Pandemic Unemployment Fraud Tops $400 Billion

In early 2020, state governments across the country reacted to the arrival of the coronavirus epidemic by imposing lockdowns. By forcing businesses to close and ordering residents to stay at home, their aim was to “flatten the curve” and limit the spread of Covid infections. It was supposed to be for just 15 days, but turned into months.

It didn’t take long for the politicians’ lockdowns to crush the nation’s economy. As soon as lockdown measures were mandated by state governments, they threw their economies into deep recession. Millions of Americans lost their jobs. Millions of Americans needed unemployment benefits.

The federal government rushed to provide funds for states to provide unemployment benefits to all those they threw out of work. The states would distribute the funds through their unemployment insurance programs. Over $800 billion has been spent to provide pandemic unemployment benefits.

Half of It Was Stolen

Axios‘ Felix Salmon has the story:

When the pandemic hit, states weren’t prepared for the unprecedented wave of unemployment claims they were about to face.

They all knew fraud was inevitable, but decided getting the money out to people who desperately needed it was more important than laboriously making sure all of them were genuine.

By the numbers: Blake Hall, CEO of ID.me, a service that tries to prevent this kind of fraud, tells Axios that America has lost more than $400 billion to fraudulent claims. As much as 50% of all unemployment monies might have been stolen, he says.

Haywood Talcove, the CEO of LexisNexis Risk Solutions, estimates that at least 70% of the money stolen by impostors ultimately left the country, much of it ending up in the hands of criminal syndicates in China, Nigeria, Russia and elsewhere.

“These groups are definitely backed by the state,” Talcove tells Axios.

Much of the rest of the money was stolen by street gangs domestically, who have made up a greater share of the fraudsters in recent months.

Getting Away With It

At a certain point, you might hope the people running the state unemployment insurance programs would catch on. But they didn’t. Consequently, they handed out $400 billion more than was needed. The foreign criminal syndicates cashed in.

Unemployment became where the big money was—and was also being run by bureaucrats who weren’t as quick to crack down on criminals as private companies normally are.

That’s the real lesson to be learned here. At this scale, even a simple random audit could have worked wonders. If staff members had directly contacted a relative handful of benefit recipients, they might have avoided being defrauded by:

  1. Confirming they exist.
  2. Verifying their eligibility to receive benefits.
  3. Determining they received them.

But that was more than the bureaucrats thought they should have to do. This case is not just an example of criminal fraud. It’s an example of a massive government failure.

Craig Eyermann is a Research Fellow at the Independent Institute and the creator of the Government Cost Calculator at MyGovCost.org.
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