Sophisticated identity thieves from Russia and Nigeria are being blamed for a spate of fraudulent unemployment claims that may have caused as much as $30 billion — or a quarter of California’s payouts — to go to fake accounts or unworthy recipients.
In a press conference on Monday (Jan. 25), California Labor Secretary Julie Su said that while $20 billion in claims paid by the state were still under investigation, another $11 billion had already been confirmed as fraudulent.
“There is no sugarcoating the reality,” Su said. “California did not have sufficient security measures in place to prevent this level of fraud, and criminals took advantage of the situation.”
The primary target of the theft has been via claims made through the federally backed Pandemic Unemployment Assistance (PUA), which was designed to swiftly address the massive and sudden spike in jobless claims at the outset of the pandemic closures last spring.
Because of the urgency and scale of the demand, traditional eligibility safeguards were eased, such as not requiring employment or income verification upfront and permitting independent contractors who lacked earnings history to seek weekly benefit payments.
Not Just California
As the largest state, California’s crisis is certainly grabbing a lot of attention, but it is far from alone in the fight against fraud.
According to the Associated Press, Washington State was also hit with over $600 million of fraudulent claims, with suspected ties to a West African crime ring that used stolen identities it collected from earlier data breaches.
According to Elizabeth Cronan, vice president of government relations at geolocation-based fraud prevention firm GeoGuard, the U.S. Labor Department projects that fraud is having a potential $26 billion impact on state unemployment insurance funds. And in addition to government benefits fraud, Cronan reports that the level of theft is on the rise, too. “I think bad actors and fraudsters always follow the money,” she recently told PYMNTS.
As the breadth of the fraud probe unfolds, House Speaker Nancy Pelosi, along with California Senators Dianne Feinstein and Alex Padilla, have called on President Joe Biden to establish a federal task force to help states prevent and investigate faulty claims.
“California and many other states are experiencing fraud at a much greater rate than previously understood, perpetrated by international and interstate criminal organizations moving from state to state,” they wrote in a letter. “We ask that you create a federal task force to help coordinate and support states in identifying, preventing and combating unemployment benefits fraud by international and interstate criminal organizations, while also ensuring that states are able to process benefits claims for deserving recipients as quickly as possible.”
It is worth noting that California’s Su has reportedly been tapped to fill the No. 2 position at the U.S. Department of Labor, serving beneath Boston Mayor Marty Walsh, who was recently chosen to serve the new Secretary of Labor. It is unclear how the rampant benefits fraud and claim delays that occurred under her two-year tenure overseeing California’s labor department would affect her potential nomination.
Separating The Good From The Bad
In the face of huge backlogs in claims, California and at least 20 other states have outsourced the task of confirming claimants’ identity to Washington, D.C.-based firm ID.me, which said it has blocked $1 billion per week in bogus filings and is working 24/7 to address the problem, while also striving to not reduce legitimate claim delays.
“We are working 24/7 with our customer support teams and our state workforce agency partners to ensure that any issues are resolved as quickly as possible,” ID.me CEO Blake Hall said in a posted statement. “Simultaneously, our security teams are working aggressively to defend against cyberattacks from bad actors across the globe who are seeking to defraud both individuals and states.”
ID.me said it had stopped more than 2.3 billion malicious events in December alone, and had been hit itself via five major attacks aimed at taking down its service.
“It should be no surprise that EDD (California’s Employment Development Department) was overwhelmed, just like the rest of the nation’s unemployment agencies,” Su said, inferring that further revelations on the fraud front would likely surface soon.
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