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AT&T Let Scammers Overrun Calling Service, Feds Charge

AT&T Let Scammers Overrun Calling Service, Feds Charge

Did AT&T knowingly allow scammers from Nigeria and elsewhere to co-opt the government-supported system for relaying phone messages for the hearing-impaired? That's at the foundation of a lawsuit brought by the DoJ against the carrier. Win or lose, the suit could prompt new legislation to bolster the system's security. And if AT&T should lose the case, it could get stuck with a really big penalty -- possibly a $5,000 fine for each abuse.

By Peter Suciu
03/23/12 11:26 AM PT

The Department of Justice has filed a lawsuit against telecommunications giant AT&T, claiming that the carrier allowed scammers to use a calling service for the hearing-impaired and then stuck U.S. taxpayers with the bill.

While many Internet scams have originated from Nigeria, this case reportedly involves scammers using a free Internet-based calling system for hearing-impaired users. The system lets users type a message on their computers, which an employee of the phone company then relays by voice.

The United States government reimburses the service providers at US$1.30 per minute, but only if the calls originate within the United States, and only if the calls are actually made by a hearing-impaired person.

However, scammers from Nigeria and other countries have used the services for illicit purposes, including calls attempting to place orders with merchants using stolen credit cards, according to a Bloomberg Businessweek report published earlier this week.

Since 2008, the government has required service providers to verify the names and mailing addresses of those using the service. However, AT&T registered only about 20 percent of the users via postcards, over concerns that revenue from the reimbursements would decline, according to the government.

"At this point, this is something that we don't know if it is just AT&T or other carriers as well," Jeff Kagan, telecommunications analyst told the E-Commerce Times.

Making the Government's Case

The Justice Department alleges that AT&T had knowledge that the system was being used by scammers, including those operating from outside the United States, and did little to prevent it. In the process, AT&T thus violated the False Claims Act for seeking reimbursement for those fraudulent calls.

"The Commission welcomes the Department of Justice's filing, which arises from an investigation that the Commission's Office of Inspector General actively assisted," the FCC said in a statement provided by spokesperson Mark Wigfield. "Fraudulent IP Relay practices are a serious problem the Commission has been addressing, and the Commission's Enforcement Bureau also has ongoing investigations of IP Relay practices. We will continue to work with DoJ and other law enforcement authorities to protect these critical services from abuse."

The False Claims Act covers fraud involving any federally funded contract or program, with the exception of tax fraud.

"The act allows private people to make these claims, but the government can invoke it on its own and bring criminals charges against a company," said John L. Watts, a professor at the Texas Tech University School of Law.

"If it was a program with federal funding, the company -- in this case AT&T -- has to certify that the system wasn't abused," Watts told the E-Commerce Times.

But did AT&T knowingly break the law?

"This is a case where the advancement of technology Visit the VMware Tech Center goes ahead of the state of law," added Kagan. "The first big point is whether [AT&T] was doing something wrong or something illegal. Those are two different things."

If they weren't doing anything illegal, the lawsuit will fail, contended Kagan.

"It might not be right for them to have done it," added Kagan, "but that isn't quite the same."

AT&T's Defense

The carrier countered that it was following the proper procedures.

"AT&T has followed the FCC's rules for providing IP Relay services for disabled customers and for seeking reimbursement for those services," said AT&T spokesperson Marty Richter in a statement to the E-Commerce Times. "As the FCC is aware, it is always possible for an individual to misuse IP Relay services, just as someone can misuse the postal system or an email account, but FCC rules require that we complete all calls by customers who identify themselves as disabled."

While AT&T may argue that it was just providing a service that scammers exploited, the end result could be new rules and laws.

"The law has to keep up with the advancement of technology," added Kagan. "Every time there is a new advancement, a new door opens, but another door opens on the other side that the bad guys look to take advantage of. The problem is that the laws drag behind these problems."

Apart from whether this results in any new legislation, it could be pricey for the carrier if it is found in violation of the False Claims Act.

"The government could hammer the company with the Act," said Watts.

Past cases involving the Act have resulted in judgments in the hundreds of millions of dollars. Since 1986, False Claims Act judgments and settlements against fraudfeasors have exceeded $25 billion.

"There is a $5,000 fine for each abuse," added Watts. "That could be a lot of money."


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