Walmart's Financial Services 'Became a Fraud Magnet', Says ProPublica - Slashdot

One man living in Virginia oversaw "the laundering of some $7 million in fraudulently obtained gift cards" from Walmart in an international operation which over five years scammed hundreds of victims into sending the numbers over the phone, reports a new ProPublica investigation. (Citing court evidence that emerged after his arrested in 2021).

Earlier that year, he complained to an associate that more and more people were competing to resell cards in China, eating into his profits. So many scammers were flocking to Walmart that he and his team regularly encountered them at self-checkout counters.... "We ran into quite a few at the store, and we even started chatting."

It was apparently so common that federal prosecutors started calling it "The Walmart scheme." And while the store is supposed to watch for customers who appear to be acting on a scammer's instructions, "Too often, Walmart has failed."

America's largest retailer has long been a facilitator of fraud on a mass scale, a ProPublica investigation has found. For roughly a decade, Walmart has resisted tougher enforcement while breaking promises to regulators and skimping on employee training, according to more than 50 interviews, internal documents supplied by former industry executives, court filings and other public records...More than $1 billion in fraud losses were routed through the company's financial systems between 2013 and 2022, according to filings by the Federal Trade Commission and court cases analyzed by ProPublica. That has helped fuel a boom in financial chicanery. Americans, many of them elderly, were swindled out of $27 billion between 2013 and 2022, according to the FTC...

Walmart has a financial incentive to avoid cracking down. It makes money each time a Walmart gift card is used and earns a fee when another brand of card is bought. And it receives one commission when a person sends a money transfer and a second when the recipient picks it up. The company's financial services business generates hundreds of millions in annual profits. (Its filings do not provide specific figures for gift cards and money transfers.) "They were concerned about the bucks. That's all," Nick Alicea, a former fraud team leader for the U.S. Postal Inspection Service who investigated Walmart for years, told ProPublica. Walmart's deficiencies have repeatedly attracted government scrutiny. In 2017, the attorneys general of New York and Pennsylvania investigated Walmart over concerns that it was "reaping the benefits" of gift card fraud. The investigation concluded a year later with Walmart promising to restrict or eliminate the use of its gift cards to purchase other gift cards...

Instead, the company let the practice continue until 2022 — even after it knew that millions of dollars were being laundered through its stores. The FTC sued Walmart in 2022, alleging it "turned a blind eye" as criminals took advantage of its money transfer service. Walmart, the FTC claimed, pocketed millions in fees while "letting fraudsters fleece its customers." Summarizing the FTC's evidence, a federal judge in the case wrote that "Walmart knew that its services were used by fraudsters" and that the company was repeatedly warned about certain stores where "twenty-five, fifty, or even seventy-five percent of money transfer activity was fraudulent." Separately, a federal grand jury in Pennsylvania is hearing evidence of possible criminal conduct in Walmart's money transfer business, according to corporate filings that did not detail the allegations.

While the FTC says Americans were swindled out of $27 billion between 2013 and 2022, Walmart responded to ProPublica's investigation by pointing out it's refunded $4 million to gift-card fraud victims, and also blocked more than $700 million in suspicious money transfers. "We have a robust anti-fraud program and other controls to help stop scammers and other criminals who may use the financial services we offer to harm our customers."

The company's legal filings in the FTC case struck a different tone. Walmart is seeking to dismiss the suit, partly on the grounds that it has "no responsibility to protect against the criminal conduct of third parties." Though fraud is "deeply unfortunate," Walmart argues, such schemes are "reasonably avoidable by consumers."

Other interesting quotes from the article:

• "Walmart outlets at one point accounted for the top 20 locations for fraud nationally among chains that partnered with MoneyGram, according to internal documents."

• "In a single week in March 2017, consumers claiming they'd been duped into a money transfer filed 610 complaints about Walmart, according to documents obtained by ProPublica. CVS ranked second, with 47."

• "Site inspections routinely found that Walmart staff lacked anti-fraud training and that employees failed to ask screening questions..."

• Walmart resisted MoneyGram's attempts to fight fraud [according to the former fraud team leader for the postal inspector's office in Harrisburg, Pennsylvania, who investigated MoneyGram and Walmart].