Walmart allowed criminals to use its money transfer services to scam consumers out of hundreds of millions of dollars while collecting fees on the transactions, the Federal Trade Commission (FTC) alleged Tuesday in filing a lawsuit against the nation's biggest retailer. The FTC said the company had done too little to prevent scam artists from using its money transfer services for fraud.
In its complaint, the FTC said that Walmart for years turned a blind eye while scammers exploited its failure to properly secure the money transfer services offered at the company's stores as well as not adequately training its employees.
Citing data from MoneyGram, Western Union and Ria, the FTC said that from 2013 to 2018, more than $197 million in payments that were the subject of fraud complaints were sent or received at Walmart, with more than $1.3 billion in related payments possibly connected to the fraud.
For years, the FTC said, Walmart policy was to issue payouts even when fraud was suspected, and that the retailer failed to take other actions to prevent consumers from being defrauded.
"Consumers have reported tens of millions of dollars annually in fraud-induced money transfers processed by Walmart employees," the FTC said in a complaint filed in the U.S. District Court for the Northern District of Illinois.
The complaint alleges that the retailer "is well aware" that fraudsters posing as everything from distressed grandchildren to government agents, or employing other known scams, had used Walmart's money transfer services to get cash to fraud rings.
"Nevertheless, Walmart has continued processing fraud-induced money transfers at its stores - funding telemarketing and other scams - without adopting policies and practices that effectively detect and prevent these transfers," the complaint said.
Walmart said in a statement that the FTC was "narrowly divided" and that it was initiating a "factually flawed and legally baseless" lawsuit. The company said the chair had refused Walmart due process from hearing directly from the corporation, noting that, "even the Justice Department refused to take this case to court."
In June, lawyers representing Walmart also filed a Freedom of Information Act (FOIA) request seeking information from the FTC.
"The FTC appears poised to pursue a novel and untested legal theory against Walmart that would represent an unprecedented expansion of the agency's power — and will do so based on significant factual errors and to address a significant amount of reported fraud that the agency already publicly attributed to other actors, not Walmart," attorney Sean Berkowitz of Latham & Watkins said in the FOIA request. "The FTC’s behavior has raised serious questions about the Agency’s motivations in pursuing Walmart for the misconduct of third-party fraudsters." the request continued.
Walmart said the FTC’s authority was now being expanded in an "unprecedented" way, and added that the fraud happening was "already attributed to another company while that company was under the federal government’s direct supervision." Walmart did not name the other company.
The FTC said it was requesting a court to order Walmart to return lost funds to consumers and pay civil penalties.
On June 1, 2022, the FTC voted 3-2 in favor of filing a complaint in federal court against Walmart. Three Democrats were in favor and two Republicans opposed the lawsuit.
Walmart said that the agency is seeking to blame the company for fraud that the agency already attributed to another company, at a time that company was under the federal government’s direct supervision. Walmart did not name the other company.
"Walmart will defend the company’s robust anti-fraud efforts that have helped protect countless consumers, all while Walmart has driven down prices and saved consumers an estimated $6 billion in money transfer fees," it said.
Reuters contributed to this report.