Walmart's Financial Services Embroiled In Frauds Costing Consumers Billions Of Dollars: Report

An in-depth investigation by ProPublica says that Walmart Inc. (NYSE: WMT) is a significant enabler in a vast fraud network involving gift cards and money laundering.

One notable case involved Christy Browne, a retired teacher from New York, who was tricked into buying $2,000 in Walmart gift cards in February 2020.

She was led to believe she was aiding an FBI investigation into money laundering. The outlet reported that these cards were, in fact, funneled into a complex laundering scheme orchestrated by Qinbin Chen, a Chinese national based in Virginia.

Chen's operation, responsible for laundering approximately $7 million in fraudulently obtained gift cards, spanned across the U.S. and China, victimizing hundreds.

This scheme, dubbed "The Walmart scheme," underscores Walmart's history as a hotspot for fraud. Despite commitments to regulators and enforcement efforts, Walmart has been a channel for over $1 billion in fraud losses from 2013 to 2022, per the Federal Trade Commission (FTC).

Walmart's financial services, particularly gift cards and electronic money transfers, have been consistently exploited by scammers.

The company's lack of stringent employee training and failure to implement anti-fraud measures have significantly contributed to these losses, according to ProPublica. 

In 2022, the FTC filed a lawsuit against Walmart, alleging that the company "turned a blind eye" to criminals using its financial systems.

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"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,” a federal judge in the case wrote in an order. 

The company is aiming to have the lawsuit dismissed, citing, in part, that it bears "no responsibility to guard against the criminal conduct of third parties."

Despite acknowledging the unfortunate nature of fraud, Walmart has argued that such schemes are "reasonably avoidable by consumers."

Additionally, the company contends that the FTC is overstepping its authority by initiating the action. 

According to ProPublica, Chen engaged in laundering Walmart gift cards for five years until his arrest in 2021. On Sept. 14, the jury reached a verdict in less than three hours, finding Chen guilty on all eight charges. His sentencing is scheduled for February, and he could face a prison term ranging from two to 20 years.

Despite these challenges, Walmart is expanding its financial services. In 2022, it acquired the online banking platform One.

However, concerns persist about Walmart's capability to manage these services effectively, considering its history of compliance issues and reluctance to tackle fraud within its systems.

This development not only affects Walmart but also influences related stocks such as Amazon.com Inc. AMZN and Target Corporation TGT, along with ETFs like Consumer Discretionary Select Sector SPDR Fund XLY and Vanguard Consumer Discretionary ETF VCR.

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This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

Photo: Shutterstock