American Express has announced that it will be shelling out around $230 million to settle federal wire fraud investigations and address claims of misleading marketing practices. This news came out on Thursday.
Out of that total, over $138 million is part of a non-prosecution deal with the U.S. Attorney’s Office in Brooklyn, New York. This is linked to accusations that the company provided customers with “wrong tax advice” regarding two of its wire products.
On another note, the banking giant is also set to pay $108.7 million to settle civil claims from the Department of Justice’s Civil Division, which allege that American Express misrepresented credit cards to small businesses, among other issues.
Additionally, American Express mentioned that they’ve reached an “agreement in principle” with the Federal Reserve System’s Board of Governors, and they anticipate wrapping that up in the next few weeks.
In their statement, the company noted, “After accounting for these agreements, American Express will be paying about $230 million in total to put these issues to rest.”
Harry Chavis, who leads the IRS’ criminal investigation division in New York, commented, “American Express misled their customers by promoting tax benefits that just weren’t real.”
Chavis pointed out that this misleading marketing initiative involved numerous employees engaging in fraudulent activities against both customers and the government.
According to prosecutors, American Express rolled out two wire products, Payroll Rewards and Premium Wire, during 2018 and 2019, promoting them as a way for businesses to save on taxes.
Small and mid-sized businesses were informed that the fees associated with these wire transfers could be written off as business expenses, suggesting they would have otherwise faced tax obligations on those fees.
Additionally, customers were led to believe that the “Membership Reward” points earned from these transactions came tax-free, which supposedly made up for the actual costs of the fees.
However, prosecutors noted that this claim was based on flawed tax advice, specifically that the entire wiring fee could be deducted as a business expense.
They explained that incurring a wiring fee significantly higher than what competitors offered just to gain a personal benefit doesn’t meet the criteria of being an ‘ordinary’ and ‘necessary’ business expense.
After an internal review of these marketing practices in early 2021, around 200 employees were let go, and by November of that same year, both products were entirely phased out.
The civil settlement announced on Thursday focused on claims that American Express engaged in deceptive marketing of credit cards through a related entity that made sales calls to small businesses.
From 2014 to 2017, these practices included misrepresenting card rewards and fees, as well as whether credit checks would occur without customer consent, according to the DOJ.
Additionally, there were allegations of submitting falsified financial details for potential customers, like exaggerating a business’s income.
American Express also reportedly attempted to mislead its federally insured financial institution, allowing small businesses to get credit cards without the necessary employer identification numbers (EINs).
The DOJ mentioned that American Express employees used fake EINs, such as ‘123456788’, when opening small business credit cards in 2015 and the first half of 2016.
So, American Express has reached a settlement with the DOJ’s Civil Division, but it’s important to note that the company isn’t admitting to any wrongdoing or liability. They’ve actually denied the claims regarding the EINs and their credit card sales tactics.
Brian Boynton, who’s the principal deputy assistant Attorney General and leads the Civil Division, commented on this issue. He mentioned that when financial companies resort to misleading sales strategies or fake information to hide their failures in following the rules, it really jeopardizes the trust in our financial system.
He also emphasized that today’s settlement sends a clear message: the department is serious about holding accountable anyone who breaches the trust they have to adhere to regulations and be honest about their business practices.