Silas Stein | Photo Alliance | Getty Images
American Express will pay a total of about $230 million to settle federal wire fraud investigations and settle civil charges of deceptive marketing, the company said Thursday.
The figure includes more than $138 million as part of a non-prosecution agreement with the US Attorney’s Office in Brooklyn, New York, over allegations that American Express gave customers “incorrect tax advice” on two wire products.
Separately, the banking giant will pay $108.7 million to settle civil claims by the Justice Department’s Civil Division that it fraudulently marketed credit cards to small businesses, among other allegations.
Amex said it has also reached an “agreement in principle with the staff of the Board of Governors of the Federal Reserve System,” which it expects to finalize in the coming weeks.
“Pursuant to the settlements and after crediting, American Express will pay approximately $230 million in aggregate to resolve these matters,” Amex said.
The large settlement follows recent agreements by other major companies, including Mastercard and Block, to settle claims by prosecutors or regulators.
“American Express misled their customers by advertising tax breaks that simply did not exist,” Harry Chavis, special agent in charge of the IRS’s New York criminal investigation division, said in a statement.
Chavis said: “This deceptive marketing campaign… involved hundreds of employees defrauding their customers and the government.”
Prosecutors said in a press release that Amex — in 2018 and 2019 — launched the Paga Rewards and Premium Wire wire products, which were “marketed as a means of generating tax savings.”
The customers, who included mostly small and medium-sized businesses, were told that the fees from the wire payments were tax-deductible as a business expense and that the customers would otherwise have paid taxes on the fees, prosecutors said.
Customers were also told that Membership Rewards points earned in exchange for transactions were earned tax-free, and thus outweighed the true cost of the fees.
But that step “was based on incorrect tax advice, namely, that the wiring fee was deductible in its entirety as a business expense,” prosecutors said.
“Agreeing to pay an installation fee – far in excess of that offered by competitors in the market – for the purpose of generating a personal benefit is not an ‘ordinary’ and ‘necessary’ business expense” as required, they said. .
An internal investigation into those marketing practices in early 2021 led to the firing of about 200 employees, prosecutors said. By November of that year, both products were completely discontinued.
The separate civil settlement announced Thursday focused on allegations that AmEx “deceptively marketed credit cards” through “an affiliated entity that initiated sales calls to small businesses.”
The practices, which took place from 2014 to 2017, included “misrepresenting card rewards or fees” and “having credit checks done without the customer’s consent,” the DOJ said.
The practices allegedly also included “submitting falsified financial information to potential customers, such as overstating a business’s revenue.” Â
Amex also allegedly tried to “deceive its federally insured financial institution” into allowing small business customers to purchase credit cards without legally required employer identification numbers — known as EINs.
“The United States alleged that American Express employees used ‘dummy’ EINs such as ‘123456788’ in opening small business credit cards in 2015 and the first half of 2016,” the DOJ said.
Amex’s settlement agreement with the DOJ’s Civil Division does not include an admission of liability or wrongdoing by the company, which denied allegations related to EINs and fraudulent credit card sales practices.
“When financial companies engage in deceptive sales tactics or falsify information to cover up a failure to follow applicable regulations, they threaten the integrity of our financial system,” Principal Deputy Assistant Attorney General Brian Boynton, head of the Civil Division. .
“Today’s agreement 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 to be honest about their business practices,” Boynton said.
