The Federal Communications Commission has ordered AT&T to pay $7.75 million in fines and refunds, as the telecommunications firm was said to have enabled a phone bill scam operated by a pair of small Cleveland-based businesses.
The businesses that operated the scam were able to keep it up and running for four and a half years, charging customers for directory assistance services at about $9 per month. The service was a fake one though, with customers not receiving anything in exchange for what they paid. Apparently, the customers also did not voluntarily sign up for the fake service.
The fraud was discovered by the U.S. Drug Enforcement Administration in its investigations on the two companies in Ohio for allegations of money laundering and drug-related crimes. As the authorities seized the assets of the companies being investigated, including drugs, jewelry, cars and computers, they also uncovered financial documents that relate to a scheme for defrauding telephone customers.
AT&T played a role in the scam by allowing the scammers to bill customers with the monthly charges, with AT&T receiving a fee for each charge it placed on the bills of customers. Most of the victims of the scam were small businesses.
"A phone bill should not be a tool for drug traffickers, money launderers, and other unscrupulous third parties to fleece American consumers," said Travis LeBlanc, the chief of the FCC's Enforcement Bureau, in a statement.
According to the FCC, telephone companies such as AT&T should be responsible in making sure that the third-party charges that go through them are legitimate, and that they should be approved by their customers.
The $7.75 million settlement will see AT&T issue full refunds to the current and former customers who were charged for the fake service since January 2012. The expected total of the refunds is about $6.8 million, and the rest of the settlement amount of $950,000 will be paid by AT&T to the U.S. Treasury as a federal fine.
In addition to the settlement, AT&T has agreed to stop billing for almost all third-party services and products in the company's telephone bills and to implement processes so that consent needs to be received from customers before third-party charges are added to their bills. AT&T has also agreed to make revisions to its bills to explicitly show third-party charges.
In a statement, AT&T said that while it has strict requirements in place for third parties to request charges to be added to the bills of customers, the two Cleveland-based companies were able to circumvent the protections that the company had in place.
AT&T said it had stopped billing for the two firms in June last year and it is planning to send out the checks for the refunds to customers over the next 90 days.
The FCC ruling against AT&T for enabling scammers to operate can be considered ironic. AT&T CEO Randall Stephenson recently agreed to lead a Robocalling Strike Force that looks to create and implement tools and solutions in the fight against robocalls, which are primarily used by scammers.
