A sales practice at American Express is under scrutiny. Here’s what we know about the investigation.

  • Federal prosecutors have been interviewing former Amex employees, sources told Business Insider.
  • Authorities have asked about a product that was marketed to small-business owners as a way to avoid taxes.
  • Amex says it has been cooperating with the investigation.

Officials investigating American Express, one of the world’s largest credit-card companies, have focused on the company’s sale of a product marketed to executives of small and midsize businesses as a way to avoid taxes and increase personal wealth.

According to two people with direct knowledge of the investigation, federal prosecutors in Brooklyn, New York, have been questioning former employees about a product known as Premium Wire, which allowed small-business owners to use business income to pay employee expenses in exchange for personal credit-card rewards points.

A parallel civil investigation involving the Justice Department’s civil division, as well as what Amex refers to as a “related investigation” by the New York State Department of Financial Services, are also ongoing.

Because they had not been granted permission to speak to the media, the people who spoke with Business Insider were granted anonymity to discuss the government investigations.

Between 2018 and September 2021, Amex offered the Premium Wire product. In November of that year, the company stated that some employees in its global commercial-services division “had failed to uphold our values and had inappropriately positioned certain products, particularly with regard to tax benefits.”

Premium Wire allowed and encouraged customers to use the points they earned by having American Express pay their corporate payroll for personal or business travel, or to convert them into cash in what one presentation described as a “personal tax free benefit.”

In July, BI reported that more than a dozen former employees or their attorneys claimed that managers and higher-level executives pushed salespeople to sell the product. To back up those claims, the article cited training materials and emails from top managers.

It’s unclear how much scrutiny management is facing for its role in developing and training employees to sell the product. One of the people said that during at least one interview with law enforcement, a line of questioning focused more on Amex’s customers.

Amex disclosed the Justice Department’s civil investigation and the criminal investigation launched by Brooklyn prosecutors more than two years ago, when it disclosed in a quarterly securities filing that it had received a grand-jury subpoena from the US Attorney’s Office for the Eastern District of New York.

In criminal cases, authorities convene grand juries and ask them to consider the evidence and decide whether to charge. Subpoenas are used to compel parties such as company executives and employees, as well as former employees, to appear for interviews or hand over documents.

The civil investigation, for its part, has “picked up steam” in recent months, according to one of those briefed on the timeline by a government official with direct knowledge of the investigation.

The Office of the Comptroller of the Currency was also investigating the firm. The OCC imposed a $15 million civil penalty on American Express National Bank in July. This was for actions taken between 2015 and 2017 “as part of large scale efforts to retain small business customers,” according to the OCC’s order.

According to the company, the Consumer Financial Protection Bureau investigated the company and its handling of consumer sales practices and ultimately dropped its investigation.

The company stated last month that the Eastern District, Justice Department, and Department of Financial Services investigations “are ongoing” and that it is “cooperating with all inquiries.” Additionally, it stated: “Any additional negotiated resolution or litigated proceedings arising from these matters could result in fines or other remedial actions.”

In that filing, Amex also stated that it did not believe it was a party to a legal proceeding “that would have a material adverse effect” on its financial condition, but added: “In light of the uncertainties involved in such matters, including the fact that some pending legal proceedings are in the preliminary stages or seek an indeterminate amount of damages, it is possible that the outcome of legal proceedings could have a material impact on our results of operations.”

A company spokesperson, Adam Isserlis, stated that the company has a “long-standing commitment to maintaining the trust of our customers and complying with regulatory requirements,” as well as a robust control and compliance regime.

“When we have identified misconduct, we have taken appropriate disciplinary and remedial action,” he said. “We take these matters seriously and will continue to cooperate with our regulators.”

The IRS is also involved

According to the people BI spoke with, Brooklyn attorneys are coordinating their criminal investigation with the IRS’s criminal-investigation unit.

That section of the IRS “conducts criminal investigations regarding alleged violations of the Internal Revenue Code, the Bank Secrecy Act, and various money laundering statutes,” according to the agency’s website. “The findings of these investigations are referred to the Department of Justice for recommended prosecution.”

Amex has stated that it is “under continuous examination” by the IRS, but has not stated that the agency is specifically interested in sales practices. The company had disclosed “all governmental investigations” related to sales practices in the global commercial-services division, according to Isserlis, and it was “not aware of any IRS investigation.”

The Office of Inspector General of the Federal Deposit Insurance Corporation is also involved. According to the person, at least one agent for that division, which handles criminal and civil investigations involving suspected fraud at banks that use FDIC deposit insurance, such as American Express’s online bank, has been scouring LinkedIn and reaching out to prospective interview subjects before referring them to other agencies.

A spokesperson for the Eastern District of New York, John Marzulli, stated, “Our office does not confirm or deny the existence of any investigation.” An IRS spokesperson and a representative from the FDIC’s Office of Inspector General both declined to comment.

Veteran prosecutors are leading the investigation

According to one person with direct knowledge of the investigation, Brooklyn prosecutors have spoken with or attempted to speak with former Amex employees who worked in the business division that served small and midsize companies, where Premium Wire was sold.

According to one of the people, government officials have also inquired about allegations that Amex salespeople opened new card accounts without customers’ consent after the company lost the exclusive relationship to provide credit cards to Costco warehouse club members in 2015. The OCC’s now-completed investigation also focused on that time period.

Two veterans of the office’s criminal division are leading the criminal investigation for Brooklyn prosecutors: Brian Morris, an assistant US attorney in the Business and Securities Fraud Section, and Hiral Mehta, the section’s acting chief.

According to his LinkedIn profile, Morris joined the Eastern District in 2009 after working for the Department of Homeland Security for several years and for one year in corporate law at Boies Schiller Flexner LLP.

According to his LinkedIn profile, he was a founding member of the bank-integrity task force, which was formed in 2020 by Seth DuCharme, then the acting district chief, to go after companies and individuals who use the banking system to launder money.

Morris was also a member of the Eastern District task force formed to investigate FIFA, the international soccer governing body. In 2015, the task force indicted nine people on racketeering, wire fraud, and money laundering charges, including two FIFA vice presidents. Charles Blazer, the United States’ former representative on FIFA’s executive committee, entered a guilty plea.

Morris is “considered to be pretty hard-charging,” according to someone who has worked closely with him for years. “He works very hard and is very motivated,” the person added.

According to his LinkedIn profile, Mehta is also a founding member of the bank-integrity task force and has worked at the Eastern District for over nine years. According to a former colleague, he is also regarded as the type of attorney who does not shy away from taking on high-profile cases.

“Some prosecutors are so risk-averse that they don’t end up doing anything,” the individual was quoted as saying. “Hiral and Brian are not those people.”

Sinking morale among some sales employees

According to current and former sales employees, the investigations are having an impact on Amex’s results-driven culture because compliance staff has become more involved in the sales process. According to them, this has resulted in a reduction in employees’ opportunities to bring in new business.

For example, in May 2022, the company informed approximately 250 salespeople that their compensation structures had been abruptly changed and that previous commissions would not be paid out, as previously reported by BI. About 100 of them were assigned to new positions, while the remaining 150 or so were fired with little to no explanation.

According to Isserlis, the changes are taking place “within a small sales and account management team that supports U.S. small and mid-sized business payments,” and the global commercial-services divisions include “many segments.”

He went on to say that these modifications “involved creating new roles and eliminating or reconfiguring other roles, as well as adjusting sales policies, compensation plans and training programs to support the new sales organization.”

According to one current employee and one former employee who spoke with insiders, these changes have contributed to low morale and poor performance this year. According to the current employee, only a dozen or so people out of two field sales forces totaling less than 150 are expected to meet their quota this year.

Instead of adjusting expectations, midlevel managers have promised salespeople a one-time compensation adjustment, according to the source. Both people who spoke with BI believed that if the adjustment did not occur, people would leave.

According to the person, Amex has already guaranteed quarterly commissions of $30,000 to directors who manage sales teams and report to vice presidents.

According to former employees, one of the client segments targeted by Amex salespeople for the Premium Wire product were McDonald’s franchise owners.

According to the current employee, Amex has made it more difficult for field sales staff to work with those owners, who are typically heavy users of corporate cards, as a result of the government investigations. According to the person, the company has discouraged salespeople from working with McDonald’s franchises and told some that they should not sign up new franchises as customers.

Salespeople, on the other hand, are still encouraged to collaborate with Wendy’s or Taco Bell franchise owners.

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