The Biggest Fraud Ever Perpetrated Against the U.S.

The scamming of pandemic unemployment relief benefits is now being described as “the biggest fraud ever perpetrated against the U.S.” by private security experts. What’s really scary is that it may not yet be over.

The story is back in the news because those experts have done more work to identify where the money has gone instead of to the unemployed Americans to whom it was intended. NBC reports:

Russian mobsters, Chinese hackers and Nigerian scammers have used stolen identities to plunder tens of billions of dollars in Covid benefits, spiriting the money overseas in a massive transfer of wealth from U.S. taxpayers, officials and experts say. And they say it is still happening.

Among the ripest targets for the cybertheft have been jobless programs. The federal government cannot say for sure how much of the more than $900 billion in pandemic-related unemployment relief has been stolen, but credible estimates range from $87 billion to $400 billion—at least half of which went to foreign criminals, law enforcement officials say.

You can tell it’s really bad because law enforcement officials investigating the fraud don’t yet have a firm grasp on the amount of money was stolen. The $87 billion figure is based on the Labor Department’s inspector general’s estimate, which pretends there was no spike in fraud rates during the pandemic. The $400 billion figure is based on identity-verification firm’s analysis of claims filed in states where its services are used to verify claims.

NBC tried to describe how big $87 billion in fraud is in terms of government programs:

Those staggering sums dwarf, even on the low end, what the federal government spends every year on intelligence collection, food stamps or K-12 education.

A Massive Government Failure

It’s not just a story of criminal fraud. It is also “an example of massive government failure“. The bureaucrats running the unemployment systems have long known they had problems that could be exploited by criminals. Yet they failed to act to prevent the fraud despite ample warning. Worse, many disabled their fraud prevention systems so they could send out unemployment benefits faster during the pandemic. In doing so, they enabled fraud on a truly enormous scale:

Officials and analysts say both domestic and foreign fraudsters took advantage of an already weak system of unemployment verification maintained by the states, which has been flagged for years by federal watchdogs. Adding to the vulnerability, states made it easier to apply for Covid benefits online during the pandemic, and officials felt pressure to expedite processing. The federal government also rolled out new benefits for contractors and gig workers that required no employer verification.

The scale of pandemic unemployment fraud is particularly bad in states like Illinois and California. In California’s case, bureaucrats overseeing the state’s unemployment insurance system have known of its vulnerabilities for more than a decade. The state continues to struggle with what one state lawmaker described as “a rat’s nest of incompetence” in putting effective safeguards in place to prevent unemployment fraud.

Until they do, the spigot of unemployment benefits will remain open to fraudulent claims. The biggest fraud ever in the U.S. will grow bigger.

Craig Eyermann is a Research Fellow at the Independent Institute.
Beacon Posts by Craig Eyermann | Full Biography and Publications
  • Catalyst
  • Beyond Homeless