As the coronavirus pandemic raged, Uncle Sam was doing more than putting money in unemployed Americans’ pockets — the federal government was also shipping tens of billions of dollars overseas to fraudsters working with the country’s most prominent adversaries, such as China and Russia.
Haywood Talcove, CEO for LexisNexis Risk Solutions’ government division, says 40% of the more than $700 billion spent on unemployment went to fraudsters.
Most of that ill-gotten money — $175 billion of it — went to overseas actors. And most of that, perhaps $140 billion, went to organizations that are state-sponsored.
“It makes me mad that there hasn’t been enough oversight, that the tools that are needed when you’re distributing this type of money aren’t in place,” Mr. Talcove told The Washington Times. “It allows our adversaries, the Russians, the Chinese, the Nigerians, the Romanians, to use that money to hurt our country.”
He said the money lost to fraud could have provided $160,000 to each individual in the country below the poverty line. Or it could have paid a Harvard University-level tuition for four years for every 18-year-old in the country.
Instead, it ended up in the hands of criminals, from low-level grifters to sophisticated government-backed syndicates.
Nearly two years after the pandemic broke out in China, and 20 months after Congress passed its first major coronavirus bailout bill, the U.S. is still reeling.
Virus variants are still breaking out, and the economy is facing a chaotic jobs market and soaring inflation.
Government assistance has begun to ratchet down, but there has not been a full accounting of the $6 trillion or so Congress allocated, including the $717 billion the Committee for a Responsible Federal Budget calculates went to pandemic unemployment assistance.
Congress initially offered a $600-a-week boost on top of what states were already paying, and granted new eligibility to people who had exhausted their benefits. The program was later extended, though at $300 a week.
The problem, Mr. Talcove said, is that the states just weren’t ready for that kind of money to flow through their unemployment systems. But fraud rings were.
For years, they had been using the same playbook, combining names and pilfered personal identifying information to scam companies and government agencies like disaster relief or the IRS.
They had not targeted unemployment because the money had been pretty small potatoes. But a $600-a-week federal payout on top of states’ payouts suddenly made it worthwhile.
The average pandemic unemployment payout totaled $26,000, or more than the average tax-refund fraud, Mr. Talcove said.
California, which received more than $130 billion of the unemployment money, likely saw tens of billions of dollars in bogus payments made. Even a jurisdiction like the District of Columbia, with about $2 billion in federal assistance, lost about $800 million in bad disbursements, Mr. Talcove estimates.
In Michigan, an auditor’s report earlier this month found the state didn’t require individuals to self-certify the reason they were out of work. That meant people who didn’t deserve the money under the federal rules were nonetheless allowed to get checks in Michigan.
Even after being warned by the feds, Michigan took months to change its system, allowing people to continue to be paid benefits they shouldn’t have gotten.
The auditor said at least 300,000 bogus claims were paid because of the bungle, and the money won’t be recovered because applicants didn’t actually scam the system.
Mr. Talcove said private companies could never withstand those kinds of losses. “With government, they just get to print more money,” he said.
“It’s pretty amazing that the states did not have these tools in place, and were able to essentially donate $250 billion to transnational criminal groups,” he said.
That some of it ended up financing America’s adversaries has gone largely unremarked, though, given the countries involved, it’s possible that American taxpayers helped fund the cyber chaos efforts that intelligence analysts say China, Russia and Iran launched to try to undermine the 2020 U.S. election.
Top federal officials in the Justice Department and Secret Service acknowledged the problem briefly in congressional testimony last year.
The assistant director for investigations at the Secret Service said state-sponsored pandemic fraud had become “a very real threat to America’s national security.”
But officials have been relatively silent since then.
Reached by The Times, the Justice Department declined to comment on its current evaluation of state-sponsored involvement.
The Secret Service didn’t respond to an inquiry.
Prosecutors have brought hundreds of cases against people in the U.S. for COVID-19 fraud, and many of those involve unemployment.
Some are brazenly ludicrous, such as the case of Nuke Bizzle, a California-based rapper who investigators say posted a rap video actually showing himself mailing applications for unemployment insurance benefits in other people’s names.
One standard scam, perpetrated repeatedly across the country, involves scouring names of those behind bars, then filing applications under those identities, with the cash routed to the scammers.
In other cases, people have scooped up names off internet lists and then they purchase the corresponding identifying information — mother’s maiden name, past addresses or similar details — off the dark web.
That’s the script for the big organized-crime outfits.
Mr. Talcove said low-level scammers are likely to be caught, and the feds are trying to recapture that money. But the overseas syndicates are operating on a larger scale, and with the cash outside the U.S., the chances of recovering it are close to nil.
Members of Congress knew fraud would be overwhelming, spanning not just the unemployment benefits but also small business loans and the Paycheck Protection Program. Lawmakers made a calculation that getting the cash out the door to people who needed it, without hassle, was worth the fraud.
Mr. Talcove said he raised the issue of fraud with the White House in 2020, warning then-economic adviser Larry Kudlow that the government was facing “the largest fraud in our history.”
The administration’s position was that they couldn’t have both security and speed.
But Mr. Talcove says it didn’t have to be that way. A simple fraud filter at the front of the application process — costing perhaps a half-million dollars for a jurisdiction like Washington, D.C. — could have saved tens of billions.
“I believe they were just overrun or just had never contingency-planned for this. It’s not their fault,” he said. “They want to help, they want to do the right thing, they want to help those in need. The challenge they face, and we face, is we need to put a different mindset into paying these benefits because of these transnational criminal groups.”
He said “some level of friction” in getting money out the door is critical. Otherwise, valid claims can be crowded out by the fraudsters.
For more information, visit The Washington Times COVID-19 resource page.
• Stephen Dinan can be reached at sdinan@washingtontimes.com.
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