Q: In previous columns, you have noted that one of the biggest headaches that agencies face is fraud by independent contractors who create liability for the agency, often on a large scale. In other columns, you have offered advice about how to handle major debit memos for frauds such as unauthorized credit card charges and hidden-city ticketing. What if we discover a major ticketing fraud before we get a debit memo? Should we take the initiative and notify the airline, or should we lie low and hope that the carrier does not discover the problem? Should we enlist the help of the police, prosecutor or FBI?
A: The answer depends on the dollar amounts involved, the importance of the carrier to your agency, the importance of an ARC appointment to your agency and the fraud perpetrator's attitude and resources.
Let's take the worst-case scenario: You have discovered that an independent contractor has charged $200,000 in tickets to a stolen or canceled credit card. The tickets were on a major U.S. carrier whose plate you need in order to stay in business.
As an aside, some readers must be wondering how the GDS gave approval codes for so many tickets on a stolen card. Unfortunately, GDSs often do so, either in error or because they have not yet received word that the card has been stolen.
Also as an aside, readers should know that there is no defense to a debit memo for a credit card chargeback unless you have the cardholder's signature and a card imprint on a charge form. So the carriers and ARC will look to your agency for reimbursement of the inevitable chargeback.
In this case, my advice would be to proceed on three fronts at once:
First, write a formal business letter to the airline's fraud department explaining what happened, expressing shock that a trusted independent contractor would be behind this scheme and offering to help the carrier collect from the contractor in any way that you can. Of course, the airline will tell you that you are liable, but your letter will have shown your cooperative attitude, which sets the stage for a settlement later on.
If the chargebacks are on several carriers, which is usually the case, do the same with all U.S. major carriers and at least the largest foreign carriers that your agency uses frequently.
Second, sue or threaten to sue the contractor for the potential loss. Get a lawyer to write one or more demand letters, and see if you can recover at least some money.
Third, try to enlist the help of your county prosecutor or the FBI, so that they can scare the contractor into paying what he can. Don't directly threaten the contractor with prosecution, as that constitutes blackmail.
After several months of appearing to cooperate with the airline, you should be able to settle for what you can afford to pay, and the case will be closed.
If you wait for the debit memo, you will start negotiating from a defensive position, and you might get a default threat from ARC, which can place you in default for any "improperly reported" sales, which ARC considers these to be. If the fraud involves fares or commissions, then ARC has no jurisdiction over the matter.
Mark Pestronk is a Washington-based lawyer specializing in travel law. To submit a question for Legal Briefs, email him at [email protected].