In early 2020, the global pandemic plunged economies around the world into a short but
severe recession.
In developed countries, jobless rates soared into double digits and governments around
the world spent trillions of dollars to aid those affected.
The IMF estimated in May 2020 that nine trillion dollars in fiscal support had been allocated
to pandemic relief by governments globally.
In the United States, before leaving office, Donald Trump approved $3.2 trillion dollars
of emergency aid and Joe Biden’s authorized the spending of another $1.9 trillion dollars
the next year - according to the Pandemic Response Accountability Committee.
About a fifth of that money has yet to be paid out, meaning that over four trillion
dollars has been spent in the United States so far.
The U.S. Comptroller General Gene Dodaro told Congress that this was “The largest rescue
package in American history.”
At no point in the past had so much federal emergency aid been injected into the U.S.
economy at such a speed.
The enormous scale of that package hides some multibillion-dollar mistakes.
An Associated Press analysis that came out this week found that fraudsters had likely
stolen more than $280 billion dollars in government relief funding, while another $123 billion
dollars had been wasted or misspent.
Combined, the loss makes up 10% of the $4.2 trillion dollars the U.S. government has so
far disbursed in pandemic relief aid.
There is a long history of fraudsters taking advantage of disasters to fill their boots.
A 2021 paper in the journal “Computers and Security” highlights how in the wake of
Hurricane Katrina in 2005, thousands of fraudulent websites sprung up appealing for humanitarian
donations, and local citizens received scam emails soliciting personal information to
receive possible payouts or government relief efforts.
Similar scams and attacks were seen after earthquakes in Japan and Ecuador, after Hurricane
Harvey and after the bush fires in Australia too.
It’s only so much of a surprise, tha t fraudsters saw the pandemic as a huge opportunity.
The UK’s national audit office announced earlier this year that levels of fraud in
the UK rose almost fourfold from £5.5 billion pounds two years before the pandemic to £21
billion pounds in the following two years.
The AP analysis describes the pandemic aid spending as being for crooks, like tossing
chum into the sea to lure fish.
Many of the agencies disbursing relief funds were not set up for that purpose, were understaffed
for the task at hand and used antiquated computer systems to keep track of payments.
Investigators and outside experts say that the US government, in seeking to quickly spend
trillions in relief aid, conducted too little oversight during the pandemic’s early stages
and instituted too few restrictions on applicants.
In short, they say, the con was just made “way too easy”.
It wasn’t just career criminals that made the most of the opportunity either.
The list of crooks contains the names of a U.S. soldier from Georgia, the pastors of
a defunct Texas church, a former state lawmaker in Missouri and a roofing contractor in Montana.
The U.S. government has already charged more than 2,230 defendants with pandemic-related
fraud crimes and is busy conducting thousands of additional investigations.
While there were headlines about multimillion-dollar cases, most of the cases were a lot smaller
but when combined highlight the epidemic of fraud that happened at a moment of great global
stress when hospitals were overrun schools were closed and businesses were shuttered
and laying off staff.
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According to Dan Fruchter of the fraud and white-collar crime unit at the U.S. Attorney’s
office in Washington.
Pandemic aid presented a “sort of endless pot of money that anyone could access.”
He says that “Folks kind of fooled themselves into thinking that it was a socially acceptable
thing to do, even though it wasn’t legal.”
The AP report describes how fraudsters signed up for unemployment benefits using the Social
Security numbers of deceased people and federal prisoners.
Organized crime groups got involved - buying personal information on Americans and then
using their associates to collect benefits in multiple states across the country.
Healthcare providers were also impersonated by criminals who stole funds directed towards
those who were treating patients.
Fraud in pandemic unemployment assistance programs stands at $76 billion dollars, according
to congressional testimony from the Labor Department Inspector General Larry Turner.
He went on to say “That’s a conservative estimate.
Another $115 billion mistakenly went to people who should not have received the benefits.”
There were all sorts of ways that money was stolen.
The US Secret Service told Reuters six months ago that a group of hackers based in China
stole twenty million dollars worth of U.S. relief money including Small Business Administration
loans and unemployment insurance funds in over a dozen states.
US officials told NBC news at the time that other federal investigations of pandemic fraud
also seem to point back to foreign state-affiliated hackers.
An $837 billion dollar IRS program, allegedly succeeded 99% of the time in getting economic
stimulus checks to the proper taxpayers, according to the tax agency.
But, due to the scale of the numbers being discussed, that 1% failure rate equates to
nearly $8 billion dollars going to “ineligible individuals.”
The Small Business Administration in the United States was assigned to manage two massive
relief efforts — the Economic Injury Disaster Loan and The Paycheck Protection programs,
which would inject more than a trillion dollars into the US economy.
Between March and July 2020, the SBA granted 3.2 million economic injury disaster loans
totaling $169 billion dollars, while at the same time implementing the huge new Paycheck
Protection Program.
There was a strong focus on speed, and in the rush to get money out, certain checks
to protect federal money were dropped.
Prospective borrowers were allowed to “self-certify” that their loan applications were true.
The CARES Act additionally prohibited the SBA from looking at tax return data that could
have excluded undeserving applicants.
This decision was later reversed at the end of 2020.
Additionally, federal loan applicants weren’t cross-checked against a Treasury Department
database that would have raised red flags about undeserving borrowers according to the
report.
The SBA inspector general’s office has estimated that fraud in these two programs comes to
$106 billion dollars.
The watchdog is expected in the coming weeks to release revised loss figures that are likely
to be even higher.
Michael Horowitz, the U.S. Justice Department inspector general who leads the Federal Pandemic
Response Accountability Committee, told Congress the fraud was “clearly in the tens of billions
of dollars” and may eventually exceed $100 billion dollars.
He went on to say, “If you open up the bank window and say, give me your application and
just promise me you really are who you say you are, you attract a lot of fraudsters and
that’s what happened here.”
The SBA inspector general’s office is reported to have a backlog of more than 80,000 actionable
fraud leads to investigate.
An amount of work that would take over a hundred years to process at the normal speed that
these investigations are conducted at.
That really gives you an idea of how broad based the fraud was.
A study by three professors from The University of Texas at Austin from last year discovered
almost five times as many suspicious Paycheck Protection loans as the Small Business Administration’s
inspector general has reported so far.
Their research cited indicators of fraud in loans like non-registered businesses, multiple
loans going to the same address, abnormally high implied compensation per employee, and
large inconsistencies with jobs reported in another government program.
The professors argue in their paper that proponents of the PPP often highlight the urgency of
getting money out as quickly as possible as a potential rationale for tolerating a high
level of fraud (they highlight a Washington Post Article in their paper that makes that
point).
However, they argue that the urgency mainly applied to the initial rollout of the program,
but that in their study, misreporting appeared to increase over time with particularly high
rates in the last month of round 3 of the PPP, even after the Office of the Inspector
General for the Small Business Administration (SBA) flagged PPP fraud as a concern.
They highlight that loans issued by FinTech lenders were the most suspicious at a rate
of over six times that for traditional lenders.
They point out that, the PPP did not include robust verification requirements, and traditional
banks may have been more apt to follow standard lending practices than new FinTech PPP lenders.
Their analysis might be useful to investigators searching for the most suspicious loans.
This was by no means just an American problem.
Similar stories can be found in countries all around the world.
In the UK, according to parliament’s spending watchdog, fraud and error are likely to have
cost the UK government as much as £16 billion pounds across the 19 emergency loan schemes.
Reports from crime and bankruptcy agencies in the UK have shown that some business interruption
loan scheme loans were used to fund gambling, luxury goods purchases and home improvements.
Michael Horowitz, of the U.S. Justice Department, criticized the government’s failure early
on to use the “Do Not Pay” Treasury Department database, designed to keep government money
from going to debarred contractors, fugitives, felons or people convicted of tax fraud.
Those reviews, he said, could have been done quickly.
He argues that “It’s a false narrative that has been set out, that there were only
two choices - to get the money out right away or to spend weeks and months trying to figure
out who was entitled to it.
He argues that in less than a few days, or a week at most, the SBA might have discovered
thousands of ineligible applicants.
There was data sitting right there and it didn’t get checked – according to Horowitz.
Republicans and Democrats in the United States don’t agree on much - in particular on the
topic of government spending, but they did find common ground last year on bills that
give the federal government more time to catch fraudsters.
President Biden, last August signed legislation to increase the statute of limitations from
five to ten years on crimes involving the two major programs managed by the Small Business
Administration.
Congress has not yet passed a measure that would give prosecutors additional time to
go after unemployment fraudsters in the United States which worries Turner, the Labor Department
watchdog.
Without the extension, he told Congress last month, people who stole these benefits may
escape justice.
Governments have been making efforts and have recouped some of the stolen funds but three
years since the programs were first rolled out officials in many countries around the
world are still trying to figure out who was responsible for stealing so much money.
It is quite sad to see the widespread nature of pandemic relief fraud – especially at
a time when everyone was supposed to be pulling together and fighting a common enemy.
It is interesting to see in the University of Texas paper that fraud appeared to grow
over time as the programs were rolled out, possibly as people saw others cheating and
getting away with it.
If you enjoyed this video, you should watch my top five corporate frauds of the century
video next.
Don’t forget to check out our sponsor Blinkist using the link in the video description below.
Have a great day and see you in the next video.
Bye.