Fraudsters and cyber-criminals are believed to have swindled upwards of $100billion in coronavirus aid from a federal unemployment program that was flagged by the Labor Department as being extremely vulnerable to exploitation.
Congress created the Pandemic Unemployment Assistance program (PUA) under the CARES Act last March as the COVID-19 pandemic forced large swaths of the US into lockdown, leaving millions of people out of work.
About $630million in aid has been doled out under the program which aimed to help get relief to groups that are not typically eligible for unemployment insurance, including gig workers, caregivers and people who are self-employed.
A new report from NBC News broke down how a substantial chunk of the PUA aid ended up in the wrong hands as fraudsters took advantage of overwhelmed state workforce agencies rushing to get relief to struggling American families.
The true extent of the fraud is still coming into focus as a Department of Justice task force continues efforts to root it out in all 50 states and US territories.
A senior federal law enforcement source with knowledge of the DOJ investigation told NBC News it will likely take months to develop a full accounting of the fraud because of its scale and complexity.
‘It just continues to kind of spiral out and connect to other types of fraudulent acts,’ the source said.
Fraudsters and cyber-criminals are believed to have swindled upwards of $100billion in coronavirus aid from a federal unemployment program that was flagged by the Labor Department as being extremely vulnerable to exploitation. Pictured: People wait in line to apply for unemployment benefits in Los Angeles in March 2020
The Labor Department’s inspector general flagged PUA as high-risk for fraud early on, given the difficulty states faced in verifying claims.
Unlike typical unemployment claims, this category of workers does not have former employers to confirm work history, forcing the states to rely on self-reporting instead.
Many states also had to relax internal controls amid immense pressure to quickly plow through the influx of claims, making the process even more vulnerable to fraud.
The Labor Department’s inspector general has now estimated that some $63billion of the $630billion in unemployment aid distributed under the PUA was misspent.
But experts and officials who spoke to NBC News indicated that the true amount of misspent funds is much higher, likely exceeding $100billion.
The outlet’s analysis also showed how the government was slow to take action against fraudsters, ranging from individual scam artists to international cybercrime rings.
Alyssa Levitz, who leads the unemployment team at the US Digital Response, a nonprofit offering tech assistance to local governments responding to crises, said it was clear from the beginning that the PUA would be problematic.
‘Water is going to find the leak. The criminals are going to find the weakest link,’ Levitz told NBC News. ‘And as the Pandemic Unemployment Assistance was being stood up, it was the weakest link.’
The Labor Department’s inspector general flagged PUA as high-risk for fraud early on, given the difficulty states faced in verifying claims (file photo)
New claims for state unemployment benefits peaked at over six million in late March
NBC News said it contacted all 50 state workforce agencies asking for an estimate on how much money they’ve lost to fraud. The outlet said the vast majority indicated that they aren’t sure.
Congress attempted to curtail the fraud late last year by requiring states to verify the identity of claimants.
Twenty-one states contracted identification verification firm ID.me for help with that task, the company said.
The firm told NBC News that it has found a ‘veritable tsunami’ of fraudulent claims inundating state systems – raising alarm about how many passed through before the identification mandate went into effect.
‘It’s like looking at fire burning inside of a house, but no fire alarm is going off,’ ID.me CEO Blake Hall said. ‘It really is a national crisis.’
A backpack filled with cash from an alleged unemployment fraud scheme in Southern California is pictured
The company found that about 20 percent of fraudulent claims have been perpetrated by identity thieves using Social Security numbers and other personal information stolen in data breaches and available on the dark web.
Several high profile people have seen their identities used in this way – including Ohio Gov Mike DeWine, California Sen Dianne Feinstein and Illinois Attorney General Kwame Raoul.
‘It’s so widespread and indiscriminate that they even target people who are heads of law enforcement agencies,’ Raoul told NBC News.
Many victims are just now figuring out that claims were fraudulently filed in their names after receiving 1099 tax forms from the IRS showing benefits they never received.
One such victim is Michael Webb, a 41-year-old former business owner from Lexington, Kentucky, whose 1099 showed $13,000 in benefits was filed in his name.
Webb told NBC News he filed for unemployment benefits himself in March but the claim never got approved. He now believes that may be because someone else had already done so with his information.
ID.me said another 10 percent of the fraudulent claims came from scammers who tricked people into sharing their personal details by purporting to be government officials in spam phone calls, emails and text messages.
Some of the scammers have used 3-D printers to create masks resembling identity theft victims to pass facial recognition checks, the company said.
Another chunk of fraudulent claims have come from international cybercrime rings, according to research from cybersecurity firm Agari.
‘They are seeing essentially trillions of dollars that is up for grabs,’ Crane Hasshold, Agari’s senior director of threat research, told NBC News.
‘This is their World Series. This is their Super Bowl.’
Ten people were arrested late last year in connection with Nguyen Social Services, a company in Garden Grove, California, that allegedly charged $700 to file false employment claims for people who did not qualify for relief under the CARES Act. Pictured: (top, from left) Bruno Galindo, Guillermo Rodriguez, Hector Jimenez, and Huy Duc Nguyen; (bottom, from left) Leonel Hernandez, Mai Dac Som Nguyen, Rosalva Bahena, Ryan Vargas, and Sandra Pineda
The Department of Justice has already charged more than 100 defendants across 71 cases involving CARES Act unemployment fraud, with many more cases expected to emerge in the coming months as its task force continues to investigate.
In the cases already identified, federal authorities have seized or frozen $65million – less than half of the money associated with the crimes.
Former President Donald Trump’s administration has faced backlash for failing to do more to prevent PUA fraud, despite Labor Department’s inspector general issuing multiple warnings about the program’s vulnerability.
The Trump administration had issued guidance to states and provided funding to combat fraud, but didn’t do much else publicly even as several states reported issues.
‘There was not enough focus from this agency and others, that was swift enough and focused specifically on the evolving type of fraud that it was seeing,’ a senior Labor Department official under the Biden administration told NBC News.
California officials similarly placed blame on the Trump administration after an audit released last month found that the state had paid out at least $10.5billion in fraudulent claims.
Governor Gavin Newsom’s office said the federal government failed to provide his state with enough funding to combat fraud as its Employment Development Department was flooded with claims.
One of the most high-profile unemployment fraud cases in California was discovered late last year at Nguyen Social Services, a company in Garden Grove that allegedly charged $700 to file false employment claims for people who did not qualify for relief under the CARES Act.
Prosecutors say the scheme ultimately costs taxpayers an estimated $11million. Huy Duc Nguyen and Mai Dacsom Nguyen, who set up Nguyen Social Services, and eight others were arrest in the scheme on charges including perjury and conspiracy to defraud another of property.
But local officials who busted the company have cautioned that the Nguyen scheme is hardly unique, with similar ones likely playing out across the US.
‘This isn’t just an Orange County problem. It isn’t just a California problem,’ Orange County District Attorney Todd Spitzer said.
‘This is a breakdown of catastrophic proportions that has failed the American taxpayer.’