By Cezary Podkul
Tuesday July 27, 2021

Inside perhaps the largest fraud wave in history. (Andrey Popov/Adobe)

A Bronx man allegedly received $1.5 million in just 10 months. A California real estate broker raked in more than $500,000 within half a year. A Nigerian government official is accused of pocketing over $350,000 in less than six weeks.

What they all had in common, according to federal prosecutors, was participation in what may turn out to be the biggest fraud wave in U.S. history: filing bogus claims for unemployment insurance benefits during the COVID-19 pandemic. (The broker has pleaded guilty, while the Bronx man and Nigerian official have pleaded not guilty.)

Fraudsters have filed in high volumes, sometimes obtaining payments from multiple states, despite the fact that a jobless person is barred from getting assistance in more than one state. One person, according to the U.S. Department of Labor, used a single Social Security number to file unemployment insurance claims in 40 states. Twenty-nine states paid up, sending $222,532.

But the problem extends far beyond a plague of solo scammers. A ProPublica investigation reveals that much of the fraud has been organised — both in the U.S. and abroad. Fraudsters have used bots to file online claims in bulk. And others, located as far away as China and West Africa, have organised low-wage teams to file phoney claims.

In addition, the fraud has been enabled by a burgeoning online infrastructure, whose existence has not previously been reported in the mainstream press. Much of it is geared toward exploiting ageing or obsolete state unemployment systems whose weaknesses have drawn warnings for decades. Communities have sprouted on messaging apps such as Telegram, where fraudsters trade tips on how to cash in. Hustlers advertise their techniques — or “sauces” (apparently short for “secret sauce”) — for filing bogus claims, along with state-specific instructions on how to get around security checks, according to a ProPublica review of messages on more than 25 such chat forums.

Some of the forums have thousands of participants and regularly offer stolen identities for sale, alongside tech tips, screenshots that ostensibly prove the methods work and advice on which states are easiest to game and which are “lit” — that is, still paying out fake claims. Users have created two Telegram channels in which they trade tips for filing claims in Maryland, whose labor department recently said it detected some 508,000 potentially fraudulent jobless claims between the start of May and mid-June. Participants in those forums have been talking about turning their efforts to Pennsylvania, where officials recently said they have “noticed an uptick” in fraudulent claims.

Telegram did not respond to requests for comment. But after ProPublica’s inquiry, 10 of the channels we asked about suddenly went dark, marked with this notice: “This channel can’t be displayed because it violated Telegram’s Terms of Service.”

Nobody has yet come close to putting a definitive number on the dollar value of fraud relating to pandemic-era unemployment benefits. But ProPublica performed a data analysis that hints at the massive scope. In state after state, the volume of initial jobless claims has far exceeded the number of estimated job losses. Across the U.S. from March to December 2020, the number of initial claims equated to 68% of the country’s labor force, which stood at around 164 million before the pandemic. In five states — Arizona, Georgia, Hawaii, Nevada and Rhode Island — the initial claims outnumbered the entire pool of civilian workers. By contrast, about 23% of American workers were out of a job or underemployed at the peak of the pandemic, according to the Bureau of Labor Statistics; in the most recent report that figure is just under 10%. (There are innocent explanations for at least some of the disparity: If a person loses a job more than once during a given year, they can legitimately file for benefits more than once during that time.)

The fraud estimates provided by states so far range from high to jaw-dropping. In Vermont, as many as 90% of claims in some months were determined to be fraudulent, state officials said in June. Rhode Island’s labor agency said in March that it suspected fraud in 43% of the claims it had received. The equivalent agency in California has confirmed fraud in about 10% of its payments and said it’s investigating a further 17%. The numbers have tailed off in Texas, whose agency says it now suspects fraud in about 14% of its claims.

“The system was the victim of what is one of the largest internet crimes in history, perpetrated against all 50 states at extraordinary levels,” said James Bernsen, a spokesperson for the Texas Workforce Commission. (Bernsen and officials for other states say the damage could’ve been even worse: They say they’ve been able to stop billions of dollars’ worth of bogus claims before they got paid.)

The U.S. Department of Labor’s inspector general estimates that at least $87 billion in fraudulent and improper payments will have made their way through the system by the time pandemic-linked jobless aid programs expire in September. That estimate is based on a historic assumption that fraud and waste eat up about 10% of unemployment insurance aid. The inspector general acknowledges that figure is likely too conservative in an environment where unemployment insurance fraud has “exploded” to “unprecedented” levels.

Other experts anticipate a dramatically higher tally. “From my experience, when this is all said and done, we are going to be counting in the hundreds of billions of dollars, not the tens of billions,” said Jon Coss, who heads a unit within Thomson Reuters that is helping states detect fake unemployment insurance claims.

Coss bases that assessment on the widespread fraudulent activity he’s seen. He said one U.S. state, which he declined to name, received fake claims — all purportedly from state residents — that originated from IP addresses in nearly 170 countries. They included countries historically linked to fraud, such as China, Nigeria and Russia, as well as more surprising ones, such as Cuba, Eritrea, Fiji and Monaco. Overall, Coss said, between 40% and 50% of the claims his group has analysed seem highly suspect. He added, “It’s mind-boggling the level of fraud that we’re seeing.”

Defrauding unemployment insurance, or UI, programs, which pay out weekly benefits to workers who’ve lost jobs through no fault of their own, is likely as old as the programs themselves. But the rise of internet-based crime over the past 25 years or so, particularly the use of stolen identities to file fake claims on someone else’s behalf, opened the way to fraud on an epic scale.

*This is an extract of a longer article published on ProPublica.

*TheMandarin