DOJ Warns Of Continued Investigations Into Financial Institutions Facilitating Scam Artists

Posted On Thursday, June 26, 2014

On Monday, Attorney General Eric Holder announced that the Department of Justice’s efforts to investigate and prosecute financial institutions that knowingly facilitate consumer fraud will continue. Mr. Holder’s statements also noted that institutions that merely look the other way will not be spared from investigation and prosecution either. The statements are in furtherance of the DOJ’s recent goal of protecting consumers from scam artists. It appears that the DOJ believes it can cripple the growing scam artist industry by eliminating its ability to move funds from consumers into their own accounts. Financial institutions should beware of Mr. Holder’s statement: “When we uncover evidence of fraud, or intentionally disregarding obligations under federal law – we will not hesitate to act. We will hold them accountable.”

Mr. Holder highlighted the DOJ’s efforts by noting an April settlement with Four Oaks Bank of North Carolina. The DOJ alleged that Four Oaks permitted a third-party payment processor to originate approximately $2.4 billion in debit transactions in exchange for approximately $850,000 in fees paid to the institution. These transactions were permitted despite the third-party processor being reported to Four Oaks as a fraudulent entity. Under the terms of the settlement, Four Oaks was required to pay penalties and forfeitures in excess of a million dollars, and also required to implement safeguards into their banking systems to ensure similar fraudulent transactions would be thwarted in the future.

Despite the positive goals of the DOJ’s efforts, Mr. Holder’s plan has attracted the ire of Capital Hill Republicans and financial industry lobbying groups. The opponents of the DOJ’s efforts note that the investigations and prosecutions have chilled the industry’s ability to engage in lawful business transactions and sky-rocketed their compliance costs. Notably, banks have complained that the DOJ’s efforts have forced them to terminate relationships with lawful and legitimate merchants out of fear that the relationship may lead to an investigation.