American Express agrees to pay more than $138M after it's accused of giving bad tax advice

American Express will pay more than $138 million in a fine and a forfeiture after federal prosecutors said it gave advice to customers on how to avoid paying taxes in its payroll award program.

The Eastern District U.S. Attorney’s Office reached a nonprosecution agreement that includes  a $77.6 million fine and an order to forfeit $60.7 million for the revenue that could have been owed from the American Express Payroll Rewards and Premium Wire programs.

Prosecutors fined the company for "engaging in sales practices that provided inaccurate tax advice to customers." American Express is required to work with the Justice Department for at least 36 months as part of the agreement. The company could be subject to prosecution if it violates the agreement or if authorities find "any newly discovered criminal activity."

"Financial institutions like American Express have no business pitching inaccurate tax avoidance schemes to sell products and turn a quick profit," acting Eastern District U.S. Attorney Judy Philips said in a statement. "This resolution ensures that American Express will be held financially accountable for the unacceptable conduct of its sales employees in misrepresenting the tax benefits of these products."

Prosecutors said American Express launched its Payroll Rewards program in 2018 as a way to save on taxes. The program allowed customers to use American Express to make a direct payment for business payroll.

American Express charged a wire fee of 1.77% to 3.5%, which allowed customers to save membership reward points for each dollar spent, which could then be deposited in personal or business accounts, U.S. attorney officials said.

The Payroll Reward program expanded in 2019 to the American Express Premium Wire program, which allowed customers to make wire payments beyond payroll, officials said. The Premium Wire spinoff underwent "a limited review," after the payroll rewards were legally vetted, prosecutors said.

"In practice, however, the products were marketed as a means to generate tax savings. The products were primarily marketed to small and midsize businesses that valued a reduced tax burden over increased profitability," the U.S. Attorney’s office wrote.

Prosecutors said customers were told that wire fees were a tax-deductible business expense and would otherwise lower income and profits.

The company was offering false tax advice, prosecutors said.

Prosecutors said a 2021 internal investigation led to the termination of about 200 employees and customers were no longer enrolled in the program. The company ordered a cap of $280,000 per wire transfer, before the rewards program was shut down two months later in November 2021.

Prosecutors said American Express had no prior criminal history for the past 18 years and cooperated with investigators.

In a statement Thursday, American Express said, "We cooperated extensively with these agencies and our regulators and took decisive voluntary action to address these issues, including discontinuing certain products several years ago, conducting a comprehensive internal review, taking appropriate disciplinary measures, making organizational changes, and enhancing policies, compliance, and training programs."

By John Asbury

john.asbury@newsday.comJohnAsbury

John Asbury is a breaking news and general assignment reporter. He has been with Newsday since 2014 and previously worked at The Press-Enterprise in Riverside, California.