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Metropolitan Commercial Bank to Pay $15 Million Penalty for Fraud Oversight

Metropolitan Commercial Bank (MCB) has agreed to pay a penalty of $15 million following an investigation by the New York State Department of Financial Services (DFS).

Superintendent of Financial Services Adrienne A. Harris announced that MCB had failed to properly oversee its MovoCash Digital Prepaid Visa Card Program, leading to fraud actors diverting pandemic unemployment benefits, according to a Thursday (Oct. 19) press release. 

The DFS conducted an investigation into MCB’s oversight of the program and found that the bank had not maintained an effective and compliant anti-money laundering program. Additionally, the investigation revealed that MCB had conducted its banking business in an unsafe and unsound manner.

“During the pandemic, scammers used sophisticated tactics to take advantage of vulnerable New Yorkers at a time when institutions should have been most vigilant,” Harris said. “MCB failed to prevent a massive, ongoing fraud in the MovoCash prepaid card program, allowing bad actors to abuse the financial system.”

The DFS investigation was coordinated with the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York, both of which have reached a separate settlement with MCB.

As the sponsoring bank for the MovoCash cards, MCB had the responsibility of ensuring compliance with applicable laws, including the maintenance of an effective Customer Identification Program, the DFS said in the release. However, the investigation found weak controls at MovoCash and inadequate oversight by MCB, which allowed fraud actors to exploit the program. 

The fraudulent activity began as early as January 2020, when fraud actors opened MovoCash card accounts using fraudulently obtained personal identifying information. These accounts were then used to redirect direct deposit payroll payments and government benefits to the fraud actors.

The passage of the CARES Act in late March 2020, which expanded unemployment insurance, exacerbated the fraud. DFS said MCB observed a surge in fraudulent MovoCash account openings but failed to address the issue, allowing new fraudulent accounts to be opened. As a result, over the next few months, more than $300 million in pandemic unemployment benefits were misdirected to the MovoCash accounts of fraud actors. 

This is only one such instance of fraudsters stealing pandemic benefits. 

Experts estimated last August that COVID-19 fraud thefts could hit $163 billion, PYMNTS reported. 

A report from the Department of Labor’s Office of Inspector General (OIG) last year indicated that a minimum of $163 billion in UI [unemployment insurance] benefits “could be improper, with a significant portion being attributed to fraud.” 

The total fraud will likely increase, the OIG noted. The three pandemic UI programs issued close to $655 billion in benefits.

In August 2022, President Joe Biden signed two bipartisan bills into law that extended the statute of limitations for some pandemic-related fraud to 10 years.

“There are years and years and years of work ahead of us,” said Kevin Chambers, chief pandemic prosecutor for the Department of Justice, the New York Times reported at the time. “I’m confident that we’ll be using every last day of those 10 years.”