As an army of investigators tries to define the scope of California’s unemployment insurance fraud, the head of a state-owned security company warns that fraudulent claims payments can more than double the $ 4 billion previously estimated , and that a flood of these claims involve crime groups abroad.
At least 10% of unemployment claims may have been fraudulent before the controls were installed in October, according to Blake Hall, founder and chief executive of ID.me., which was hired by the state’s Employment Development Department to eliminate fraud. A 10% fraud rate can total $ 9.8 billion in benefits paid from March to September.
Many of the frauds in California and other states come from organized crime gangs operating in about 20 foreign countries, including Russia, China, Nigeria, Ghana, Turkey and Bulgaria, Hall said.
“When the Russians, the Nigerians and the Chinese are the players on the pitch, they will score points,” Hall told The Times. “This is a very sophisticated cyber attack that is being carried out on a large scale.”
Hall’s firm was hired by EDD to begin checking unemployment insurance claims in October, and since then, 30% of the claims it has examined have turned out to be fraudulent. Between October 1 and January 11, Hall said his company blocked 463,724 fraudulent claims, which he said would represent more than $ 9 billion if EDD had paid $ 20,000 in each claim.
EDD has so far paid $ 113 billion in unemployment benefits during the 10 months of the COVID-19 pandemic, including $ 43 billion as part of an accelerated – and less secure – Pandemic Unemployment Assistance program for independent contractors, concert workers and self employed.
State officials were recently alerted by Bank of America, which has a contract with EDD to issue debit cards to distribute benefits, that there is evidence that the fraud could total more than $ 4 billion in California. A task force of police, municipal, state and federal prosecutors is continuing an investigation to identify all the frauds, which also involved complaints on behalf of inmates.
Hall said that normally 10% of unemployment insurance claims across the country are fraudulent.
A similar alert was issued nationwide in November by the Office of the Inspector General of the United States Department of Labor.
“Conservatively, assuming that undue payments continue at 10%, at least $ 36 billion of the $ 360 billion spent under the CARES Act on November 7, 2020, could be paid in error, with a significant portion attributable to fraud,” said the office in a report.
Hall, whose company provides security for unemployment agencies in 14 states, estimated that about 40% of complaints in the Pandemic Unemployment Assistance program may be fraudulent.
“That would be consistent with what we are seeing across the country,” said Hall.
California paid $ 35.7 billion in PUA benefits through October 3; 40% of that would total $ 14 billion.
EDD director Rita Saenz, who took over the agency on January 1, said she is concerned about the level of fraud she heard from ID.Me and others.
“This type of criminal assault on the benefit system is unprecedented,” Saenz said in an interview. “My intention is to do everything we can, working with our law enforcement partners, to catch whoever is doing this and bring them to justice.”
Saenz said he could not comment on the possibility of fraud reaching $ 9.8 billion or more.
“We are still investigating the amount of fraud that was committed, so I cannot give you a firm number. We are still looking, ”she said.
Lawmakers are concerned that efforts to combat fraud have hurt people with legitimate claims for unemployment. Last month, EDD suspended the payment of 1.4 million complaints while investigating possible fraud.
Stan George, a database administrator for Carlsbad, whose company had massive layoffs in April, is one of those whose claims have been suspended.
“I think it is criminal,” said George, 62 of EDD’s shares. He said he called an EDD phone line during business hours and only received a message saying he needed to call back during business hours.
Bank of America also froze tens of thousands of benefit debit cards while investigating possible fraud, leaving unemployed Californians unable to access their money. On Thursday, a federal lawsuit was filed by a San Francisco woman, claiming that the bank failed to adequately protect EDD debit card holders’ accounts and subsequently deal with fraud claims when made.
“My account was emptied by unauthorized transactions on my Bank of America EDD debit card,” said the plaintiff, Jennifer Yick, who lost her job in the real estate industry. “When I tried to report the fraud to the bank, I was disconnected several times, told to call later and I was transferred to various departments without end.”
A bank representative responded on Friday saying that Bank of America added thousands of agents to answer phones and help customers with problems involving their claims.
“While California’s unemployment program faces billions of dollars in fraud, Bank of America is working every day with the state to prevent criminals from receiving money and ensuring that legitimate beneficiaries receive their benefits,” said Bill Halldin, a spokesman. bank voice.
California has been hit particularly hard by fraud because it has the largest population and is paying more in benefits than any state, Hall said.
“It is better to target a large state like California or New York because it is not as obvious that there is fraud as it would be if you were targeting a state with a more rural population,” said Hall.
Among the factors that contributed to the fraud is the fact that Congress approves billions of dollars in supplementary unemployment benefits and allows actions to be taken in pursuit of benefits retroactive to February. As a result, many claims paid are totaling $ 20,000.
“You have billions of dollars in federal aid and this retroactive resource that makes these flows the most valuable target that organized crime has ever focused on,” said Hall. “It’s just classic supply and demand.”
Some of the fraud was blocked after it was determined that the person on whose behalf the complaint was made did not match the name of the owner of the cell phone used to make the complaint and a requirement that complainants appear live on camera with an identity document. .me to verify your identity.
Some fraudsters were caught holding paper or digital photos of the alleged claimant during live chats. In one case, a caregiver for a severely disabled man took him to the bathroom to put him on the camera with ID.me, but that attempt was thwarted when the security inspector asked the disabled man for information on Social Security, Hall said.
He said that foreign fraud networks are using stolen identity information to file fraudulent claims and then using “money mules” in the United States to withdraw debit cards sent by EDD, often to empty homes.
Hall cited evidence of foreign involvement, including tracking phone numbers in fraudulent complaints to other countries and dark web conversations where foreign fraudsters talk about their schemes.
After ID.me started examining claims in some states, the Virginia-based company was hit by cyber attacks originating in Hong Kong, Moscow and countries like Nigeria, which aimed to bring down its computer system, although the attacks have been thwarted said Hall.
He estimated that foreign crime gangs filed hundreds of thousands of fraudulent unemployment claims in the United States.
Saenz said he believes his agency is preventing the bleeding of fraud benefits, since he hired security companies, including ID.me and Thomson Reuters.
“I think EDD is controlling this,” said Saenz.