By Lydia Beyoud
Aug. 8 — AT&T Inc. Aug. 8 reached a $7.75 million settlement with the Federal Communications Commission to resolve an investigation into whether it allowed third-party fraudsters to charge unauthorized services to fixed-line phone customers' bills, a practice known as cramming ( In re AT&T Servs., Inc., FCC, DA 16-771, order 8/8/16 ).
The FCC's investigation arose from the U.S. Drug Enforcement Administration's own probe into two sham phone directory service companies based in the Cleveland area: Discount Directory, Inc. (DDI) and Enhanced Telecommunications Services (ETS). The investigation was related to drug crimes and money laundering, according to an FCC news release and the consent order. .
During a DEA raid, agents discovered financial records on the phone bill scam affecting thousands of small businesses. AT&T received a fee from the fraudulent companies for each charge AT&T placed on customers' bills.
The FCC found that AT&T did not require proof from the companies that they had customer authorization to bill for the directory services.
“A phone bill should not be a tool for drug traffickers, money launderers, and other unscrupulous third parties to fleece American consumers,” FCC Enforcement Bureau Chief Travis LeBlanc said in the release, which was issued the same day the settlement was reached.
Under the settlement, AT&T will pay $6.8 million in customer restitution going back to 2012 and a $950,000 fine to the U.S. Treasury Department. The total amount of the settlement is less than two-tenths of a percent of the company's $4.8 billion free cash flow in the second quarter, according to the company's most recent financial report.
Additionally, AT&T will cease billing for nearly all third-party products and services for its wireline customers as part of the settlement.
AT&T confirmed it had terminated its contracts with the two companies in June 2015. “Consistent with industry practices, AT&T wireline telephone customers have been able to purchase certain telecommunications services from third parties and have charges for those services billed on their telephone bill,” an AT&T spokesman told Bloomberg BNA via e-mail.
“We have implemented strict requirements on third parties submitting charges for AT&T bills to ensure that all charges are authorized by our customers; indeed, those requirements go beyond the requirements of FCC rules and impose safeguards that the FCC proposed but never adopted.
“Nonetheless, unbeknownst to us, two companies that engaged in a sophisticated fraud scheme were apparently able to circumvent those protections and submit unauthorized third-party charges that were billed by AT&T,” the spokesman said.
Though AT&T was the only wireline provider named in court documents related to the DEA's investigation, other telecommunications carriers were also involved in the fraud scheme, according to a complaint in forfeiture filed by the Department of Justice in the U.S. District Court for the Northern District of Ohio—Eastern Division.
An FCC spokesman declined to comment on whether or not it was investigating other carriers.
In the last five years, the FCC has taken action on more than 30 enforcement actions against telecom carriers as a result of cramming or unauthorized carrier switches.
To contact the reporter on this story: Lydia Beyoud in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Keith Perine at email@example.com
Text of the order and consent decree is at https://transition.fcc.gov/Daily_Releases/Daily_Business/2016/db0808/DA-16-771A1.pdf .
Text of the news release is at http://src.bna.com/hwu.
Text of the Ohio court complaint is at http://src.bna.com/hwX.
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)