information for potential clients, such as overstating a company’s revenue.”

American Express also allegedly attempted to “deceive its federally insured financial institution” to allow small businesses to acquire credit cards without legally required employer identification numbers, known as EINs.

“The United States alleged that American Express employees used ‘fictitious’ EINs such as ‘123456788’ when opening small business credit cards in 2015 and the first half of 2016,” the statement said. Ministry of Justice.

American Express’ settlement agreement with the DOJ’s Civil Division does not include admission of liability or wrongdoing by the company, which has denied allegations regarding EINs and deceptive practices of credit card sales.

“When financial companies engage in deceptive sales tactics or falsify information to conceal failure to comply with applicable regulations, they threaten the integrity of our financial system,” said Principal Assistant Attorney General Brian Boynton, head of the civil division, in a press release. .

“Today’s settlement makes clear that the Department will hold accountable those who violate the trust placed in them to follow the rules governing our financial institutions and be honest about their business practices,” Boynton said.