American telecom giant AT&T agreed to pay $7.75 million for a drug-related billing fraud. The Federal Communications Commissions (FCC) and the Drug Enforcement Administration (DEA) discovered the problem during an unrelated investigation.
AT&T was charging customers $9 a month for a directory assistance service. However, the company never delivered. By the time the authorities found out, the scam had been rolling for more than four years.
The agency also reminded that this wasn’t AT&T’s first clash with the law for third-party-related affairs. In 2014, the Telecom agreed to pay $105 million for charging text messaging services without customers knowledge nor consent.
Follow @RussellBrandom, who is a great guy, and who wrote this cool story about an AT&T scam! https://t.co/jm0WQAtFJf
— Casey Newton (@CaseyNewton) August 9, 2016
AT&T allowed third-party billing for the scam
FCC Enforcement Bureau Chief Travis LeBlanc said today via a statement the extra billings were discovered by the DEA while investigating two telephone companies from Cleveland. He added to phone bills should not be a tool to take advantage of consumers.
LeBlanc also announced the FCC and AT&T had reached a settlement in which the telecom’s customers will get reimbursed, and the company will almost entirely cease third-party billing on its wireline bills, among other terms, agreed with the FCC to ensure client protection.
Although initially under investigation for suspicion of drug trafficking and money laundering, the DEA also discovered Cleveland companies Discount Directory, Inc. (DDI) and Enhanced Telecommunications Service (ETS) were involved in a third-party fraud with AT&T.
The agency confiscated drugs, cars, jewelry, gold, and computers valued in $3.4 million from key people within DDI and ETS but, to its surprise, also found documents that revealed a scam on telephone customers.
Partakers in the scheme told DEA agents AT&T allowed the companies to bill customers from small businesses for a fictitious monthly directory assistance service on their local AT&T wireline.
FCC reminded this wasn’t AT&T’s first time
The DEA then rightfully referred the case to the Enforcement Bureau of the FCC, which is the agency that regulates telecommunications, in 2015 for further investigation.
The FCC determined AT&T received a percentage from the bill charged by DDI and ETS for the directory assistance service they never provided. Plus, neither of the three companies could prove that customers had agreed to such service.
As AT&T has the responsibility to ensure third-party billings are legitimate and approved by clients, the telecom agreed with the FCC to refund all current and former clients illegally charged for the fraudulent service since January 2012.
Customers refunds were estimated at $6.8 million, while AT&T will also pay a $950.000 fine to the U.S. Treasury, for a total of $7.75 million. The statement noted that the FCC has taken more than 30 enforcement actions and applied penalties totaling $360 million for similar cases.
