A well-organized Nigerian crime ring is exploiting the COVID-19 crisis by committing large-scale fraud against multiple state unemployment insurance programs, with potential losses in the hundreds of millions of dollars, according to a new alert issued by the U.S. Secret Service.
A memo seen by KrebsOnSecurity that the Secret Service circulated to field offices around the United States on Thursday says the ring has been filing unemployment claims in different states using Social Security numbers and other personally identifiable information (PII) belonging to identity theft victims, and that "a substantial amount of the fraudulent benefits submitted have used PII from first responders, government personnel and school employees."
"It is assumed the fraud ring behind this possesses a substantial PII database to submit the volume of applications observed thus far," the Secret Service warned. "The primary state targeted so far is Washington, although there is also evidence of attacks in North Carolina, Massachusetts, Rhode Island, Oklahoma, Wyoming and Florida."
The Secret Service said the fraud network is believed to consist of hundred of "mules," a term used to describe willing or unwitting individuals who are recruited to help launder the proceeds of fraudulent financial transactions.
"In the state of Washington, individuals residing out-of-state are receiving multiple ACH deposits from the State of Washington Unemployment Benefits Program, all in different individuals' names with no connection to the account holder," the notice continues.
The Service's memo suggests the crime ring is operating in much the same way as crooks who specialize in filing fraudulent income tax refund requests with the states and the U.S. Internal Revenue Service (IRS), a perennial problem that costs the states and the U.S. Treasury hundreds of millions of dollars in revenue each year.
In those schemes, the scammers typically recruit people -- often victims of online romance scams or those who also are out of work and looking for any source of income -- to receive direct deposits from the fraudulent transactions, and then forward the bulk of the illicit funds to the perpetrators.
A federal fraud investigator who spoke with KrebsOnSecurity on condition of anonymity said many states simply don't have enough controls in place to detect patterns that might help better screen out fraudulent unemployment applications, such as looking for multiple applications involving the same Internet addresses and/or bank accounts. The investigator said in some states fraudsters need only to submit someone's name, Social Security number and other basic information for their claims to be processed.
Elaine Dodd, executive vice president of the fraud division at the Oklahoma Bankers Association, said financial institutions in her state earlier this week started seeing a flood of high-dollar transfers tied to employment claims filed for people in Washington, with many transfers in the $9,000 to $20,000 range.
"It's been unbelievable to see the huge number of bogus filings here, and in such large amounts," Dodd said, noting that one fraudulent claim sent to a mule in Oklahoma was for more than $29,000. "I'm proud of our bankers because they've managed to stop a lot of these transfers, but some are already gone. Most mules seem to have [been involved in] romance scams."
While it might seem strange that people in Washington would be asking to receive their benefits via ACH deposits at a bank in Oklahoma, Dodd said the people involved seem to have a ready answer if anyone asks: One common refrain is that the claimants live in Washington but were riding out the Coronavirus pandemic while staying with family in Oklahoma.
The Secret Service alert follows news reports by media outlets in Washington and Rhode Island about millions of dollars in fraudulent unemployment claims in those states. On Thursday, The Seattle Times reported that the activity had halted unemployment payments for two days after officials found more than $1.6 million in phony claims.
"Between March and April, the number of fraudulent claims for unemployment benefits jumped 27-fold to 700," the state Employment Security Department (ESD) told The Seattle Times. The story noted that the ESD's fraud hotline has been inundated with calls, and received so many emails last weekend that it temporarily shut down.
WPRI in Rhode Island reported on May 4 that the state's Department of Labor and Training has received hundreds of complaints of unemployment insurance fraud, and that "the number of purportedly fraudulent accounts is keeping pace with the unprecedented number of legitimate claims for unemployment insurance."
The surge in fraud comes as many states are struggling to process an avalanche of jobless claims filed as a result of the Coronavirus pandemic. The U.S. government reported Thursday that nearly three million people filed unemployment claims last week, bringing the total over the last two months to more than 36 million. The Treasury Department says unemployment programs delivered $48 billion in payments in April alone.
A few of the states listed as key targets of this fraud ring are experiencing some of the highest levels of unemployment claims in the country. Washington has seen nearly a million unemployment claims, with almost 30 percent of its workforce currently jobless, according to figures released by the U.S. Chamber of Commerce. Rhode Island is even worse off, with 31.4 percent of its workforce filing for unemployment, the Chamber found.
Dodd said she recently heard from an FBI agent who was aware of a company in Oklahoma that has seven employees and has received notices of claims on several hundred persons obviously not employed there.
"Oklahoma will likely be seeing the same thing," she said. "There must be other states that are getting filings on behalf of Oklahomans."
Indeed, the Secret Service says this scam is likely to affect all states that don't take additional steps to weed out fraudulent filings.
"The banks targeted have been at all levels including local banks, credit unions, and large national banks," the Secret Service alert concluded. "It is extremely likely every state is vulnerable to this scheme and will be targeted if they have not been already."
Update, May 16, 1:20 p.m. ET: Added comments from the Oklahoma Bankers Association.