Unemployment Fraud Rises as Claims Hit Record Levels
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How big is the surge in unemployment claims and fraud during the pandemic?
Money Briefing for Thursday, June 4th. I'm J.R. Whalen for The Wall Street Journal. Unemployment claims have spiked to record levels during the pandemic lockdowns, and so have fraudulent claims.
There are fraudsters and they go into the dark web and collect information on people, personal information like, you know, social security numbers. They use bots to penetrate the state's unemployment application website and then they are approved for a bank card.
The way states process unemployment claims from independent contractors and self-employed workers is also contributing to the rise in fraud. Wall Street Journal reporter Sarah Cheney will be with us in a moment to explain.
States across the country are being hit by a wave of unemployment benefit fraud. But how are fraudsters getting into the system? And what are authorities doing about it? Our reporter Sarah Cheney is here to discuss. So Sarah, how big a deal is this for states?
It's unclear exactly how much money has been paid out. What we do know is that on Monday, the inspector general to the U.S.
How are fraudsters obtaining identities and using the dark web to file claims?
Labor Department said that at least $26 billion in unemployment payments could be wasted during the pandemic. He said a large portion of that was attributable to fraud.
How are the fraudsters infiltrating the system and receiving payments?
A good bit of the fraud appears to be due to identity theft. So Oklahoma is an interesting example. I spoke with a state official there that explained what was going on. He said that the state detected identity fraud and how that worked was basically there are fraudsters and they go into the dark web and collect information on people. personal information like, you know, social security numbers. They use bots to penetrate the state's unemployment application website.
What techniques do fraud rings use to automate applications and receive payments?
And then they are approved for a bank card. And then the fraudsters would siphon that money outside of Oklahoma and And to address this, Oklahoma put in what's basically a standard anti-bot measure. A lot of people have probably encountered one of these before, that it just requires applicants for unemployment benefits to verify that they are not a robot.
And what are states attributing the overall rise in fraud to?
Some of it is just due to the fact that there has been a huge surge in unemployment claims. Claims had totaled more than 40 million since mid-March when the pandemic led to widespread business closures and a lot of people were laid off. And so that's one reason that states are more vulnerable to fraud, just the massive number of claims. And then another is tied to the fact that there was a federal stimulus bill passed during the pandemic that created a new program that states had to implement for independent contractors and gig economy employees who typically are not eligible for unemployment benefits. And basically, according to the inspector general to the Labor Department, this new system has created vulnerabilities.
And the way states process claims from freelancers is contributing to the problem as well?
The unemployment benefit process requires in normal times that states send a letter to an employer of an unemployment benefit applicant verifying that what that applicant said was true.
How did state changes for independent contractors create new fraud vulnerabilities?
But given the pandemic and the number of claims, Oklahoma suspended this employer notification requirement to help speed up the delivery of payments. We know of at least one other state that has done this.
And now the Secret Service has gotten involved.
The Secret Service issued a memo last month outlining that they suspected a Nigerian fraud ring was targeting state unemployment systems. And they highlighted Washington state as the hardest hit and then noted that there were several other states where there was evidence that unemployment fraud had been occurring. The Secret Service memo also said that hundreds, if not thousands, of mules, which are basically intermediaries that help launder stolen money out of the country, appeared to be behind the fraud scheme, in some cases unknowingly.
Now, even before the current surge in unemployment claims due to the pandemic, the Labor Department has dealt with fraud pretty regularly, right?
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Chapters
6 chapters
1
How big is the surge in unemployment claims and fraud during the pandemic?
0:05–1:18
2
How are fraudsters obtaining identities and using the dark web to file claims?
1:18–2:09
3
What techniques do fraud rings use to automate applications and receive payments?
2:09–3:59
4
How did state changes for independent contractors create new fraud vulnerabilities?
3:59–5:07
5
What role have law enforcement and the Secret Service played in exposing schemes?
5:07–5:36
6
What do historical fraud rates tell us and how uncertain is the total loss estimate?
5:36–5:42
Speakers
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