Walmart Inc. is facing scrutiny after an in-depth investigation by ProPublica revealed its involvement in a vast fraud network centered around gift cards and money laundering. The investigation highlights Walmart’s history as a hotspot for fraud and raises concerns about the company’s ability to effectively manage its financial services.
One notable case mentioned in the investigation involves Christy Browne, a retired teacher from New York, who was tricked into buying $2,000 worth of Walmart gift cards in February 2020. Browne believed she was aiding an FBI investigation into money laundering, but the gift cards were actually funneled into a complex laundering scheme orchestrated by Qinbin Chen, a Chinese national based in Virginia. Chen’s operation laundered approximately $7 million in fraudulently obtained gift cards, victimizing hundreds of people in the U.S. and China.
This scheme, known as “The Walmart scheme,” is just one example of Walmart’s involvement in fraudulent activities. According to the Federal Trade Commission (FTC), Walmart has been a channel for over $1 billion in fraud losses from 2013 to 2022, despite commitments to regulators and enforcement efforts.
ProPublica attributes Walmart’s high fraud losses to the company’s lack of stringent employee training and failure to implement anti-fraud measures. The investigation suggests that Walmart’s financial services, particularly gift cards and electronic money transfers, have been consistently exploited by scammers.
In response to these allegations, the FTC filed a lawsuit against Walmart in 2022, accusing the company of “turning a blind eye” to criminals using its financial systems. Walmart is seeking to have the lawsuit dismissed, arguing that it bears no responsibility for the criminal conduct of third parties and that consumers should be vigilant in avoiding fraud schemes.
Despite these challenges, Walmart is expanding its financial services, with the acquisition of online banking platform One in 2022. However, there are concerns about Walmart’s ability to effectively manage these services given its history of compliance issues and reluctance to address fraud within its systems.
This development not only affects Walmart but also has implications for related stocks such as Amazon.com Inc. (AMZN) and Target Corporation (TGT), as well as ETFs like Consumer Discretionary Select Sector SPDR Fund (XLY) and Vanguard Consumer Discretionary ETF (VCR).
It remains to be seen how Walmart will address these allegations and improve its financial services to prevent further fraud. The outcome of the FTC lawsuit and the sentencing of Qinbin Chen in February will likely shed light on the company’s accountability in combating fraud within its systems.
