While an army of investigators is trying to determine the extent of unemployment benefit fraud in California, the head of a state-owned security firm warns that the payment of fraudulent claims could double the previously estimated $ 4 billion, and that a flood of these claims involves overseas crime rings.
According to Blake Hall, founder and CEO of the company ID.me., which was appointed by the state’s department of employment development to eradicate fraud, there may be fraud before control is introduced in October. A 10% fraud rate could total $ 9.8 billion of the benefits paid from March to September.
Much of the fraud in California and other states comes from organized criminal gangs operating in some 20 foreign countries, including Russia, China, Nigeria, Ghana, Turkey and Bulgaria, Hall said.
“If the Russians and the Nigerians and the Chinese are the players on the field, they will score some points,” Hall told The Times. “It’s a very sophisticated cyber attack that is being carried out on a large scale.”
Hall’s firm was hired by the EDD to begin investigating unemployment claims in October, and since then it appears that 30% of the claims it screened were fraudulent. Between October 1 and January 11, Hall said his firm was blocking 463,724 fraudulent claims, which he said would represent more than $ 9 billion if the EDD paid $ 20,000 on each claim.
The EDD has so far paid out $ 113 billion in unemployment benefits during the ten months of the COVID-19 pandemic, including $ 43 billion as part of an accelerated – and less secure – Pandemic Unemployment Assistance Program for Independent Contractors, Gig Workers and the Self-Employed employed.
Government officials were recently warned by Bank of America, which is under contract with the EDD to issue debit cards to distribute benefits, that there is evidence that fraud in California could amount to more than $ 4 billion. A task force of provincial, state and federal law enforcement and prosecutors is continuing an investigation to identify all of the fraud, which also involves claims in the names of inmates.
Hall said 10% of unemployment claims nationwide are usually fraudulent.
A similar warning was issued nationwide in November by the Office of the Inspector General for the U.S. Department of Labor.
“If we assume that improper payments continue at 10%, at least $ 36 billion of the $ 360 billion spent on November 7, 2020 under the CARES Act could be improperly paid, with a significant portion attributed to fraud. can be, ”the office said in a statement. report.
Hall, whose company provides security for 14 unemployment agencies, estimated that about 40% of the claims in the Pandemic Unemployment Assistance Program could be fraudulent.
“It would be in line with what we see nationwide,” Hall said.
California paid out $ 35.7 billion in PUA benefits through October 3; 40% of that would amount to $ 14 billion.
EDD director Rita Saenz, who took over the agency on January 1, said she was concerned about the level of fraud that ID.Me and other people were hearing about.
“This kind of criminal assault on the benefit system is unprecedented,” Saenz said in an interview. “My intention is to do everything we can, together with our law enforcement partners, to catch someone who does this and bring them to justice.”
Saenz said she could not comment on the possibility that fraud amounted to $ 9.8 billion or more.
‘We’re still being deceived by the fraud that has been committed, so I can not give you a fixed number. We are still watching, ”she said.
Legislators are concerned that attempts to combat fraud have harmed people with legitimate claims for unemployment. Last month, the EDD suspended payment on 1.4 million claims while investigating possible fraud.
Stan George, a database administrator at Carlsbad whose company had mass layoffs in April, is one of those whose claims have been suspended.
“I think it’s criminal,” George, 62, said of the EDD’s actions. He said he called an EDD phone line during office hours and only received a message that he needed to call back during business hours.
Bank of America has also frozen tens of thousands of benefit debit cards as it investigates possible fraud, which unemployed Californians do not have access to their money. On Thursday, a federal case was filed by a woman from San Francisco alleging that the bank did not properly protect the accounts of EDD debit cardholders and later handled fraud claims.
“My account was emptied by unauthorized transactions on my Bank of America EDD debit card,” said plaintiff Jennifer Yick, who lost her job in real estate. “When I tried to report the fraud to the bank, I was repeatedly disconnected and told to call back later and transfer to different departments.”
A representative of the bank responded on Friday, saying Bank of America had added thousands of agents to answer phones and help customers with problems regarding their claims.
“As California’s unemployment program faces billions of dollars in fraud, Bank of America works with the state every day to prevent criminals from receiving money and to ensure that legitimate recipients receive their benefits,” said Bill Halldin, a spokesman for the bank, said.
California has been particularly hard hit by fraud because it has the largest population and pays out the most benefits to any state, Hall said.
“It’s better to target a big state like California or New York because it’s not clear that there is fraud like when you would target a country with a more rural population,” Hall said.
Among the factors that contributed to fraud is that Congress approved billions of dollars in supplementary unemployment benefits and allowed claims to be filed that are retroactive to February. As a result, many claims are paid. $ 20,000.
“You have billions of dollars in federal aid, and this feature for dating these dates makes the flow the most valuable target that organized crime has ever focused on,” Hall said. “It’s just a classic supply and demand.”
Some of the scams were blocked after it was determined that the person in whose name a claim was filed did not match the name of the owner of the cell phone used to file the claim, and according to the requirement that plaintiffs must appear directly on camera with ID .me to verify their identity.
Some fraudsters were caught holding the paper or digital photos of the alleged plaintiff during the live chats. In one case, a caregiver of a severely disabled man took him to the toilet to put him on camera on ID.me, but the attempt was thwarted when the security check asked the disabled man for information on social security. Hall said.
He said foreign fraud rings use stolen identity information to file fraudulent claims and then use ‘money mules’ in the United States to retrieve debit cards sent by the EDD, often to vacant homes.
Hall cited evidence of foreign involvement, including the detection of telephone numbers about fraudulent claims to other countries and chats on the dark web in which foreign fraudsters talk about their plans.
After ID.me began investigating claims in some states, the company was hit in Virginia with cyber attacks from Hong Kong, Moscow and countries, including Nigeria, aimed at shutting down its computer system, although the attacks were thwarted, Hall said. said.
He estimates that foreign crime rings have filed hundreds of thousands of fraudulent unemployment claims in the United States.
Saenz said she believes her agency is stopping the bleeding of fraud benefits as it hires security companies, including ID.me and Thomson Reuters.
“I think EDD is mastering it,” Saenz said.