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Unemployment System Fraud: Who’s Doing It and How?

Fraud scammers from all over the world began targeting the states’ mostly antiquated employment insurance systems, moving swiftly to collect billions of dollars and using the money to fund other illegal activities.

(TNS) — Unemployment benefits fraud has become a major issue in Ohio, as tens of thousands of people are discovering that crooks have used their stolen personal information to collect benefits.

It’s not just happening in Ohio. Every state’s unemployment benefits program, to varying degrees, has been targeted by a wave of scammers, who use online forums and messaging apps to buy and sell people’s personal information, as well as tutorials on how to exploit a particular state’s benefits system for cash.

The U.S. Department of Labor estimates that $63 billion – possibly more – has been paid out by state unemployment offices. California’s unemployment system alone says it paid out more than $11 billion to scammers in 2020. But who are these scammers? And how have they been able to collect upwards of $63 billion – including at least $330 million from Ohio? Here are some answers.

Why Is This Such A Problem?

When the coronavirus crisis hit the U.S. last March, businesses were ordered closed and millions were suddenly thrown out of work. The federal government and states sprung into action, expanding eligibility to people who are self-employed and offering an extra $600 (now $300) per week in emergency benefits.

This offered an unprecedentedly lucrative opportunity for scammers, who suddenly could net tens of thousands of dollars in benefits per victim. At the same time, it became easier to successfully lodge bogus claims — applicants could “self-attest” they qualified for Pandemic Unemployment Assistance benefits, and crooks could avoid employer verification altogether by saying they were self-employed.

“You basically have a perfect storm,” said Blake Hall, CEO of ID.me, a security company hired by a number of states to help crack down on unemployment fraud.

State unemployment benefits systems, meanwhile, were largely unprepared for such a deluge of fraudulent claims. Ohio’s unemployment system runs on computers from 2004 (though the state is preparing to finish a years-long upgrade next year).

In addition, until now, unemployment systems’ anti-fraud efforts were mainly focused on stopping claims from actual state residents who were ineligible for benefits, not overseas criminals using stolen information.

Who Are The Scammers?

At least 70 percent of the bogus unemployment claims originated overseas in countries such as Nigeria, according to Haywood Talcove, CEO of the security firm LexisNexis Risk Solutions, citing data from a dozen states (Ohio isn’t one of them) that have hired his firm to help secure their unemployment systems.

A large portion of these scams are conducted by organized crime rings with names like “Scattered Canary” and “Yahoo Boys,” Hall said. “They literally just live in compounds and all they do, 24/7 is try to figure out how to trick people into stealing their identity and, you know, stripping their bank account of funds,” he said.

However, an increasing number of people in the U.S. have been caught committing unemployment fraud – likely because they read media reports about the overseas fraud, said Parker Crucq, a senior intelligence analyst with Recorded Future, a Massachusetts-based cybersecurity firm.

Many scammers also make money by selling step-by-step instructions to others about how to exploit each state’s unemployment system via online forums and messaging apps such as Telegram. These instructions can sell for anywhere from $5 to $100, depending on the state targeted, according to a Recorded Future report.

For an additional charge, the sellers offer to provide victims’ personal information as well. In other cases, they sell direct access to unemployment relief accounts that have already been set up with a cash balance, the report stated.

As a result, the report concluded, “Unemployment fraud has become increasingly accessible to threat actors lately and presents a low barrier of entry for fledgling cybercriminals.”

Scammers also trade information on which states are best to target at a given time. At one point in November 2020, someone on Telegram advised that Ohio and six other states had “stopped paying out,” according to the report, though within two weeks people resumed selling instructions and stolen information associated with those states.

How The Scams Work

Applicants for unemployment benefits in Ohio must provide a name, Social Security number, driver’s license or state ID number, list of recent previous employers, and contact information.

To get that information, some scammers rely on large-scale data breaches, sometimes from several years ago, Crucq said. Others send phishing emails to companies or organizations, which allows them to collect employees’ data.

If more information is needed, they turn to websites such as FamilyTreeNow or TruthFinder to fill in the blanks, a Nigerian scammer named Mayowa told USA Today.

“Once we have that information, it’s over,” Mayowa told the news organization. “It’s easy money.”

In some cases, the unemployment funds are sent via direct deposit either to the scammers or to “money mules” — often unwitting middlemen who could be online romance victims or who replied to ads the scammers posted on job websites and believe they are working for a legitimate international company, Crucq said.

Other times, when the state mails out debit cards with the funds, crooks use a variety of techniques to get ahold of the cards – including posing as state officials and asking targets to “return” the cards to them, and (in some cases) even going to victims’ homes and threatening them or claiming the card was sent to them by mistake, Crucq said.

Once the overseas criminal rings have the money, Talcove said, they often use it for more illegal purposes.

Talcove, who serves on the board of the National Center for Missing and Exploited Children, said the unemployment insurance (UI) funds are also correlated to a recent uptick in human trafficking.

“I think there’s an assumption that people steal this money, then they go to their local mall and they buy some stuff or they buy a car,” Talcove said. “They’re using that money to buy drugs. They’re using that money for terrorism.”

(c)2021 The Plain Dealer, Cleveland. Distributed by Tribune Content Agency, LLC.

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