American Express to pay $230 million to settle fraud probe

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 said Thursday.

The tally includes more than $138 million as part of a non-prosecution agreement with the U.S. Attorney’s Office in Brooklyn, New York, related to allegations that American Express gave customers “inaccurate tax advice” for two wire products.

Separately, the banking giant will pay $108.7 million to resolve civil claims by the Department of Justice’s Civil Division that it deceptively 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 agreements and after crediting, American Express will pay approximately $230 million in total to resolve these matters,” Amex said.

The big settlement follows recent agreements by other large companies, including Mastercard and Block, to settle claims from prosecutors or regulators.

“American Express misled their customers by touting tax breaks that simply didn’t exist,” said Harry Chavis, special agent in charge for the IRS’s New York criminal investigation division in New York, in a statement.

Chavis said, “This deceitful 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 wire products Payroll Rewards and Premium Wire, which were “marketed as a means to generate tax savings.”

Customers, which primarily included small- and mid-sized businesses, were told that the fees from the wire payments were tax-deductible as a business expense and that the customers otherwise would have paid taxes on the fees, prosecutors said.

Customers also were told that “Membership Reward” points, received in exchange for the transactions, were earned tax-free, and therefore outweighed the true cost of the fees.

But that pitch “relied on incorrect tax advice, namely, that the wiring fee was deductible in its entirety as a business expense,” prosecutors said.

“Incurring a wiring fee—far in excess of that offered by competitors in the marketplace—for the purpose of generating a personal benefit is not an ‘ordinary’ and ‘necessary’ business expense,” as is required, they said.

An internal investigation into those marketing practices in early 2021 led to about 200 employees being fired, prosecutors said. By November of that year, the two products were discontinued entirely.

The separate civil settlement announced Thursday centered 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 through 2017, included “misrepresenting the card rewards or fees” and “whether credit checks would be done without a customer’s consent,” the DOJ said.

The practices also allegedly included “submitting falsified financial information for prospective customers, such as overstating a business’s income.”  

Amex also allegedly tried to “deceive its federally insured financial institution” to let small-business customers acquire credit cards without the 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 the allegations about the EINs and deceptive 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, said in a statement.

“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 to be truthful about their business practices,” Boynton said.