Why scammers who stole unemployment benefits can get away with it

Only a small percentage of at least $60 billion in unemployment payments estimated to have been lost to fraud during the pandemic has been recovered, and time is running out to prosecute those who committed the crime.

The statute of limitations for many pandemic-related unemployment insurance fraud investigations expires in 2025. State watchdogs are pleading with Congress to take action, asking House lawmakers in two public hearings this year to give prosecutors an additional five years to prosecute scammers who took money that was supposed to go to unemployed Americans during the pandemic.

“This is a once-in-a-century scam,” said McGregor Scott, who was appointed by the Governor of California as Special Adviser on California Fraud. Gavin Newsom in 2021. “This is the largest taxpayer fraud ever committed in the history of the United States. And in this regard, why not give law enforcement agencies and the prosecutor’s office additional time.

Michael Horowitz, chairman of the federal committee on accountability in response to the pandemic, told the House Ways and Means Committee this month that extending the statute of limitations would give investigators and prosecutors more time to prosecute groups and individuals involved in unemployment fraud.

“Three years have passed since the beginning of the payment of benefits. We still have a lot of work to do, right? So if it ends in 2025, it will be a problem in some cases,” Horowitz said. “We’ll need 10 years.”

Since this is the beginning of the 118th Congress, no legislation has been filed to extend the statute of limitations, although the proposal is expected to be introduced in the coming weeks.

Congress extended the statute of limitations for prosecuting fraud in other pandemic-related economic programs. In August, President Biden signed two bills that gave the Justice Department and other federal agencies 10 years, not five, to investigate and prosecute the Paycheck Protection Program, or PPP, and the COVID Economic Injury Loan fraud. -19. or EIDL.

When government officials asked Americans to stay at home in March 2020, the economy came to a near standstill. Millions were suddenly left without income. Congress approved trillions of dollars in aid with no limits, pouring an unprecedented amount of money into unprepared welfare agencies. State agencies, including the California Department of Employment Development, which have been inundated with overwhelming demand for assistance, have sent out benefits for months without checking whether applicants are who they say they are or whether they have lost income due to COVID-19.

More than $888 billion in unemployment insurance benefits have been paid nationwide. Millions of people escaped financial ruin, but the Labor Department estimates that more than 21% of the money was taken by scammers.

By the time security measures were put in place, international criminal gangs had already lost billions of dollars, organized attempts to demand benefits filed in the names of prisonersdomestic crime syndicates and petty criminals who easily cheated the system.

The oversight bodies of the Department of Labor, the Government Accountability Office, and the Pandemic Response Accounts Committee, which Congress created to oversee pandemic economic relief, were undecided on an estimate of how much was lost due to improper unemployment insurance payments, but provided legislators range from at least $60 billion to $191 billion.

Haywood Talkov, executive director of government group LexisNexis Risk Solutions, has estimated that along with criminal gangs operating in at least four countries and at least 800 out-of-state criminal organizations in the United States, up to 4 million people have been cheating taxpayers. .

Then California State Auditor Elaine Hole released the report in January 2021. stating that EDD may have overpaid over a million people since March 2020 after it stopped applying eligibility rules to process claims faster. Former California Secretary of Labor Julie A. Su, who oversaw EDD during the pandemic, is currently number one in the rankings. 2nd post in the US Department of Labor and is running for Secretary of Labor.

Tracking down and prosecuting those responsible and recovering the money are monumental tasks that are only now beginning in earnest, three years later. State unemployment insurance agencies were overwhelmed with requests for information, and states unaccustomed to sharing data with each other hurriedly opened channels of communication and exchanged information legally. The Federal Department of Justice created three strike teams to help with the transfer of information and resources from the FBI to local district attorneys.

California lost At least $30 billion in fraud. The House Oversight and Accountability Committee has made it clear that the state is among the few it expects to focus on as part of its investigation.

It took time, Scott said, to put together investigative teams and put in place mechanisms to allow different jurisdictions to work together.

As a Special Counsel, Scott, a former US Attorney, assists local, state, and national law enforcement investigations in California but is not authorized to prosecute. Scott said he helped the “totally overwhelmed” EDD set up processes to respond to a flood of subpoenas and search warrants from local, state and national law enforcement.

Under state law, EDD cannot legally respond to a search warrant or subpoena from law enforcement outside of California because it has no jurisdiction. Requests from other states are now being routed through the Attorney General’s office, which has jurisdiction, he said.

In June, EDD announces $1.1 billion recovery in unemployment insurance funds after Bank of America deactivated unused debit cards that were accruing benefits. Seven months later, that amount still accounts for almost all of the funds returned to date. Scott said he expects EDD and Bank of America to announce an additional $4 billion in recovery from deactivated debit cards in the next few months.

As of December, only $27 million had been recovered from other investigations, according to the EDD. 1,751 statewide investigations resulted in 605 arrests and 278 convictions, according to the agency’s November data, which notes that not all counties report information to the EDD.

Scott said he is working with EDD contractors hired to verify the identity of whistleblowers to collect packages of information and data on potential crimes and send them to the appropriate law enforcement agencies. According to him, they have completed about 50 packages so far.

Much of their focus is on prosecuting perpetrators of fraud and, if convicted, seizing their bank accounts, cash and assets.

“These are much smaller amounts. [of money]obviously than [$1] a billion or $3 billion, but over time they add up,” Scott said. “Now we are in the polishing stage. We have everything we need and now we just need to keep working to hold these people accountable for what they choose to do.”

Scott is also working with the Department of Justice’s new California-based strike team, which includes the US Attorney’s Office for the Central and Eastern Districts of California, as well as agents from the FBI, the US Secret Service and several other agencies. The team is investigating all pandemic program scams, not just unemployment insurance scams.

Talcove estimates that about 10% of the stolen money went to individuals, 20% to local organized crime groups, and 70% to international criminal organizations that flooded government agencies with fake apps, often using stolen personal data.

Hundreds of investigators from more than a dozen state and national agencies, including the FBI and the Secret Service, are working on unemployment insurance fraud cases in the pandemic era. Department of Labor Inspector General Larry Turner told the House Ways and Means Committee that his office has opened more than 198,000 UI-related complaints and investigations, and opens at least 100 new investigations every week.

The investigation resulted in more than 1,200 charges, more than 500 convictions, and at least $900 million returned, Turner said.

State attorneys are not designed to prosecute international criminal gangs that stole most of the unemployment benefits, or criminal organizations operating in several states. This job is largely the responsibility of the Secret Service, tasked with protecting the US financial infrastructure, and the Department of Justice.

According to Horowitz, international cases are the most complex and will take years to resolve. The networks are based in countries including Nigeria, China and Russia that are unlikely to be extradited, making it even more unlikely that the leaders of such gangs face jail time in the United States.

“One of the biggest challenges we face is tracking fraud through the activities of foreign gangs and scammers,” Horowitz said.

David Smith, assistant director of the Secret Service’s Office of Investigation, told the House Oversight Committee this month that the agency has helped recover about $3 billion in unemployment insurance benefits since 2020 and initiated more than 2,300 unemployment insurance fraud investigations.

Rep. Kevin Kylie (R-Rocklin), who served in the State Assembly during the early years of the pandemic, said Congress needed to give prosecutors more time to prosecute fraud.

“These limits were formulated, of course, not with the expectation of fraud of this magnitude. We have never seen anything like it. And therefore, the capacity of our judicial system and our law enforcement agencies is simply overwhelmed to cope with such a volume of lawsuits in the allotted time,” he said.

Even if Congress grants another five years for prosecution, government watchers admit that many of the billions of dollars lost through fraud will never be recovered.

Still, Horowitz said, they should try.

“The recovery rate will clearly be much lower than the fraud rate. Having said that, the public should know that we will do everything in our power to try and trace and find every dollar,” he said. “Congress has given us the tools to do this. We ask for more. And we’re going to do our best.”

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